Tax and bartering

realitykeeper

I read recently that bartering goods and services is a taxable activity even though no cash is exchanged.

My question is this, supposing you decided to go completely cash free and restrict all your business/trade activities to bartering goods and services without any recourse to cash whatsoever, then where is the cash supposed to come from to pay your taxes?

Tow

With a percentage of your produce.

GM228

realitykeeper wrote: »

I read recently that bartering goods and services is a taxable activity even though no cash is exchanged. For example, if you mind someone`s children in return for free food from their grocery store then the you are to pay tax on the salary you would get if you were paid cash and the grocers are to pay tax on the food as if they had sold it for cash. Depending on what is bartered, there may be a chance of writing off some of the liability if the service or product is tax deductible.

My question is this, supposing you decided to go completely cash free and restrict all your business/trade activities to bartering goods and services without any recourse to cash whatsoever, then where is the cash supposed to come from to pay your taxes?

Yes barter is taxable.

Where will the money come from to pay your business insurance, staff costs, phone bills, ESB, rates etc?

Unless all your bills were settled in barter too a cashless business simply would not work, last time I checked Revenue, councils etc and most employees and creditors don't accept barter as a means of payment. Simply put a business without some sort of income will not survive.

realitykeeper

Tow wrote: »

With a percentage of your produce.

By my reckoning, it is not possible to go completely tax free for this reason (at least not at this point in history). You would have to sell for cash to raise money for tax.

If you waited for the Sheriff to come and take anything of value you own for auction, it would be flogged at a low price so you would still need to raise cash to pay your taxes.

realitykeeper

GM228 wrote: »

Yes barter is taxable.

Where will the money come from to pay your business insurance, staff costs, phone bills, ESB, rates etc?

Unless all your bills were settled in barter too a cashless business simply would not work, last time I checked Revenue, councils etc and most employees and creditors don't accept barter as a means of payment. Simply put a business without some sort of income will not survive.

All true but this could change. If the economy were to completely collapse for example, a lot of things that are commonly purchased could potentially be done without, including electricity and phone. The Amish seem to prosper even without such things so it is theoretically possible.

A severe depression could make society truly cashless (and not just in the electronic sense) because it might result in large numbers of people bartering goods and services instead of trading with cash.

But, you are correct. Barter is taxable.

seamus

In the event that we're reverted to a pre-cash bartering society, wondering about the finer points of how Revenue would apply tax law is somewhat moot.

realitykeeper

realitykeeper wrote: »

I read recently that bartering goods and services is a taxable activity even though no cash is exchanged.

My question is this, supposing you decided to go completely cash free and restrict all your business/trade activities to bartering goods and services without any recourse to cash whatsoever, then where is the cash supposed to come from to pay your taxes?

That is your problem, not the state's.

Eventually Revenue would seize your assets and sell the to generate cash.

realitykeeper

Deleted User wrote: »

That is your problem, not the state's.

Eventually Revenue would seize your assets and sell the to generate cash.

And rightly so. There is no excuse for not paying tax even if it is very difficult to raise the cash. This is why it is so important to insist that tax revenue is not wasted or lost to corruption or incompetence.

ohnonotgmail

realitykeeper wrote: »

All true but this could change. If the economy were to completely collapse for example, a lot of things that are commonly purchased could potentially be done without, including electricity and phone. The Amish seem to prosper even without such things so it is theoretically possible.

A severe depression could make society truly cashless (and not just in the electronic sense) because it might result in large numbers of people bartering goods and services instead of trading with cash.

But, you are correct. Barter is taxable.

the amish use electricity and phones. they also use cash and credit cards.

GM228

ohnonotgmail wrote: »

the amish use electricity and phones. they also use cash and credit cards.

Indeed Amish youths traditionally open their first bank account on their 21st birthday. They also pay taxes and take jobs and make and control money (very successfully) contrary to popular belief.

realitykeeper

ohnonotgmail wrote: »

the amish use electricity and phones. they also use cash and credit cards.

Some do, some don`t. I was referring to the ones that don`t.

realitykeeper

GM228 wrote: »

Indeed Amish youths traditionally open their first bank account on their 21st birthday. They also pay taxes and take jobs and make and control money (very successfully) contrary to popular belief.

10,000 years ago people got by without credit cards, electricity, etc so the point still holds.

Peregrinus

realitykeeper wrote: »

Some do, some don`t. I was referring to the ones that don`t.

All branches of the Amish movement use money.

Peregrinus

realitykeeper wrote: »

10,000 years ago people got by without credit cards, electricity, etc so the point still holds.

They didn't get by very well, though!

realitykeeper

Peregrinus wrote: »

All branches of the Amish movement use money.

I specifically referred to "electricity and phone" not money.

relax carry on

Not sure what your point is with this. You are aware that taxation exists for reason. Unless you remove money and wealth accumulation from the entire world to end up with some star trek like utopia where humanity all work towards the betterment of mankind, taxation will be required. Your barter system would require this sort of society to work.

realitykeeper

relax carry on wrote: »

Not sure what your point is with this. You are aware that taxation exists for reason. Unless you remove money and wealth accumulation from the entire world to end up with some star trek like utopia where humanity all work towards the betterment of mankind, taxation will be required. Your barter system would require this sort of society to work.

Am am not advocating bartering or saying it is a better system. Money is great when the money system is not abused. Bartering tends to take over in economies like Venezuela and Zimbabwe where poor performance government has made it necessary. How likely is that to happen here? It is a certainty. Here are some of the reasons:

When irresponsible banks are bailed out by irresponsible governments, that is not good for the economy. When bankers are not jailed, they repeat their offences so if AIB shares are sold by the government, expect the government to repurchase them shortly after as the next crisis is almost upon us.

Also, money printing at ECB level is an abuse of Europe`s perceived reputation as an economically strong region.

my3cents

OP I know this link is for the UK (interesting if the same applies here) but you'll see in section 5 that Letslink UK have a system of bartering that is exempt from tax - under certain circumstances....

5. Individuals' LETS transactions and Tax
Trades which are not part of a member's normal business will not affect their taxable income, eg a Computer Programmer doing a massage for a friend, or a Masseur writing a computer programme. LETS transactions which are part of a member's normal business may be of interest to the Inland Revenue. However, if the income and expenditure balance out (which is, after all, what the LETS model is all about), there is no net profit to report, unless the income comes from the business and the outgoings are "personal drawings", ie if the computer programmer earns local currency from writing software but spends it having a massage. Having said that, most members will not be earning anything above their tax allowance, so it is unlikely that their income in local currency will impact on their tax situation.

https://www.letslinkuk.net/members/legal.htm - sorry site seems to have a problem with the ssl cert.

El Tarangu

realitykeeper wrote: »

Bartering tends to take over in economies like Venezuela and Zimbabwe where poor performance government has made it necessary. How likely is that to happen here?

Very, very unlikely.

El Tarangu

Op - think about it this way: if all bartering was tax-exempt, no-businesses would hire any employees. Rather than hiring someone to do a job for a €50k salary, they would instead 'barter' their labour for €40k in gold or bitcoin.

The taxman will always get his cut.

Victor

Note that there are transactions that Revenue are / aren't interested in. For most things (save the likes of large cash or property transactions) they aren't interested in domestic or similar co-expenses arrangements. Likewise, if you cut your neighbour's hedge and they cut your grass, they aren't overly interested.

If you cut the neighbour's grass for sillage on their 100 hectare farm, they are interested.

realitykeeper

El Tarangu wrote: »

Op - think about it this way: if all bartering was tax-exempt, no-businesses would hire any employees. Rather than hiring someone to do a job for a €50k salary, they would instead 'barter' their labour for €40k in gold or bitcoin.

The taxman will always get his cut.

I am not necessarily taking a position on this. Money as a medium of exchange is excellent (when not abused). Bartering has inherent limits, for example if you have a truck and I have a bicycle then we cannot trade. Money overcomes that difficulty.

Peregrinus

realitykeeper wrote: »

I am not necessarily taking a position on this. Money as a medium of exchange is excellent (when not abused). Bartering has inherent limits, for example if you have a truck and I have a bicycle then we cannot trade. Money overcomes that difficulty.

Which is why bartering doesn't take over, to any great extent, even in basket cases like Zimbabwe or Venezuela. If the national currency ceases to function, or simply ceases being issued, people will find some other medium of exchange which, because of the the convenience of money, will nearly always be the currency of another country - either a major international currency like the US dollar, or the currency of a neighbouring country.

Getting back to tax, there's no doubt that, in the absence of a special tax exemption, transaction of barter attract tax liablity in the same was as transactions in cash. In practice there can be difficulty in assessing the tax liability, but that's a problem that Revenue can cope with as long as the volume of such transactions remains very small.

realitykeeper

Peregrinus wrote: »

Which is why bartering doesn't take over, to any great extent, even in basket cases like Zimbabwe or Venezuela. If the national currency ceases to function, or simply ceases being issued, people will find some other medium of exchange ...

E.g. bartering:rolleyes:

Peregrinus

realitykeeper wrote: »

E.g. bartering:rolleyes:

No. Pretty much the definition of bartering is that you don't use a medium of exchange; you just exchange the goods/services that you produce or that you have a surplus of for the goods/services that you wish to consume or that you have a deficiency of. As already noted, it's a fairly inefficient mechanism for any market to operate; it really only functions in subsistence-level economies and, even then, "money" keeps breaking out in some form or other.

GM228

Peregrinus wrote: »

Getting back to tax, there's no doubt that, in the absence of a special tax exemption, transaction of barter attract tax liablity in the same was as transactions in cash. In practice there can be difficulty in assessing the tax liability, but that's a problem that Revenue can cope with as long as the volume of such transactions remains very small.

Indeed, and Revenue detail how they assess the liability in their Value-Added Tax Consolidation Act 2010 guidance document:-

http://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/vat/fa-2010.pdf

In barter transactions, or in transactions in which the consideration is not stated wholly in terms of money for supplies of goods, services l or ICAs, tax is payable by reference to what might reasonably be expected to be the open-market (arm’s length) price of the goods or services supplied.