Barter and trade exchanges
Business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions. In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or money value.
There are sophisticated forms of bartering in the market place, both locally and internationally. These arrangements are typically controlled by member-only organisations, with credit units the medium of exchange. The terms 'exchange', 'barter exchange', 'trade exchange' and 'countertrade exchange' are used to describe the organisation that manages the bartering operation.
Various terms are used to refer to the medium of exchange, such as units, credits, trade dollars or barter dollars. The most commonly used term is trade dollar. Trade exchange operations vary in size and sophistication, from community-based to business-based operations. A trade exchange provides its members with a trading account for the purpose of recording member transactions. The trade exchange credits or debits the account each time a member makes a sale or purchase respectively.
The account is also debited for fees the trade exchange charges its members. The trade exchange may buy and sell in its own right, acting as a member with its own trading account.
Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. When an entity that is a member of a trade exchange makes a taxable sale to another member, there is a liability for tax, including GST.
Payment may be in money or in kind, or in some instances a combination of these. The payment for sales between members of a trade exchange is the debiting of the recipient's account and the payment received is the crediting of the supplier's account.
Value of supplies made through a trade exchange need to be taken into account when determining whether an entity meets the GST registration threshold and is required to register for GST. As a general rule, when valuing the payment arising from barter or countertrade transactions, we will accept a fair market value as adequately reflecting the money value or arm's length value, as applicable. In most cases, we will accept as a fair market value the cash price that the taxpayer would normally have charged a stranger for the services or for the sale of the goods or property.
The rules of most business-oriented countertrade organisations specify a rate for converting credit units into an Australian dollar equivalent. Customarily the rules specify that each credit unit has a value equivalent to one Australian dollar. When a barter exchange member buys, the account is debited for the fair market value of the purchase. The Internet provides a new medium for the barter exchange industry.
Pure Internet-based barter companies differ from traditional, organized trade exchanges in that they do not have a physical office. In modern Internet barter exchanges, there is an agreement or process in place to value goods and services exchanged, which is facilitated by the barter exchange for a fee.
A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Barter exchanges have their own unit of exchange, usually known as barter or trade dollars. Trade dollars or barter dollars are valued in U. Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other members.
Barter exchanges act as the bookkeeper for keeping track of trade dollars that participants accumulate. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash. For you and your family. Individuals abroad and more. EINs and other information. Get Your Tax Record.
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