How to Handle GST on Barter and Trade-Ins in NZ
Swapping services? Trading in an old vehicle? The IRD treats barter deals just like cash. Here is how to keep your accounting straight.
In the eyes of the Inland Revenue, money doesn't have to change hands for a transaction to be subject to GST. If you exchange goods or services with another business or person, you must account for the market value of what you've exchanged.
The Barter Rule
A barter transaction consists of two separate supplies. Each party must treat their side of the swap as a sale and account for GST accordingly (if they are registered).
How Trade-Ins Work
Trade-ins are most common in the motor vehicle industry. When you trade in an old car for a new one, the transaction is treated as two separate sales:
- The dealer sells the new car to you at its full price.
- You sell your old car to the dealer for the trade-in value.
The Net Payment Error
A common mistake is accounting for GST only on the "cash difference" paid. You must account for GST on the total value of the new item and claim GST back on the total value of the trade-in.
Barter Exchanges between Registered Parties
A Swaps with B
Company A provides $1,000 of IT services to Company B. In return, Company B provides $1,000 of office furniture. Both must issue a Tax Invoice for $1,000 + GST and include it in their returns.
Registered Swaps with Unregistered
If you (registered) swap services with a private individual (non-registered), you must still account for GST on your service. The individual cannot charge you GST or issue an invoice.
Market Value Rule
When there is no cash price, the GST must be calculated based on the "Open Market Value" of the goods or services. This is the price the items would normally sell for to an unrelated third party.
- ✓ Identify the fair market value of the swap.
- ✓ Issue a Taxable Supply Information (TSI) for your side of the barter.
- ✓ Record the transaction in your books as both a sale and a purchase.
The Barter Transaction
Frequently Asked Questions
Yes. If you are GST-registered, you must account for GST on the market value of your supply, even if you receive goods or services instead of cash.
A trade-in is two sales. You pay GST on the full price of the new car, and the dealer pays you GST on the value of your old car (if you are GST-registered).
You must use the "Open Market Value"—the price you would typically charge a cash customer for those same goods or services.
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