Bookkeeping – Barter Transaction Accounting – Bartercard & Trade Organisation Accounting

Are you a member of a barter organization such as Bartercard in Australia?

If so, you need to ensure that you account for barter transactions for sales and purchases as you would for regular cash transactions, and that GST and tax still apply.

How Barter Works

Bartering involves exchanging goods or services directly without using money. There are more complex forms of bartering controlled by member-only organizations, using credit units as the medium of exchange. These organizations are referred to as ‘exchange’, ‘barter exchange’, ‘trade exchange’ or ‘countertrade exchange’, and use terms like units, credits, trade dollars or barter dollars.

Trade exchanges provide members with a trading account to record transactions, and they credit or debit the account for sales, purchases and fees.

Tax treatment of barter transactions

Barter transactions are treated the same as cash or credit transactions for income tax purposes, and when a taxable sale is made within a trade exchange, tax including GST is applicable. Barter transactions, where goods or services are exchanged without using cash, are treated the same as cash or credit transactions for income tax purposes.

When a member of a trade exchange sells something to another member, they are liable for tax, including GST, and the payment can be made in money, in kind, or a combination of both. The value of supplies made through a trade exchange is considered when determining if an entity needs to register for GST. For instance, if an entity has $60,000 of cash transactions and $20,000 worth of barter transactions, it meets the GST registration threshold.

When determining the value of payment in barter transactions, a fair market value is generally accepted, which is the price a taxpayer would charge a stranger for the same services or goods. Business-oriented countertrade organizations have rules for converting credit units into Australian dollar equivalents, typically valuing each credit unit as one Australian dollar. If this represents the fair market value of the goods or services provided, that rate is used for valuing the payment; otherwise, a conversion rate reflecting the fair market value is applied.

Transactions with artificially high values for the purpose of inflating income tax deductions may indicate fraudulent activity. Personal purchases made using trade dollars or Australian currency are not deductible for income tax purposes, and a GST credit cannot be claimed.

Personal purchases are not deductible for income tax purposes and a GST credit cannot be claimed, whether the purchase is made using trade dollars or Australian currency.

Payments to ATO

Payments to the Australian Tax Office (ATO) must be made in Australian currency, and only other trade exchange members or the exchange itself can accept payment in trade dollars. Tax invoices and Australian Business Numbers (ABNs) are required for barter transactions, and record keeping for trade exchange transactions is mandatory for five years after the completion of the relevant transactions.

Example: GST payable on a taxable supply between members of a trade exchange

Harvey and Tracey are registered for GST and are both members of the Better Bartering Exchange. Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey’s trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey.

Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440. The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent ($440). The value of the taxable supply that Harvey makes is $440 × (10÷11), which is $400. The GST on the supply is, therefore, $40 (that is, 10% of $400).

Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return.

Tax Invoices and ABNs

A tax invoice is required for a barter transaction as it is for any other business transaction. However, where a member of a trade exchange makes a taxable sale and the payment is expressed in credits, the tax invoice must comply with all of the usual requirements for a tax invoice, and include either:

The GST inclusive price expressed in Australian currency;
The GST payable in Australian currency.

Australian business number (ABN) obligations apply to bartering transactions to the same extent as for any other business transaction.

Example: Tax invoice

Harvey and Carol are registered for GST. Harvey uses his Better Bartering credits (BBs) to purchase a new computer from Carol for his bookkeeping business. The rules of the exchange specify that one BB equals $1, and the market value of the computer is actually calculated in BB credits on this basis.

Carol issues Harvey with a tax invoice, showing the price of the computer in BBs and the GST payable in Australian currency converted at the rate of one BB equaling one Australian dollar.

If Carol did not quote an ABN, Harvey would be required to withhold 46.5% of the payment and remit that amount to us.

Record Keeping

Members of trade exchanges must keep records that record and explain all business transactions and other acts they engage in that are relevant to a particular sale, importation, purchase, dealing or entitlement. The records must be kept for five years after the completion of the relevant transactions or acts.

In addition to ordinary accounting documents, this may include:

Invoices and receipts;
Purchase orders, delivery dockets, contracts and barter scheme statements;
Other relevant documents, such as the application for membership of the bartering scheme, the rules of the scheme, and any other documents governing the relationships between members, and between members and the trade exchange.