Trade and Barter: Understanding When Trades Are Taxed

Posted on: 29 October 2015

Trading and bartering may seem like a great way to simplify life or even avoid taxation, but unfortunately, in many cases, you may have to pay taxes on trade and barter arrangements. Wondering when these rules apply to you? Check out these guidelines:

1. The Australian Taxation Office does not tax personal trade and barter situations.

In most cases, if you use trade or barter for your personal, non-business use, the ATO does not tax that activity. For example, if you own a video game console and you trade it to your friend for a TV or a box of books, you are simply trading your personal possessions, and you don't need to notify the ATO about the transaction.

2. The ATO taxes trade and barter arrangements for business use.

However, if you are engaging in trading or bartering for business related purposes, you do have to report those transactions when you lodge your tax return. For example, if you work as a tattoo artist and you accept a video game console (from a friend, an old client or even a new customer) as payment, you have to report that payment as income on your taxes. The other individual, however, as he or she is not engaging in business, doesn't have to report the transaction.

When you report the income, you must use the fair trade or "arm's length" value of the item you accepted in payment. For example, if the console was worth $100, you would declare $100 as income, and you would be responsible for income tax as well as GST if applicable.

3. Capital gains are the exception to the personal use rule.

It's important to note that the ATO has one notable exception to the rule about not taxing personal trade and barter arrangements, and that applies to capital gains. If you received an item in trade and later traded it for another more valuable item, you may have capital gains. Although this can happen with any type of asset accepted as trade, it most readily applies to bitcoins or other e-currencies.

To calculate your capital gains, take the value of the bitcoins the day you acquired them and subtract that from the value for which you sold them. The difference is your capital gains.

Before you accept e-currencies or any other trade-based payments for work, contact an accountant. These professionals can ensure that you fully understand the tax implications of what you are doing, and they can help you fill out your taxes accordingly.