the silver guide to non-monetary transactions

4. Impact of applying the Goods and Services Tax (GST), Harmonized Sales Tax (HST), Provincial Sales Tax (PST) where applicable

With a few exceptions, under the Excise Tax Act the barter exchange of services may be subject to GST and HST or other sales taxes in other provinces. The value of the compensation by organizations registered to charge sales tax should be the fair market value of the non-monetary transactions, which are often the subject of verbal agreements. It is recommended that you obtain a written version of each agreement in order to determine the appropriate treatment for sales tax purposes. In this case, taxes are collectable by organizations registered to charge sales tax and each party involved in the exchange of goods or services must remit them. Therefore, it is important that organizations that exchange goods and services assess carefully the potential impact of GST and PST on these transactions. Taxation authorities expect the taxable value for such exchanges to correspond to the fair market value of the goods and services exchanged, whether or not a contract value is specified in the contract agreement between the donor and recipient parties.

The impact will vary according to an organization’s status. For example, a non-profit organization registered for GST/HST will have to charge tax on the value of the bartered service and then remit the tax amounts collected. They would be able to offset some or all of this tax to be remitted by claiming input tax credits (ITCs, or refunds of GST paid; or in Quebec: RTIs, or refunds of QST paid) and/or the Public Service Bodies Rebate (GST/HST Refund) for the sales tax that qualifying non-profit organization have paid on purchases, including those that were also through barter exchange.

A non-profit organization not registered for GST/HST will not charge sales tax on revenue, whether from a cash sale or an exchange. They may still be able to claim back a portion of the sales tax that they pay on purchases (whether in cash or exchange) through the Public Service Bodies Rebate, but any amount they cannot claim back will have to be recorded as part of the purchase expense.