The ATO has today issued a Practical Compliance Guideline (PCG 2016/18), on the GST treatment of barter transactions which should eliminate pesky compliance issues for many taxpayers.
Essentially, if the barter is a ‘GST neutral countertrade transaction’ for a taxpayer the Commissioner will not require tax invoices or devote GST resources to audit the taxpayer.
What this means is that two GST- registered entities that are making wholly taxable supplies to each other (and no other monetary consideration is passing hands), do not need to agree on the value of the transaction or swap tax invoices where the transaction is GST neutral. Instead, when reporting the barter in their BAS, an entity can report the sale and a corresponding acquisition at the amount that they consider the goods or services they have provided to be worth. This will eliminate the often frustrating process of having to agree values for GST purposes only and ensure both parties are ready to swap tax invoices at the same time to eliminate attribution mismatches.
To use the example from the PCG, the Guideline will apply where a hotel company agrees to provide accommodation in return for a media production company’s advertising services. The parties may not agree on a value but only need to confirm that each of their supplies were taxable. That is, the hotel company determines the value of the accommodation it provides (say $1,100) and the media production company independently determines the value of its advertising (say $1,210). As a result of PCG 2016/18, no tax invoices need to be exchanged between the parties and both parties can report a GST liability in their BAS based on the amount they believe their supplies were worth and claim the corresponding input tax credit of the same amount (i.e. the hotel company reports $100 GST and $100 credit, the media production company $110 GST and $110 credit).
The Commissioner has limited the application of the PCG to circumstances where countertrade transactions make up less than 10% of the taxpayer’s total supplies (based on number and not on value) and only to transactions where the parties are acting at arm’s length and provide no monetary consideration.
We expect GST clauses in barter-only contracts can now be reduced to a statement acknowledging that the parties will apply PCG 2016/18 so no tax invoices need to be swapped.