FocusOn - Payments to volunteers

There is no legal definition of volunteer. The tax treatment of payments to a person will depend on whether they are a volunteer, an employee or independent contractor.

Employees

Factors that may indicate an individual is an employee include:

	paid for time worked
	receive paid leave
	agree to provide their personal services
	work set hours
	are recognised as part of your organisation

Contractors

Independent contractors differ from employees in that:

	they are contracted for a given result (eg paint your office premises)
	they can determine how the work is performed and can delegate tasks to others
	they bear the commercial risk and can make a profit or a loss
	they generally provide all their own materials, tools and equipment
	they do not receive paid leave
	they offer their services to the public at large.

Volunteers

Volunteers do not fit into either of the above categories. They do not work under a contractual obligation for remuneration. They enter into any service of their own free will and do not usually expect to make a profit from the arrangement.

The Taxation Office provides the following general rules.

	Volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers, and
	Non-profit organisations are not liable for PAYG withholding and FBT on payments they make and benefits they provide to volunteers.

However, as always, there are exceptions and the Taxation Office has set out when it believes payments to volunteers are taxable.

Payments to volunteers may have many different names, including honoraria, reimbursements and allowances. However, how the payment is described will not necessarily determine its tax treatment. You need to look at the facts in each case, particularly the circumstances of the volunteer. If the activity for the volunteer is largely a pastime or a hobby it is unlikely the payment will be assessable income to them. Characteristics of a non-assessable payment include:

	Covers expenses incurred or to be incurred
	Has no connection to the volunteer’s usual income producing activities
	Is not received as remuneration or as a consequence of employment
	Is not relied on or expected by the volunteer to meet daily living expenses
	Is not legally required
	Is a token amount compared to the services provided or expenses incurred

Honoraria and Allowances

The Taxation Office describes an honorarium as an honorary reward for voluntary services or a fee for professional services voluntarily rendered. Allowances are a predetermined amount to cover estimated expenses. They are paid even if the volunteer does not fully expend the amount.

You need to look at the factors listed above to determine whether such payments are assessable. If a payment is not taxable to the volunteer, neither are any expenses they incur deductible.

For example, Jane helps out in the office on an irregular basis. She receives token amount as a\preciation for her efforts. This amount is unlikely to be assessable income to Jane. However, Susan runs a legal practice and offers to assist on a voluntary basis in drawing up legal documents for the purchase of a new property for the organisation. Any payment to Susan is likely to be assessable. The payment would be a reward for services connected to her usual income producing activities.

Reimbursements

A reimbursement arises when the volunteer is reimbursed exactly for an expense incurred. Factors that also indicate a reimbursement include the requirement for the volunteer to provide documentation of the expenses and that any unexpended amounts must be returned.

Reimbursements will not be assessable if:

	The payment does no more than reimburse the volunteer for expenses actually incurred, and
	The payment is not for a supply made in the course of an enterprise of the volunteer.

Dan, who runs an electrical business, uses some of his materials to fix the wiring at your office. Any reimbursement by your organisation for costs incurred will be assessable to Dan as they relate to his electrical business.

Implications for the Payer

Claiming Input Tax Credits

Non-profit organisations can claim the GST included in the cost of items it buys for its volunteers provided the activity is not input taxed. For example, if the expense relates to an input taxed fundraising event or a non-profit sub-entity, the GST cannot be claimed.

However, non-profit organisations can only claim input tax credits on reimbursements to volunteers if they meet at least one of three categories:

1. Your organisation is a charity, a DGR or a government school
2. The volunteer acts as an agent for your organisation when it incurs the expense. For example, a volunteer arranges for the hire of a hall for the annual general meeting. Provided the hall is booked in the name of your organisation and you are bound by the hire agreement, not the volunteer, you can claim the input tax credits.
3. The volunteer is an officer of the organisation.

Remember that tax invoices must be held if the GST inclusive expense is more than $55. You should ensure that you obtain the necessary paperwork from volunteers before reimbursing their expenses.

Entertainment

You cannot claim input tax credits for the GST included in the cost of entertainment. However, light meals, such as sandwiches, morning and afternoon tea or non-alcoholic refreshments, are not entertainment and the GST can be claimed.

Food or drink provided in a social setting such as dinners, parties and social functions are entertainment.

Fringe Benefits

FBT may be payable on benefits provided to employees or their associates in respect of their employment. Generally benefits provided to volunteers do not meet these requirements.

PAYG Withholding

Payments to volunteers are not usually subject to PAYG withholding. However, if the payment is made to a volunteer who is carrying on an enterprise (eg the plumber who helps out fixing the damaged pipes), you will need to withhold tax if the payment is more than $50 and no ABN is provided.

Volunteers might choose to provide a statement that they are not carrying on an enterprise. The statement is available from the Taxation Office website under forms as “Statement by a supplier (reason for not quoting an ABN to an enterprise)” NAT 3346. You can rely on the statement provided you have no reasonable grounds to believe the statement is false or misleading.

Published : 15 December 2005