From time to time, it is my unwelcome role to be the bearer of bad news. I have had to do this in the past, with things like reminding business people that golf green fees and memberships are not tax deductible, even when incurred to entertain customers.
Today, my wet blanket extends to barter transactions. Bartering is arranging one of those wonderful agreements between people or organizations, to provide the service of one for those of another, rather than conducting the transaction with cash.
For example, let’s say that a lawn care company approaches me to look after my yard. I like the idea, but I’m cheap, so I offer to provide the company owner with financial planning services instead of a payment in cash.
It turns out he’s in the market for advice, and we strike a deal. My lawn gets cut and fertilized all summer, and I provide an agreed number of hours of advice to the company owner.
Most people would say this is a good arrangement, primarily because it avoids either one of us having to earn the cash, pay income tax and then pay for the service with what we have left.
Those people would be wrong.
If I am providing a service that I normally offer for income in exchange for a service that has value, then I still have to claim that value as business income.
In this example, both the lawn care company owner and I would have to claim the value of the reciprocal services on our income tax returns.
Now, since we are in business, we might be able to claim an offsetting deduction for some services. Since I’m registered as a Portfolio Manager, fees paid to me for investment advice related to non-registered investments are generally deductible.
By the same token, if I were arranging for lawn care at my office, that would likely be a deductible expense. However, lawn care for my house is clearly a personal item, and not deductible.
All of this is a bit of a shame, as we know that transactions without income tax are obviously more attractive for us as individuals. However, when the income tax system does not get its fair share, then the government can’t provide the services we demand in return.
When barter transactions like this are conducted between businesses, the two parties may also be responsible for GST, PST or HST, depending on the province and whether or not the service is normally taxable under these regimes.
I understand there are barter organizations, where one party can provide goods or services in return for a credit that they can then subsequently use for other goods or services. These organizations are under the scrutiny of the Canada Revenue Agency.
Thanks and credit to Cadesky and Associates for their recent reminder posting about barter transactions, which prompted this column.
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Speaking of CRA, I have a serious bone to pick with those folks. I filed my tax return early (second week of March) because I was claiming a large refund. Since I had to file on paper, rather than electronically, I was patient, knowing this would take longer.
After eight weeks of silence, though, I started to ask, and was told in early May that my return has been set aside for extra attention on April 28. However, on May 29, having heard nothing more, another call to the CRA Enquiry department first resulted in a suggestion that my return would be processed June 5. This was changed to saying it would be undergoing four weeks of review and processing starting June 5.
However, a check with a supervisor rendered the shocking news that the processing department had actually requested FOUR MONTHS starting June 5 to process my return. Huh?
I sure would love to get a comment from CRA on this one, and will pass on what I hear. In the meantime, make the best possible use of any refund you received.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.