What About Taxes?

The golden rule for barter and taxes is: if a transaction is taxable in cash, it is taxable when conducted through barter or other non-cash means. One simply charges the taxable portion of a transaction in cash and remits it to the government.

LETS is not a tax-evasion scheme like "under the table" barter or cash-only trading. Although LETS does not collect taxes or report to taxation authorities, LETS trades could be easy for tax authorities to audit: they only need a search warrant on the LETS ledger.

To reiterate, you only have to pay taxes on a trade in LETS dollars if the same trade in Canadian currency would have been taxable. (ie: if the transaction "is of the kind generally provided by him in the course of earning income from, or related to, a business or profession carried on by him...occasional help given to a friend or neighbour in exchange for something would not be taxable unless the taxpayer made a regular habit of providing such services for cash or barter." [Revenue Canada Bulletin, Income Tax Act, Barter Transactions, no. IT-490, Section 3]

For sales tax, businesses should treat LETS transactions just like any other.

If you receive a significant amount of your income in LETS currency, you should declare it on your income taxes. Since revenue Canada doesn't accept LETS dollars, this will increase the amount of Canadian money you will pay in tax. But they will allow you to use declared LETS income to calculate the Canada Pension Plan contributions, Unemployment Insurance Premiums, Charitable Donations, and so on.

In other words, the knife cuts both ways. If you get taxed on it, it can raise the amount of benefits you get, in Canadian Currency, when you retire or get laid off from work. As well, charities can issue tax receipts for donations in LETS dollars, which will increase your returns come tax time.

Please remember, all responsibility for collecting taxes or reporting income information resides with the individual members, and not LETS.

For more information, please refer to the Canada Revenue Agency Bulletin on Barter Transactions here.