What you need to know about volunteering & tax
The worryingly early start to Australia’s bushfire season in New South Wales means scores of local volunteers are standing on the frontline, battling and protecting residents from the devastating fires. This raises the important practical question – do payments to volunteers constitute assessable income and are their expenses tax deductible?
There is no legal 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 (on a related note, refer to our article ‘Employee or contractor? Some common myths’ in the July 2013 Monthly Client Newsletter to learn more about the differences between an employee and 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 not assessable income. A volunteer payment that is not assessable income will be likely to possess many of the following characteristics:
- the payment is to meet incurred or anticipated expenses
- the payment has no connection to the volunteer’s income-producing activities or services
- the payment is not received as remuneration or as a consequence of employment
- the payment is not relied upon or expected by the volunteer for day-to-day living
- the payment is not legally required or expected
- there is no obligation on the part of the payer to make the payment, and
- the payment is a token amount compared to the services provided or expenses incurred by the volunteer.
The case studies below shed light on whether 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.
Case study: Alex works as a computer programmer at the local city council and volunteers as a referee for the local rugby union. This year he organised an accreditation course for new referees. He applied for a grant, arranged advertising, assembled course materials, and booked venues. Alex is awarded an honorarium of $100 for his efforts. No, the honorarium is not assessable income as honorary rewards for voluntary services are not assessable as income and related expenses are not deductible.
Case study: Mindy has a graphic design business and volunteers at the local art gallery. Mindy prepares the gallery’s annual report using her business’s software and equipment. At the gallery’s annual general meeting, Mindy is awarded an honorarium of $800 in appreciation of her services. Yes, this honorarium constitutes assessable income because it is a reward for services connected to her income-producing activities.
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.
Case study: Matthew is an electrical contractor. He volunteers to mow the yard of a local not-for-profit childcare centre. Matthew purchases a $15 spare part for the centre’s mower. The childcare centre reimburses Matthew for the cost of the spare part. No, the $15 reimbursement is not assessable income because Matthew has not made the payment in the course of his enterprise as an electrician.
Case study: Rose is a gardener. She volunteers to prune the shrubs of a local nursing home and uses materials from her business’s trading stock. Yes, any reimbursement she receives for the cost of the materials is assessable income because the supplies were made in the course of her enterprise.
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.
Case study: Markus volunteers as a telephone counsellor for a crisis centre. He is rostered on night shifts during the week and is occasionally called in on weekends. When Markus works weekends, the centre pays him an allowance of $150. The allowance is paid to acknowledge Markus’s extra efforts and to compensate him for additional costs incurred. Yes, these payments to Markus are considered assessable income because he received the allowance with no regard to actual expenses and there is no requirement to repay unspent money.
Expenses incurred by volunteers
Moving on to 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.
Case study: Rupert operates a commercial fishing trawler and uses navigational charts in his business. He also volunteers as an unpaid training officer at the volunteer coastguard. Rupert purchases two identical sets of navigational charts – one for his business, the other as a training aid in coastguard courses. Yes, Rupert can claim the part incurred in gaining or producing assessable
income – in this case, half the total cost.
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.
Case study: Eunice buys a clock at a charity auction for $200. No, this is not a gift even if Eunice has paid a lot more than the value of the clock. Payments that are not gifts include those to school building funds as an alternative to an increase in school fees and purchases of raffle or art union tickets, chocolates and pens.
Case study: Clement receives a lapel badge for his donation to a deductible gift recipient. As the lapel badge is not a material benefit or an advantage, the donation is a gift.