Taxpayer Alert TA 2005/4: Creation of Goods and Service Tax (GST) input tax credits by barter exchanges.
Date of issue: 19 December 2005
Status: Current


Description: This Taxpayer Alert describes arrangements where a barter exchange buys and sells in its own right, effectively acting as a member with its own trading account. The barter exchange has access to unlimited trade dollars to spend on the acquisition of goods and services often at commercially unrealistic prices from its members. Consequently, large GST refunds are claimed by ensuring that its acquisitions continually exceed its supplies by significant amounts within the barter operation. | This alert applies to arrangements that exhibit some or all of the following features: 1. The barter exchange acts as a member with its own trading account to record transactions with its members. 2. The barter exchange debits or credits the account in trade dollars each time it makes an acquisition or supply respectively. 3. The barter exchange acquires goods and services from its members at grossly inflated prices that do not reflect the commercial value of the acquisition. Additionally, acquisitions of services from members, particularly advertising are disproportionately high relative to the level of activity carried on in the barter exchange. 4. The amounts "paid" by the barter exchange in trade dollars are higher than it would have paid, had it paid in Australian dollars on the open market. For example, under a typical agreement, the barter exchange acquires advertising space from a member for 5,500 trade dollars where the market value is $550. 5. Acquisitions by the barter exchange in trade dollars create a GST liability for the supplying member. In some instances, the member offsets its liability through additional acquisitions in trade dollars at grossly inflated prices. 6. The barter exchange records its acquisitions by debiting its trading account. This account becomes increasingly overdrawn, as acquisitions are not limited to the amount of trade dollars in its account. (In many cases, there is no third party requirement that the overdrawn amount be repaid). 7. The barter exchange lodges a Business Activity Statement (BAS) claiming GST refunds as its acquisitions exceed its supplies. 8. In some instances goods and services "acquired" do not exist or do not take place. | 1. The barter exchange acts as a member with its own trading account to record transactions with its members. 2. The barter exchange debits or credits the account in trade dollars each time it makes an acquisition or supply respectively. 3. The barter exchange acquires goods and services from its members at grossly inflated prices that do not reflect the commercial value of the acquisition. Additionally, acquisitions of services from members, particularly advertising are disproportionately high relative to the level of activity carried on in the barter exchange. 4. The amounts "paid" by the barter exchange in trade dollars are higher than it would have paid, had it paid in Australian dollars on the open market. For example, under a typical agreement, the barter exchange acquires advertising space from a member for 5,500 trade dollars where the market value is $550. 5. Acquisitions by the barter exchange in trade dollars create a GST liability for the supplying member. In some instances, the member offsets its liability through additional acquisitions in trade dollars at grossly inflated prices. 6. The barter exchange records its acquisitions by debiting its trading account. This account becomes increasingly overdrawn, as acquisitions are not limited to the amount of trade dollars in its account. (In many cases, there is no third party requirement that the overdrawn amount be repaid). 7. The barter exchange lodges a Business Activity Statement (BAS) claiming GST refunds as its acquisitions exceed its supplies. 8. In some instances goods and services "acquired" do not exist or do not take place. | The Tax Office considers that the arrangement outlined above gives rise to taxation issues that include whether: (a) The acquisitions made using the trading account of the barter exchange in the circumstances described above are creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'). (b) The barter exchange is carrying on an enterprise as defined by subsection 9-20(1) of the (GST Act) and (c) The anti-avoidance provisions of Division 165 of the GST Act apply, as the arrangements appears artificial and contrived in their design and execution (see note 1). Note 1 In appropriate cases possible sanctions under criminal law may apply, for example, where the supplies are shams. | (a) The acquisitions made using the trading account of the barter exchange in the circumstances described above are creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'). (b) The barter exchange is carrying on an enterprise as defined by subsection 9-20(1) of the (GST Act) and (c) The anti-avoidance provisions of Division 165 of the GST Act apply, as the arrangements appears artificial and contrived in their design and execution (see note 1). | The Australian Taxation Office is examining these arrangements.





Related documents: GSTD 2006/5 | GSTR 2003/14 | MT 2004/D3 (Withdrawn) | MT 2006/1 | IT 2668 | PS 2005/13 - Taxpayer Alerts | Division 9 | Division 11 | Division 165

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