Cohousing-L Mailing List: LETS-Taxation is red herring

[Richard Morley (cohousing]

> LETS sounds to me like a way of avoiding taxes.  Ordinarily, if I pay

I didn't want to draw too much attention to this question.  Fortunately,
its a red herring.  If you do something that's taxable, doing through
L.E.T.S won't stop that taxman.  If you exchange favours with your neighbours
in order to share skills and make life more convenient, doing it through 
L.E.T.S. won't make it taxable just because you're keeping track.  I go
on about this at the bottom of this note, but I go on here about the
REAL advantages of a L.E.T.S. system (whatever some of its proponents may
think):

L.E.T.S. is useful because it allows for 'triangular trade': You tune my
piano; I mow Freda's lawn; Freda's kids change your library tapes for a month.
Since L.E.T.S. keeps a register of everyone's skills, there is no need to 
advertise.  Since there is an agreed framework for recording exchanges, the
awkwardness of negotiating terms is eliminated.

L.E.T.S. can involve people who are on the edge of the cash economy, and it
enables small collaborations to be arranged casually, as may be necessary
and useful in and around a co-housing community.

L.E.T.S. can be used to manage little bits of labour done here and there and
not for cash.  As such, it is a handy means of exchanging favours about the
neighbourhood without being afraid of being taken advantage of.

People find it much easier to get involved in this kind of system because it
does not pretend or imply 'starting a business' and all that that entails.
It is more like 'the pioneer spirit', (Rochdale or Frontier -- pick your
pioneers) of mutual aid and community self-reliance.

And that's the good news about L.E.T.S.  

With luck, and good political management, it will survive taxation changes on 
bartor, with regulations and practice which continue to distinguish 
between 'commercial' (and hence taxable) activities and 'mutual aid' (and
hence not taxable) activities.  It's important that L.E.T.S. proponents have
a clear idea about this distinction as well!

I'm under no illusions about the virtues of buying locally or not -- not an
insignificant question, but not unambiguously positive either.

Cheers,

Richard Morley

============================================================================
Tax avoidance is no reason for using a L.E.T.S. system; and if you expect
everthing done in a L.E.T.S. system to be taxable, just wait for the
(Value Added) Tax bill for communal meals!

As for taxes, governments will tax whatever they like, but in general, income 
tax is attracted by income from employment or income from a small business,
WHETHER OR NOT THE INCOME IS TAKEN IN MONEY.  If you spend every weekend
mowing strangers' lawns in exchange for various non-monetary favours, you 
advertise at the local supermarket, and you keep a super-charged mower for
the job, you may find that the taxman will assess you (if your jurisdiction
has income tax).  If you do it only every so often, informally, and don't 
advertise, you probably won't.  Usually, people participate in L.E.T.S. 
schemes at a level somewhere between these two extremes.  

So, whether you receive money for something or not does not change the tax
liability.

It might also be suggested that an activity is taxable because there's some
economic benefit out of it.  Yet, most things we do with other people involve
some mutual benefit.  When we go to the shop, we exchange paper for food; for
this pleasure, we end up with food which was better to eat than paper, and
the shopkeeper ends up with paper that can go in the bank, while the food
would spoil.  So, we are both better off, but only the shopkeeper is taxed
for their labour!  Let's get more complicated:  the food wasn't just for us,
but was for us and our family / supper club.  Now, in exchange for going to 
the shop for our friends or family, we're relieved of some other domestic
chore.  Formal exchange or not; fair deal or not, this is certainly a more
productive arrangement than having everyone shop and cook for themselves.
Now, there's a real economic benefit to everyone involved, but its not
subject to tax.  And arranging co-housing chores around a L.E.T.S. scheme
wouldn't be either. 

To examine things closely, we'd be surprised that all kinds of cooperation
aren't taxed.  The whole domestic unit is a complex economic system, in which
all participants might get more out than they put in (quite often, the deal
isn't fair, but that is another story ... and something co-housing can try to 
avoid).  

The requisite for tax liability under current regimes is NOT MONEY.
The requisite for tax liability under current regimes is NOT BENEFIT.
Lots of activities which involve the former ARE taxable.
Lots of activities which involve the latter are NOT taxable.

Tax regimes are usually interested in whether an activity is 'a business'.
It's that fuzzy.  Here in England, that is specifically the view of the
tax inspectors -- a business is a business, and is taxable; mutual aid is
mutual aid, and is not taxable; a business can use money, or can use L.E.T.S.;
mutual aid can use informal, unrecorded agreements, or L.E.T.S. -- and 
L.E.T.S. doesn't change anything.

If a local business starts to accept L.E.T.S. credits in part payment (as 
has happened in some schemes), that's great.  However, it could be the 
opinion of that business's tax inspector that these constitute part of the 
business's income.  If so, that does not mean that the inspector is neglecting 
their duty if they reckon that other L.E.T.S. transactions have nothing to do 
with tax.

Of course, a particular tax inspector, bureaucracy, or government 
administration could conduct an obstructive campaign against L.E.T.S.
schemes, but their motivation could not be fiscal: since most of the
activities are not 'businesses', they'd just shut down or re-organise in
a more traditional, less flexible way, and pay no tax at all.  

Would it be jaundiced to suggest that the likelihood of attracting the 
attention of the tax inspector is directly proportional to the ratio of
the likely yield in tax to the amount of bother required to get hold of it?
Sure, this is likely to be explained in terms of 'is it a business'; some
businesses can be undertaken using L.E.T.S., and we can expect them to 
attract tax, but L.E.T.S. itself cannot change something into a taxable 
'business' that wouldn't be one without L.E.T.S.

The most important points about tax and L.E.T.S. to keep in mind are these:

- L.E.T.S. is a system of mutual aid within the community;
- mutual aid within the family & community has never been a taxable business;
- L.E.T.S. is not a system of tax avoidance, 
        and has nothing to hide from tax collectors;
- L.E.T.S. is not a way of spinning gold from straw -- if you want quality 
        work, get a quality worker, whether for money or L.E.T.S. credits.

-- 
Richard Morley