Trade-ins

A trade-in is an arrangement in which the government accepts existing or surplus goods from a supplier, typically as part of acquiring replacement goods, and applies the agreed value of those goods against the purchase price of the new goods. The supplier delivers new goods and takes in the old ones, and the agreed value of the old goods reduces what the government pays.

The Government of Canada uses the term in its procurement and disposal procedures. The Supply Manual, a federal procurement manual published through the Government of Canada's publications system, has a section titled "Trade-ins" that addresses contracts involving this kind of exchange.

How a trade-in credit works in a federal contract

A trade-in links two events that are usually handled separately: buying new goods and disposing of old ones. Instead of selling surplus goods through a separate disposal process, the government hands them to the supplier of the replacement goods. The value assigned to the old goods is then credited against the price of the new goods.

The Supply Manual treats this as a contracting matter with its own rules. It applies to contracts for which trade-ins have been approved, which makes the trade-in a defined part of the purchase and not an informal side arrangement.

Approval and signing authorities for trade-in contracts

Contracts involving trade-ins require prior approval through disposal-operations procedures. The Supply Manual also states that these contracts are subject to the applicable approval and signing authorities.

This means a trade-in is not a term that a contracting officer adds on the spot. The disposal side of the transaction must be approved before the contract proceeds, and the contract must be signed by someone holding the right authority. Suppliers should expect the trade-in terms to be set out in the solicitation or the resulting contract, not negotiated informally after award.

GST/HST treatment of goods accepted in trade

The Supply Manual explains the tax treatment of a trade-in. The value of the old goods accepted as a trade-in is deducted from the value of the new goods when determining GST/HST on the supply. The tax is therefore calculated on the new goods after the trade-in value has been taken off, as set out in the Supply Manual.

Suppliers who invoice for goods supplied with a trade-in should apply this rule when preparing invoices, so that the tax shown matches the treatment the manual describes.

Trade-ins as a Canadian procurement and disposal term

Trade-in is a term of Canadian government procurement and disposal practice. It should not be confused with military terminology standards. NATOTerm is maintained by the NATO Terminology Office, part of the NATO Standardization Office, and holds non-classified military and relevant non-military terminology. It is a separate resource from the Canadian Supply Manual, which is the source for how trade-ins work in federal contracting.

What trade-ins mean for a supplier bidding on Canadian public contracts

If a solicitation includes a trade-in requirement, read it closely before pricing. A supplier should be ready to do the following:

• Identify or price the goods being offered for trade-in.
• Apply the trade-in credit or valuation method specified in the solicitation.
• Follow any disposal-operations, approval, delivery, inspection, and title-transfer conditions stated in the solicitation or the resulting contract.
• Account for the trade-in value when calculating GST/HST on the new goods.

Requirements differ from one solicitation to the next, so the bid documents govern the detail. Build the trade-in into your pricing and delivery plan from the start, and confirm in your bid how the old goods will be collected and handled.