Barter Transactions- Income tax

Recently, a client (let’s call him James) came to me with the following question

Tony,

….. During 20XX, I had a few dealings where I exchanged dental services for some work around my house (plumbing services/cabinetry work).  No cash changed hands and therefore our bookkeeper has not recorded anything on our books. Does anything need to be recorded for tax purposes?

Based on further discussion with ‘James’, the following was identified relating to these service exchanges:

1)      The first transaction for plumbing services, James received a quote for plumbing services at his home and was quoted $875.  James and the plumber agreed to exchange dental services for the plumbing work. James indicated that the dental work would have been billed for $650. (James and the plumber are not related and are dealing at arm’s length)

2)      The second dealing was a very similar to the first transaction above, except the amount of cabinetry service of $1,200 was equal to the value of the dental services James provided. They were also dealing at arms-length.

Other notes- James is a sole practitioner

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Hi ‘James’,

Since you are dealing with ‘arm’s length individuals’ in the first two situations, the value of the dental services you provided will need to be recorded in your dental business income for the year based on the value of the services you provided. As a result, you will need to record an additional $1,850 ($650+$1,200) in your income for 20XX.

For more information on Barter transactions and the tax implication, please review archived CRA IT bulletin IT-490 as well as section 3, 9 and 69 of the Canadian Income Tax Act.

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