Cashless trade not all carefree

Thousands of people are choosing to swap and barter products and services as cashflow tightens in the recession.

They risk large cash liabilities, experts say, because many do not realise they still have to pay hefty tax and royalties bills, plus pay suppliers who do not take barter dollars.

Membership of the country's biggest barter exchange, Bartercard, has grown from 5500 to nearly 7000 companies in four years. Members will trade goods and services worth a projected $211 million this financial year.

Business is also booming on smaller exchanges, such as BBX, Ozone and the not-for-profit tradetosave.co.nz, whose membership has doubled to 2500 in the past year.

But as new members rush to join, some old hands are pulling out, disgruntled. More than 600 businesses cut up their Bartercards each year.

Deven Maharaj, franchisee of a Subway sandwich store in Auckland's Grafton, cancelled his six-year membership last month, because customers were spending about $25,000 Bartercard trade dollars a year on sandwiches - but he couldn't use those dollars.

His major costs included rent, utilities, wages and fresh produce - and little of that could be paid in barter money.

Many small businesses will take Bartercard for products and services ranging from office stationery to sex - the directory lists 23 "gentlemen's clubs", sex shops and strip clubs. But it lists few big businesses like power and gas suppliers.

If a business barters goods, instead of selling them for money, the transaction is still taxable, an Inland Revenue spokeswoman said. The business must pay 12.5 per cent GST, and the trader may also be liable for company tax and income tax.

On top of GST, Bartercard members have to pay a 1 per cent royalty on each transaction to Bartercard, in barter dollars, and 5.5 per cent in cash.

Don Wood, a Napier accountant and Bartercard member, cautions clients against doing more than 10 per cent of their business in barter money.

Otherwise, they could accumulate enormous sums in their barter account, yet have no real cash to pay bills like tax, royalties, rent, power and wages. He warned some members would turn away barter transactions in favour of money, or refuse to honour sale prices.

And he agreed it could be difficult for some businesses to get rid of their barter dollars. Indeed, his company paid its staff's Christmas bonuses in barter money.

Bartercard chief executive Paul Bolte said businesses should limit their barter trade to 5 to 15 per cent of their turnover, and said new members were made fully aware of their tax obligations.

But he said there were enormous advantages in using Bartercard and its trade brokers to reach new customers. "We deliver nearly 6500 members who will spend exclusively in that network," he said.

One Tauranga member had sold his yacht for $500,000 trade dollars, and then put that money towards a $1.2 million house, Bolte said. And some big corporates had used the network to sell excess stock.

Paul Meachen, the Telstra NZ founder who has now set up tradetosave, said the risk of default was no higher than if you bought or sold something through Trade Me or a classified ad.

"There are scams, like mobile phone sellers," he said. "If anyone like that comes on our site, I chuck them off quickly. But the only complaint I've had was of a woman offering psychic services for an ill dog, who failed to deliver."