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I recently read this article which says in Canada:

"barter transactions are only taxable when the goods or services you're giving up are of the kind generally provided by you in the course of earning income from a business or a profession carried on by you. An example would include a dentist or a plumber who agrees to fix someone's teeth or drains, respectively, in return for services or property provided by the other party.".

Does this mean that if you run a business and offer a "friends and family discount" or even an employee discount on goods and services that you provide you have to declare the total income as if the person had paid full price?

  • Just to be clear, you mean taxable to the corporation or to the individual? – Joe Oct 15 '19 at 21:57
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    A key difference is that there is no "barter" with the discount, you do not get anything of value out of the deal so it is not a contract. I would think of them as promotional offers. Given that you are not forced to have the same price for everybody, even the concept of "full price" to compare with would be troubling. – SJuan76 Oct 15 '19 at 22:03
  • @Joe Yes, sorry taxable to the corporation offering the discount. – Dugan Oct 15 '19 at 22:06
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    @SJuan76 right, but couldn't one business owner offer a discount to another business owner, and then that business owner could subsequently offer a discount to the first business owner? – Dugan Oct 15 '19 at 22:07
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    If you are establishing a contract with someone else and disguising it as "mutual discounts" in order to evade taxes you are probably talking about fraud. – SJuan76 Oct 15 '19 at 22:18
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It is not taxable, because the transaction is not a barter transaction.

The discount is not offered in exchange for a specific thing like an amount of work. It is offered to someone with a specific status, i.e. an employee. That is no different from offering a discount to a senior, or a veteran.

Key to this is that they person receiving the discount does not have to perform any extra services compared with a person with the same status who does not take up the discount. For example, if you said that the employee had to work two extra days in order to get their discount then that would be barter. If the person who takes up the discount doesn't work any differently from the person who does, it isn't.

Specifically if the person who uses the discount is treated exactly the same as the person who doesn't then it isn't a barter transaction.

This is only about the tax liability for the company. Tax liability for the employee might be different.

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    Okay, but the income tax act seems to state in Section 69 (1)b that if you are dealing with someone who you don't have an "arm's length relationship" with that when you sell them something at less than "fair market value" the person selling the item has to declare it as income at it's full market value and pay tax on the proceeds at that level. That would seem to imply that friends and family and employees can't receive discounts unless the employer is willing to incur additional taxes. – Dugan Oct 16 '19 at 16:06
  • If I sell an employee a Ferrari for a dollar this is going to kick in. If I give them 5% off list price, it is not. It can easily be argued that the "fair market value" of a new car is anywhere from 10% less to 10% more than the price you pay -- I have got a good price towards the end of a time period where sales reps are competing for bonus money, for example. Not all discounts are suspicious. – Kate Gregory Oct 16 '19 at 20:27
  • Specific example: decades ago my spouse worked at a place with a subsidized caf. I believe lunch cost a dollar. Anyway, they got the "market value" of the subsidy added to their taxable income each year - you had to swipe your ID to get the discount. So in some cases your discount is taxable income to you. But not in all. I don't believe the percentage discount is written anywhere, but certainly offering the same discount to say students or veterans would argue against it being taxable income to the person getting the discount. Being much larger than all other discounts would argue for. – Kate Gregory Oct 16 '19 at 20:39

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