Tax issues when dealing with volunteers
From bushfire relief groups, sporting clubs, environmental groups, charity associations and many more, volunteers are an indispensable workforce and support network for many organisations. For most, if not all, having volunteers ready to lend a hand is pivotal in them being able to function or survive.
Given that there are many hundreds of volunteers propping up all sorts of good works throughout the nation, and in the spirit of thorough tax planning, an important practical consideration for many may be if payments to volunteers constitute assessable income and whether their expenses are tax deductible.
WHAT’S A VOLUNTEER?
There is no common law definition of “volunteer” for tax purposes, although it typically means someone who enters into any service of their own free will, or who offers to perform a service or undertaking. A genuine volunteer does not work under a contractual obligation for remuneration, and would not be an employee or an independent contractor.
Volunteers can be paid in cash, given non-cash benefits or a combination of both – payments include honorariums, reimbursements and allowances. Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income.
Conversely, where a person’s activities are a pastime or hobby – rather than income-producing – money and other benefits received from those activities are generally not perceived as assessable income.
The examples below shed light on whether typical payments such as honorariums, reimbursements and allowances constitute assessable income.
IS AN HONORARIUM ASSESSABLE INCOME?
An honorarium is either an honorary reward for voluntary services, or a fee for professional services voluntarily rendered, and can be paid in money or property.
IS A REIMBURSEMENT ASSESSABLE INCOME?
A reimbursement is precise compensation, in part or full, for an expense already incurred, even if the expense has not yet been paid. A payment is more likely to be a reimbursement where the recipient is required to substantiate expenses and/or refund unspent amounts.
IS AN ALLOWANCE ASSESSABLE INCOME?
An allowance is a definite predetermined amount to cover an estimated expense. It is paid even if the recipient does not spend the full amount.
EXPENSES INCURRED BY VOLUNTEERS
On the tax deductibility of volunteer expenses, a volunteer may be entitled to claim expenses incurred in gaining or producing assessable income – except where the expenses are of a capital, private or domestic nature.
For instance, expenditure on items such as travel, uniforms or safety equipment could be deductible, but expenses incurred for private and income- producing purposes must be apportioned – with only the income-producing portion of the expense being tax deductible.
WHAT ABOUT DONATIONS? ARE THESE DEDUCTIBLE?
It is also common for volunteers to donate money, goods and time to not-for-profit organisations. To be tax deductible, a gift must comply with relevant gift conditions, and:
■ be made voluntarily
■ be made to a deductible gift recipient, and
■ be in the form of money ($2 or more) or certain types of property.
Donors can claim deductions for most, but not all, gifts they make to registered deductible gift recipients. For instance, a gift of a service, including a volunteer’s time, is not deductible as no money or property is transferred to the deductible gift recipient. However, individuals may be entitled to a tax deduction for contributions made at fundraising events, including dinners and charity auctions.
