The normal procedure for business transactions follows the tried-and-true method of selling a product or service and recording the income. The income earned is taxable as earned income. Rather than use the traditional approach, many individuals and businesses may decide to barter their products or services.
Did you know that good business practice would suggest that you treat all barter and internet transactions as you would normal business transactions? If you ever face a CRA audit, it will help spare your corporation, proprietorship or partnership the inconvenience of a long, laborious tax audit and potential penalties and interest – or even being convicted for tax evasion.
Bartering occurs when individuals conduct a transaction for goods or services without using a recognized medium of exchange such as money. Undoubtedly, most sellers who involve themselves in barter transactions are unaware that they are required to report the value of the transaction. And, there may be some who use bartering to circumvent corporate or individual income tax and GST/PST.
When bartering transactions occur in the normal course of business, there are effectively two transactions that must be considered:
Note that this assumes that the individual providing the product or service has already reached or surpassed the small supplier threshold of $30,000 with sufficient “conditions.” You can review these requirements on the CRA website.
There may be situations when the barter transaction may be considered the sale of a capital property. In this case, the transaction may give rise to a capital gain. Your CPA will be able to provide guidance on these transactions.
Bartering has been around since before the advent of currency, but the ability to barter has been enhanced and overshadowed with the advent of the internet, providing access to millions of opportunities to not only barter but also to sell goods or services.
For those who have used the internet to conduct what may be construed as business transactions – whether innocently or intentionally – the CRA believes that there are enough transactions not being reported that are negatively affecting its treasury.
Consider that the CRA court-ordered eBay Canada to release the following account information and sales data of Canadian residents who conducted transactions on its online selling site:
Given this court order, any Canadian-resident eBay seller who meets these sales thresholds will have the following information released to CRA: full name, user ID, mailing address, billing address, telephone number, fax number, email address, and the selling prices (high bids) of the items.
If your transactions meet the above criteria, a wise business decision would include contacting your local CPA and determining the need for voluntary disclosure to prevent penalties and interest, should the CRA carry out an audit.
The following information is required for voluntary disclosure:
The court order
issued to eBay defined the time frame for the information that the CRA was seeking to audit. Canadian
taxpayers should not conclude that they have avoided an audit because they have not received
a notice of audit.
If your eBay account meets the criteria discussed above, contact your CPA and discuss the possibility of submitting information to the CRA under the Voluntary Disclosures Program (VDP).