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| CALGARY, ALBERTA
— The global
economic downturn is driving more and more cash-conscious companies to
trade between themselves rather than spend precious cash. Businesses such
as Microsoft Corp., Yahoo, Maple Leafs Sports and Entertainment and even
Rogers Communications Inc. are finding innovative and old-school ways of
getting the goods and services they need by trading with one another, says
the head of a major Canadian barter brokerage. "A lot of bigger companies have now jumped on the bandwagon," said David Holland, vice-president of Barter Network Ltd. in Toronto. "Once they realize what we are all about, people think 'I didn't realize this existed,' and they do it." The number of businesses and organizations that facilitate bartering has exploded in recent months. According to Holland, interest in his company has never been hotter. According to economists, every recession triggers bartering. However, facilitated by the Internet, trading has never been more popular. Dozens of trade exchanges are servicing thousands of companies across Canada. One of the world's largest trade exchanges is ITEX Corporation., which has offices in Toronto and facilitates trade across North America. The company reported registrations jumped by 36 per cent during October. ITEX has more than 26,000 members. "People don't have dollars to spend, and they need to spend, so this is a great option for them," said Holland. "We are now doing between $55 million and $60 million a year in trading." Holland's Barter Network has about 2,500 member companies in Ontario and Quebec. The brokerage negotiates deals on behalf of companies so they can swap products or services. A company like Via Rail Canada (which uses Holland's service) could, for example, call Barter Network and report that it has 10 unsold seats for travel between two specific points. Barter Network employees would then find requests made by other members looking to travel and set up a trade, allowing Via to get rid of extra seats and gain, for instance, marketing or design services. In a recent exchange, the Fan 590, a Toronto sports radio broadcaster, traded airtime for advertisements for a $7,000 vacation package to a Sandals resort in the Caribbean. The package was given away to a listener. "Our incentive is to get you what you want without you having to spend the cash," said Holland. Not spending cash is the key motivation for bartering. With the economy in shambles, companies that have money don't want to spend it for fear they may need the cash if things worsen. Those companies that don't have cash are having a harder time than ever getting loans because of the worldwide credit crunch. |
 Bartering
is something that, for many years, was an underground economy. People
would say "I'll trade you this for that, and we will avoid paying the
taxes and call it a day." Today it's fully taxable, fully above board.Barter is becoming one of the few ways to grease the wheels of business in a stalled economy. "Companies that are being affected by the lack of credit available in the financial markets are looking for ways to continue to keep their businesses operating without having to take on more debt," said Stewart Thornhill, executive director for the Pierre L. Morrissette Institute for Entrepreneurship at the University of Western Ontario's Richard Ivey School of business. "The fact that dollars are not exchanging hands doesn't change the fact that goods and services are being consumed. That's the reason an economy exists, to allow us to satisfy our needs." Charles Murphy, a tax partner with KPMG in Ottawa, warns; although no money is spent in a trade, every dollar's worth of goods or services bartered is a dollar that a company must claim on its income taxes. "From a tax standpoint, barter transactions are treated the same as anything else," said Murphy. "Is business being carried on? The mere fact that cash doesn't change hands doesn't matter. It's Canada Revenue Agency's position that is still happening and that it needs to be accounted-for." In 1998, Canada Revenue Agency released a statement saying that every dollar bartered is equal to one Canadian dollar and should be accounted for as such. In the U.S., barter networks are required to file forms detailing the barter activity of members to the Internal Revenue Agency for taxation and auditing purposes. No such rules exist here in Canada. However, Holland said his company sends statements to his members detailing their trades on a monthly basis. Those reports are intended to be used to calculate the taxes that must be paid at the end of each year. "This is something that for many years was an underground economy. People would say, "I'll trade you this for that; we will avoid paying taxes and call it a day," he said. "Today it's fully above board." |
