The Barter System
trading goods and services instead of using money
The word "barter" often conjures up visions of haggling over prices in a Bali street market; and the same practice isn't foreign to those of us trying to get a better deal from a seller who might be prepared to accept a lower figure. This isn't a problem if the transaction is all above board. As long as payment for the goods or services is recorded in a form that is acceptable to the tax department there will be no likelihood of repercussions. Of course, there are situations when the usual rules don't seem to apply, especially if the amount changing hands is small. Who would really care about giving $20 cash-in-hand to a mechanic for replacing a globe in the car? Not the driver who has to pay for it anyway; and certainly not the mechanic, because if he put it through the books it would be worth considerably less after tax. So, everyone wins; all, that is, except for the revenue people who get very upset when they miss out.
Despite being essentially honest, most of us take this road from time to time, considering it to be a fair trade that harms no-one; actually, it affects us all in the long run. Those seemingly inconsequential "cashies" deprive the taxman of his cut and the total cost runs into millions. When he comes up short in one area, he has no option but to load another to compensate. This might be in the form of increased sales tax, income tax rates, or perhaps a levy. An even worse-case scenario is the reduction of government services such as health and education. This does seem unfair when people are already struggling, but in many instances we've brought it on ourselves.
There are times, however, when cash payment doesn't come into it. A commercial fisherman might give a chef a couple of lobsters in exchange for a free meal at the restaurant. A carpenter could make a new cupboard for an accountant who reciprocates by preparing the tradesman's annual return at no charge. The taxman, however, keeps a weather eye on this type of practice. Australian tax laws seem to be relatively strict, classifying any and all barter arrangements as subject to tax. Participants of barter trading are obliged to declare the monetary value of whatever they have provided, even when no cash changes hands as part of the deal. So, in a situation where a person who makes a living as a tailor repairs a farmer's torn suit-jacket in exchange for a sack of potatoes, both must declare their side of the transaction. That amount should be the equivalent of what would have been charged under normal trading terms.
Apparently, this doesn't apply if the reciprocal exchange is not allied to specific trades or professions. The tailor might help with digging a drainage trench, in return for which the farmer gives a hand re-painting the tailor's cutting room. It may seem that each benefits in a way that is business-related; but, under normal circumstances, neither would have derived an income from the labours they performed for the other. Perhaps the Australian Tax Office has already considered this possibility and has taken steps to plug the loop-hole. One would hope such petty nitpicking is unthinkable, even by the money-hungry taxman; hoping, however, doesn't make it so.
Bear in mind that the above may only apply to Australia. Revenue departments elsewhere take a more relaxed approach, initially anyway. Research indicates that the tax collectors of countries such as USA, New Zealand, Canada and South Africa aren't too bothered about friends doing each other the odd favour, even when the goods or services exchanged would usually contribute to their income; but when it becomes a regular thing it's a different matter. Instances repeated frequently will be regarded as tax-avoidance if the values of the transactions aren't declared. The IRS and CDA take a dim view of those failing to declare the monetary value of frequent barter transactions that would normally provide part of their income. Attempting to reduce the tax owed by undervaluing or charging a nominal fee simply won't wash either, and both are likely to be dismissed as unacceptable. Another way might be to deduct a portion of the value as a discount, but this amount will only pass muster if such a concession was usually made available to other clients under the terms of normal trading as opposed to bartering.
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