BASIC BOOKKEEPING FOR TRADEBANK TRANSACTIONS
How do I setup my Trade Account for my Electronic Bookkeeping? (eg Sage50, Quickbooks, ACCPAC)
If your accounting records are maintained electronically your Tradebank Account should be set up as a bank account in the program. This can then be linked to your accounts payable and accounts receivable ledgers for sales and purchases.
The Tradebank account should be treated as any other bank account in the set of books, the only difference is the dollars in this account are TRADEdollars rather than cash dollars. The entries in the transaction would be identical to a cash transaction except that the Tradebank account is being used instead of the regular bank account.
Depending on the number of Tradebank transactions, you may wish to use a separate column (department / project code) in your sales journal and/or your purchases/payments journal for the Tradebank account.
Should I reconcile my Monthly Statements?
On a monthly basis you should reconcile your Tradebank statement in the same way you would reconcile your credit card or bank account.
The sales should be treated as deposits and purchases should be treated as cheques. Any trade slips that are not yet processed on the statement would be outstanding items on the reconciliation. We would recommend matching the related transaction slips to the monthly statement and attaching them to it.
Do I have to keep all of my invoices?
Please ensure you have copies of all invoices. You must keep your records of all transactions for 7 years. The monthly statements do not contain sufficient information to stand alone for CRA purposes. This is consistent with the CRA’s opinion with regards to credit card and bank statements.
How should I treat Tradebank fees?
All Tradebank fees should be treated as a marketing expense. We defer our commission until the point at which you have obtained value for the Tradebank TRADEdollars through use or transfer to another account. Regardless of the deductibility of the product / service that you have purchased, the Tradebank fee for having brought you the business is deductible.
BASIC TAXATION FOR TRADEBANK TRANSACTIONS
The following is a guide based on our understanding of income tax legislation. Consulting your own accountant for their recommendations on tax treatment is recommended as you may qualify for certain exemptions or additional tax based on special rules not considered below. This guide can be used as an outline for those discussions. If you do not have an accountant or accounting advisor let your broker know as most regions have at least one available who would be willing to accept TRADEdollars as the form of payment for managing your accounting.
Is Tradebank a Designated Barter Network?
Tradebank is a Designated Barter Network pursuant to subsection 181.3(3) of the Excise Tax Act. The effect of this designation is to relieve members of the Tradebank exchange network from having to pay excise tax on barter units accepted in exchange for their supplies of property or services. The members, if registrants, would continue to have to charge tax on their taxable supplies of the property or services provided for the barter units. The tax on such property or services is calculated on the exchange value of the barter units accepted as consideration.
Do I charge PST and GST/HST on Products or Services Sold & Liquor/Alcohol Tax on barter sales?
All taxes that you would have charged on your goods and services had the customer paid cash are still applicable if they are paying via TRADEdollars. All taxes should be charged in TRADEdollars to the customer and remitted to the government in cash. This will offset when you utilize your TRADEdollars and pay the vendor the taxes in trade instead of cash. If you are unsure whether GST/HST or PST should be collected on goods or services that you are selling please contact your accountant. (CRA IT-490, S.3,9,69)
The GST/HST collected on sales, although it is received in TRADEdollars, is payable to Revenue Canada in cash dollars. Conversely, the refundable GST/HST paid withTRADEdollars on business purchases is claimed as an ITC on your GST/HST return in cash dollars.
The PST collected on sales, although it is received in TRADEdollars, is payable to Revenue Canada in cash dollars. Conversely, on purchases where you would have paid the PST in cash you are now paying in TRADEdollars.
Liquor and alcohol sales are permissable on barter so long as the liquor/alcohol tax is remitted to the appropriate provincial authority. This applies to both manufacturers of alcohol (e.g. wineries, breweries) and licensed resellers of alcohol (e.g. banquet halls, restaurants).
Do I have to recognize barter sales as income for income tax purposes?
Generally, you will have to recognize any sales made in TRADEdollars into your income. However, if you are providing a service that is not part of your business it will be treated differently. (eg. A dentist selling personal property such as a sofa or TV) Please contact an accountant who will be able to guide you in which sales are taxable and which are not. Tradebank cannot provide a general answer, as there are numerous complexities in each specific sales transaction.
Can I make Charitable Donations of TRADEdollars?
Absolutely and we would encourage all clients who are benefitting from the additional profitability that comes from bartering to be generous supporters of organizations that are benefitting their local community.
The donation of T$1 is treated as equivalent to $1 for tax purposes – in the same fashion that earning T$1 revenue is equivalent to earning $1 revenue. Tradebank has established its own foundation which can receipt you for your TRADEdollar donation and ensure that the funds end up with a charity that will actively use them to make the world a better place.
If a TRADEdollar donation is made personally, the amount is treated as a non-refundable tax credit, not a reduction in taxable income. The first $200 is credited at the lowest marginal tax rate, any donations beyond $200 are taxed at the highest marginal tax rate. The total donations are only eligible up to 75% of the individual’s net income.
Charitable Donations of TRADEdollars up to 75% of net income for tax purposes to registered charities are deductible in computing taxable income on page 3 of the T2 return. Please be sure to request a tax receipt at the time of donation and maintain in your records. The Tradebank statement showing the donation is not sufficient evidence for the Canada Revenue Agency (CRA).
Personal Purchases made with TRADEdollars Earned by a Corporation
If you make a personal purchase out of the corporations trade account, you could recognize that purchase as income on your personal tax return and an employee benefit expense in your corporate tax return, or use one of the other alternatives for recording the transaction, such as taking dividends or a loan in trade – please contact an accountant for more details.
If you operate as a sole-proprietorship or partnership, the personal purchase should not be deducted in calculating your business income. However, the fees generated on these purchases should still be recorded as a tax deductible expense.
Records and Documentation Retention
All expenses that you are claiming as business expenses need to be supported by receipts / invoices. Much like a credit card or bank statement, the Tradebank statement does not act in place of these other documents. You must keep the supporting documents for 7 years based on current tax legislation.
You are also required by the CRA to maintain your sales records for the same period of time.