SPENDING BARTER CREDITS PERSONALLY AND CORRESPONDING TAX IMPLICATIONS
I’ve heard a few clients lately bemoaning that they were charged “huge taxes” when they spend Barter Credits personally. If you already pay yourself a hefty salary, and then spend Barter Credits personally on top of that, you may be charged income tax at the highest tax bracket, paying about 40-50% taxes on this.
This seems like a bad proposition to some people, but I ask you, what is the alternative? If you were going to do that renovation at home anyway, or you were going to go on a vacation anyway, you were going to be spending your after tax personal money anyway with the renovation company or the travel agency, etc.
Why not use your Barter Credits to pay for it, that you acquired by choosing to accept work at a time when you could do it without affecting your regular cash inflow, and use that same after tax cash that you were going to spend anyway and write a cheque back to your company? You are basically buying Barter Credits from your company to use personally. This completely eliminates the tax implications and also serves to spend your Barter Credits allowing you to take on more new sales! That sounds great doesn’t it? 🙂
There’s more! If you currently take dividends instead of salary, just use the Barter Credits to pay one of your dividends and keep your cash dividend in your company. We have personal BarterPay accounts that can be attached to the business BarterPay account you have.
WHAT ABOUT SCENARIOS WITH MULTIPLE OWNERS?
For businesses with multiple owners who all view and use BarterPay differently, we understand spending personally can be problematic. We suggest sitting down with all owners and discussing the pros and cons of accepting and spending Barter Credits personally, and find a way to make it more lucrative for an owner to spend them over spending the company’s cash dollars.
View more frequently asked questions.
A simple solution one of our smart members has come up with is as follows:
In their business there are three owners – each owning a third of the company – all 3 work in the company and in addition to dividends, take a regular salary and bonuses from the company through payroll.
Their deal is that for every Barter Credits that an owner purchases from the company the owner gets a 25% bonus paid on the next pay run in Canadian dollars. The company’s cost of goods is 40%.
The Math for the Company
Not to mention that if you book a trip in January, you don’t have to pay personal taxes on it for 16 months, thus delaying payment quite a while. So in conclusion, it’s always better to spend Barter Credits, but you do need to factor in how you are accounting for it to minimize any possible tax implications that you want to avoid.
We hope this little explanation inspires you because numbers don’t lie and the savings are real!