N.M. Sheerin (613)957-2135
FEB 11 1988
This is in reply to your letter of November 23, 1987, concerning an arrangement in which a consultant will receive units in a partnership in exchange for services rendered.
There are no specific provisions in the Income Tax Act (the "Act") dealing with bartering. However, the general rules applicable to the computation of a taxpayer's income from business or property can apply. In computing a person's income from his business it is necessary to look not only to profits from transactions in which money is used as payment but also to those arising from transactions in which money's worth (goods, services or property) is offered as payment.
In the circumstances outlined in your letter, the consultant would be required to include in his income under subsection 9(1) of the Act the value of the services rendered which would normally be considered equal to the fair market value of the property received in lieu of a payment of cash. The amount thus brought into income would be included in the calculation of the adjusted cost base of the partnership interest received by the consultant. We refer you to Interpretation Bulletin IT-490 which discusses the income tax implications of various types of barter transactions; in particular, we draw your attention to paragraphs 5 and 6 therein.
We trust these comments will be of assistance to you.
Yours truly,
ORIGINAL SIGNED BY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch