• How do you apply GST to barter arrangements?

COVID-19 has already had a massive impact on Australia, even though we are still in the early phases of the pandemic. Businesses are trying to adapt to the changing environment in order to continue operating so that they can try to survive the difficult days ahead as the whole world attempts to win the battle against COVID-19.

Given the extremely challenging circumstances, cash flow is going to be a critical issue for businesses for the foreseeable future.

To minimise cash flow issues, businesses may wish to consider entering into barter arrangements.

Such arrangements have GST implications.

What is a barter arrangement?

A barter arrangement is an arrangement where part or all of the payment for a supply (which we refer to as ‘consideration’) is not expressed as an amount of money (that is, part or all of the payment is non-monetary consideration).

Barter arrangements are sometimes also referred to as part-exchange and ‘in kind’ arrangements.

What types of supplies can be covered by a barter arrangement?

Supplies of services and / or goods can be covered by a barter arrangement.

Is the supply made for consideration?

Where parties make supplies to each other under a barter arrangement, depending on the actual transaction, the supply made by each party may be for:

  • monetary consideration;
  • non-monetary consideration, being the supply by the other party;
  • both monetary and non-monetary consideration; or
  • no consideration.

Accounting for GST on barter arrangements

For most businesses, entering into a barter arrangement will mean that they need to account for at least two transactions for GST purposes, being:

  • the supply of the services and/or goods at full market value (including GST); and
  • the purchase of services and/or goods at full market value (including GST) from the other party.

It is important to emphasise that where there are mutual supplies for consideration, the price for one supply cannot be reduced by the price of another. That is, businesses are not able to net off transactions. Each of the transactions must be separately accounted for.

Attribution of GST where consideration is non-monetary

For businesses that account for GST on a non-cash basis (i.e. on an accruals basis), the GST payable (in respect of each supply made) or the GST credit to which the business is entitled (in respect of each purchase) is attributable to the tax period in which:

  • the business receives or provides any of the consideration (does not need to be all of the consideration); or
  • an invoice is issued (any invoice, does not need to be a valid tax invoice),

whichever is the earlier.

The tax period to which supply or purchase of services and / or goods made is required to be attributed may be different, thus potentially still creating a requirement to pay the GST to the ATO on the supply made and a delay in being able to claim back any GST credit entitled to in respect of a purchase made.

It is therefore important to understand the GST implications of any barter arrangement that is entered into before entering into such an arrangement.