2 October 2000 General Information Letter 32762 - GENERAL INFORMATION LETTER Barter Units

Dear XXXXX

Thank you for your e-mail message of September 6, 2000, addressed to Mr. Jacques Allard, Specialty Tax Unit, concerning the application of the Goods and Services Tax (GST) to barter units.

You have asked the following questions with respect to barter units:

•   was there any litigation?

XXXXX

•   was there any discussion on the matter either within Revenue Canada or outside it?

Our comments follow.

On April 1, 1997, the provincial sales tax in three participating provinces, Newfoundland, Nova Scotia and New Brunswick, was harmonized with the GST to create the Harmonized Sales Tax (HST). HST applies to the same base of goods and services as the GST, at a rate of 15%. Of this, 7% represents the federal component and 8% represents the provincial component of HST.

For the purposes of this letter, the HST is not relevant and will be ignored.

Generally, a barter transaction involves an exchange of property (or services) between two persons. For GST purposes, this exchange consists of two supplies, one made by each of the persons. Under the relevant legislation, the Excise Tax Act ("the Act"), the GST is generally payable by the recipient of a taxable supply made in Canada at the rate of 7% of the value of the consideration for the supply.

Where a barter transaction occurs, the value of the consideration for the supply made by one person is normally the fair market value of the property and/or services received from the other person. As we previously indicated in Mr. Allard's letter of August 29, 2000, an amendment to the Act has been proposed which, if enacted, would provide an exception to the general rules with respect to certain exchanges involving barter units.

The practice of bartering has evolved into an industry that consists of member-only barter clubs or "networks". In order to facilitate trading among their members, most networks use "barter units" as a medium of exchange. As previously stated, barter units, however, do not fall within the wording of the definition of "money" in the Act. Therefore, for GST purposes, our position is that the provision of a barter unit is a supply of an intangible personal property which may be taxable, depending on the circumstances, in the same manner as any other supply of intangible personal property.

We are not aware of any litigation regarding this issue. XXXXX a review of the tax treatment of barter units was undertaken by Revenue Canada, now the CCRA. XXXXX. XXXXX the issue was referred to the Department of Finance (which is responsible for the development of tax policy and for proposing changes to the Act). XXXXX Subsequently, the proposed legislation containing the special barter exchange network rules was announced.

As outlined in our previous letter, proposed section 181.3 of the Act provides for the designation of barter exchange networks and special GST treatment of transactions involving the provision of barter units by a member of a designated network. The effect of this provision is that members of designated barter exchange networks are relieved from having to pay tax on barter units accepted in exchange for their supplies of property or services. However, the members, if registrants, continue to have to charge tax on their taxable supplies of the property or services provided for the barter units, calculated on the exchange value of the barter units accepted as consideration.

Should you have further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-1512 or by facsimile at (613) 990-3602. XXXXX XXXXX[.]

Yours truly,

Mark Seigel
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate