2 July 2014 Ministerial Correspondence 2014-0537231M4 - Local Exchange Trading System

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: Taxation of a local exchange trading system (i.e. bartering)

Position: Barter transaction rules apply.

Reasons: See below.

July 2, 2014

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your correspondence of May 7, 2014, regarding a local exchange trading system within the business community in XXXXXXXXXX.

A local exchange trading system appears to be a type of bartering network. The Canada Revenue Agency's ("CRA") general views on the income tax implications of a barter transaction are outlined in Interpretation Bulletin IT-490, "Barter Transactions".

The principle of a barter transaction is described in paragraph 3 of IT-490 as one where

"two persons agree to a reciprocal exchange of goods or services and carry out that exchange usually without using money. In a barter transaction between two persons who are dealing with each other at arm's length, it is a fundamental principle that each of those persons considers that the value of whatever is received is at least equal to the value of whatever is given up in exchange therefor."

There are no specific provisions in the Income Tax Act ("Act") which deal with barter transactions. The CRA takes the view that barter transactions fall under sections 3 and 9 of the Act and can result in business income or in the acquisition or disposition of capital property, eligible capital property, personal-use property or inventory. How barter transactions are taxed depends on the circumstances of the persons who are bartering and the nature of what is bartered, on the same basis as if cash were the consideration.

In the case of services bartered by a taxpayer for either goods or services, paragraph 5 of IT-490 states that "the value of those services must be brought into the taxpayer's income where they are of the kind generally provided by him in the course of earning income from, or are related to, a business or a profession carried on by him. Examples are a dentist or the owner of a plumbing business who agrees to fix someone's teeth or drains (respectively) in return for services or property provided by the other party."

The amount that must be brought into income for a barter transaction is explained in paragraph 7 of IT-490, which states that "in arm's length transactions, where an amount must be bought into income or treated as proceeds of disposition of capital property, that amount is the price which the taxpayer would normally have charged a stranger for his services or would normally have sold his goods or property to a stranger."

Paragraph 5 of IT-490 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 would only be made on a case-by-case basis, and the CRA would look at all the facts and circumstances surrounding the particular situation.

I trust the information I have provided is helpful.

Yours sincerely,

Kerry-Lynne D. Findlay, P.C., Q.C., M.P.

Katie Robinson
(613) 948-2233
2014-053723