Bartering Revenues - what is the tax treatment?
A “barter” transaction occurs when an exchange of goods or services occurs without using money.
If you are involved in a business that provides services which are offered in a barter transaction, the value of the services provided by you must be included in your income. An example might be an owner of a plumbing business that effects repairs on a hot water tank at his dentist’s house - in return, the dentist provides a “free” filling to the plumber.
The absence of physical money creates problems, in that the value of the hot water tank repair is almost never exactly the same as the value of the filling. Therein lies the fundamental problem with any bartering transaction - how to keep track of “credits” that might arise, should be there be a deficiency in consideration from one side of the deal.
If the bartering occurs in the normal course of business, a price, in money terms, must, regardless, be determined, for it is on this basis that the accounting records of the business will be updated, and the related income tax and GST and provincial sales tax, if applicable, would be calculated. The appropriate amount to record for the bartered transaction is the price which you would normally have charged a stranger for your goods or services, in cash - that is, the “arm’s length equivalent” price.
Where the goods or services given up cannot be readily valued but the goods or services received can, the CRA will normally accept the value of the latter as being the price at which the transaction took place if the parties were dealing at arm's length.
Bartering transactions could give rise to cash flow problems, due to the absence of money consideration with which to pay these taxes.
Perhaps that is why bartering is more commonly associated with the “underground economy”, where the transactions are not reported or accounted for at all, and are, therefore, tantamount to tax evasion. Evasion carries heavy penalties when detected by the Canada Revenue Agency.
On the other hand, occasional help given to a friend or neighbour in exchange for something would not be taxable unless you made a regular habit of providing such services for cash or barter.