5 February 2004 External T.I. 2003-0053271E5 - Bartering Network

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a taxpayer who is personally a member of a bartering network, is bartering as a "regular habit" and therefore, the value of the barter transactions is taxable.

Position: Question of fact.

Reasons: The fact that a taxpayer who is not earning income from a business or property is personally a member of a bartering network does not mean, in and by itself, that the taxpayer is bartering as a regular habit and therefore, has a source of income that is taxable under the Act.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-957-8973
2003-005327
February 5, 2004

Dear XXXXXXXXXX:

Re: Interpretation Bulletin IT-490, Barter Transactions

We are writing in response to your e-mail of December 16, 2003, wherein you inquired about the position of the Canada Revenue Agency (the "CRA") on barter transactions discussed in IT-490, as it pertains to a person's membership in a bartering network.

In your letter, you indicated that you are aware that if a taxpayer who operates a business is involved in bartering, the value of the transactions must be brought into business income. Your main concern is with other taxpayers who are personally members of a bartering network. You are concerned that their membership in the bartering network means that they are bartering as a "regular habit" and therefore, the value of the barter transactions may result in income tax consequences. Paragraph 5 of IT-490 states that where a "taxpayer is an employee, e.g. a mechanic, occasional help given to a friend or neighbour in exchange for something would not be taxable unless the taxpayer made a regular habit of providing such services for cash or barter."

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.

As explained in IT-490, the CRA takes the position that barter transactions are within the purview of the Income Tax Act (the "Act"). Barter transactions can result in income or expenses as contemplated by sections 3 and 9 of the Act or can result in the acquisition or disposition of capital property, eligible capital property, personal-use property or inventory, depending upon the circumstances of the persons who are bartering and the nature of what is bartered.

As discussed in paragraph 5 of IT-490, when goods or services are bartered by a taxpayer for other goods or services, the value of the goods or services must be brought into the taxpayer's income where they are of the kind generally provided by the taxpayer in the course of earning income from, or are related to, a business or a profession carried on by the taxpayer. For example, where a dentist agrees to fix someone's teeth in return for services or property provided by the other party.

As you noted in your e-mail, paragraph 5 of the IT-490 also indicates that where a person occasionally gives help to a friend or neighbour in exchange for something, the value of the goods or service received would not be taxable unless the person made a regular habit of providing such services for cash or barter. In our view, the fact that a taxpayer is a member of a bartering network does not mean, in and by itself, that the taxpayer is bartering as a regular habit. The CRA does not have general guidelines on when a taxpayer is bartering as a regular habit. Such a determination can only be made on a case-by-case basis, with regard to all the facts and circumstances surrounding the particular situation. However, the provision of occasional help, such as when a person helps set up tables and chairs at a church event in exchange for bartering network dollars which are usable at special events during the year, would not likely give rise to a source of income that is taxable under the Act.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch