Customer loyalty and reward programs have been a part of our lives for some years…
How Not to Waste Your Bartercard Money
Reward points and Bartercard have a lot in common, but there are some fundamental differences between the two. A Bartercard account is like a separate bank account and as such needs to be properly accounted for in your financial records. Reward points on the other hand, although they have value, you don’t need to include them in your financial records. I’ve written about reward points previously.
In fact, a Bartercard account is more like a cheque account. It is real money that belongs to your business. Each time you receive Bartercard dollars for a sale, it is a sale in your business, and you must show that income in your financial records just the same as if the money had been paid into your cheque account.
You will be encouraged to take 100% Bartercard for your Bartercard sales. Be careful if you do this as the GST component of the sale will still need to be included in your BAS return, so you will have to be funding the 10% GST amount from money in your cheque account. The better way is to accept part Bartercard, part cash whilst ensuring that the cash amount includes the GST component in full.
So now you’ve got money in your Bartercard account to spend, don’t waste it. Spend wisely, remembering that this is business money you’re spending. Preferably, use it on goods and services that you need for your business that are business expenses.
You may well be encouraged to use your Bartercard account to go to restaurants, have a nice lunch or enjoy a family dinner together at a restaurant that you might otherwise not go to. These are personal, private expenses that will need to be treated as drawings, loans or adjusted against your salary amount. Similarly using Bartercard money to pay for costs around your home or for private travel are not business expenses.
Of course, if you lent money to your business to get it up and running or to fund growth and you have money owing to you from your business, then choosing to use the Bartercard money to pay for personal expenses is fine, just as long as you realise what you are doing. But if the business doesn’t owe you money, then I would strongly suggest that you think carefully before using Bartercard to pay personal costs.
One Bartercard member I know was using the money to go to restaurants for lunch every day thinking that this was a great way to spend the money, not realising that the business was including the income as revenue, but wouldn’t be able to claim the lunches as deductions. Not only that, but the lunches were creating a loan account that he owed back to the business. When we went through just what those lunches were really costing, taking into account funding the GST, the income tax implications and the creation of a loan that he would have to repay, the business owner was horrified. From that time on he has been working on finding ways to use the Bartercard money to pay for business related expenses.
As for the fees and charges that Bartercard charges each month, these should be claimable as business expenses (unless you use it significantly for personal costs, in which case you should seek advice from your accountant as to whether the costs are really business expenses). The challenge is to use your Bartercard money quickly otherwise you will be paying out fees month after month, and it’s just reducing the amount you have left in your account to spend.
In summary, if you have a Bartercard account:
- Consider offering Bartercard at a percentage of your total sale, making sure that the cash component covers your costs and GST.
- Look to spend your Bartercard money sooner rather than later so as to minimise wasting money on fees.
- Find ways to spend your Bartercard money on business expenses as much as you can.
- If you spend your Bartercard money on private expenses, restaurants, work around your home, holidays, check with your accountant to see what the impact will be on your tax liabilities and whether you have a loan account for these costs to be allocated against.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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