Not-for-profit organisations and volunteers need to be aware of any tax impact on payments made to volunteers.
As a general rule:
Volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers
In addition, not-for-profit organisations are not generally liable for pay as you go (PAYG) withholding and fringe benefits tax (FBT) on payments they make, or benefits they provide, to volunteers.
Volunteers can be paid in cash, given non-cash benefits or a combination of both. These payments are usually in the form of:
- an honorary reward for voluntary services
- a fee for professional services voluntarily performed
- an honorarium may be paid in money or as property
- a 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
- a definite, predetermined amount to cover an estimated expense
- paid even if the recipient does not spend the full amount
The nature of the payment, along with the volunteer’s circumstances, will determine its treatment for tax purposes.
If a person’s activities are a pastime or hobby, not income producing, any money or other benefits received from those activities are not assessable income. Any related expenses are also not tax deductible by the volunteer.
A volunteer payment that is not considered assessable income will have 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 your organisation to make the payment.
- The payment is a token amount compared to the services provided or expenses incurred by the volunteer, and will depend on the full facts surrounding the payment and the volunteer's circumstances.
- Michael 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. Michael is awarded an honorarium of $100 for his efforts. The honorarium is not assessable income.
If an organisation reimburses a volunteer for using a personal asset or incurring expenses on its behalf, the reimbursement will not be assessable income of the volunteer, provided the payment:
- does no more than reimburse the volunteer for expenses actually incurred
- is not for a supply made in the course of an enterprise of the volunteer
- Javier is an electrical contractor. He volunteers to mow the yard of a local non-profit child care centre. Javier purchases a $15 spare part for the centre’s mower. The child care centre reimburses Javier for the cost of the spare part. As Javier has not made the supply in the course of his enterprise as an electrician, the $15 received from the child care centre will not be assessable to Javier.
Generally, assessable income of a volunteer includes receipts that are:
- earned, expected, relied upon and have an element of periodicity, recurrence or regularity
If fees received for volunteer professional services are considered assessable income of the volunteer, they may be entitled to a tax deduction for expenses incurred in performing these professional services.
- Judy has a graphic design business and volunteers at the local art gallery. Judy prepares the gallery’s annual report using her business’s software and equipment. At the gallery’s annual general meeting, Judy is awarded an honorarium of $800 in appreciation of her services. This honorarium will be assessable income to Judy because it is a reward for services connected to her income-producing activities.
- Javier volunteers to do the electrical maintenance at the child care centre and uses materials from his business’s trading stock. Because the supplies are made in the course of his enterprise, any reimbursements he receives for the cost of the materials will be assessable income.
If a volunteer receives an allowance with no regard to actual expenses and there is no requirement to repay unspent monies, the allowance may be treated as assessable income.
- Marko 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 Marko works weekends the centre pays him an allowance of $150. The allowance is paid to acknowledge Marko’s extra efforts and to compensate him for additional costs incurred. These payments to Marko are considered assessable income.
Fringe Benefits Tax
Generally benefits provided to volunteers do not attract Fringe Benefits Tax (FBT), however if a not-for-profit organisation provides non-cash benefits to workers in lieu of salary and wages, then FBT can apply.
- Qiaoli volunteers her time with an environmental group planting trees along waterways. While planting in country areas she is provided with accommodation and basic meals. Qiaoli is not considered to be an employee and no FBT will arise on these benefits.
- Jorge provides his services to the local volunteer bushfire brigade. He is reimbursed for travel and other minor expenses he incurs in carrying out his duties. Jorge is not considered to be an employee as the reimbursement he receives does not amount to salary or wages. No FBT will arise on these reimbursements.
A not-for-profit organisation may be required to withhold from a payment to a volunteer where both of the following applies:
- the payment is for a supply of goods or services made in the course of an enterprise carried on by the volunteer
- the volunteer has not quoted their Australian business number (ABN)
Do Not Withhold PAYG if:
- total payment to the supplier is $75 or less, excluding any GST
- supplier is an individual under 18 years old, is not your employee, and the payments you make to that person do not exceed $350 per week
- supply is wholly input taxed under GST – this includes
- most financial supplies
- supplies of residential rent and residential premises
- food supplies by school tuckshops and canteens that have chosen to be input taxed
- sales made at fundraising events that charities, gift-deductible entities and government schools can, and have chosen to, treat as input taxed
- supply is made in the supplier’s private capacity, or as their hobby
- payment is exempt income for the supplier (for example, the supplier is an income tax exempt charity)
- payment is to a non-resident who is not carrying on an enterprise in Australia or through an agent in Australia
- supplier is not carrying on an enterprise because they have no reasonable expectation of profit or gain
Example – No PAYG
Tom operates a bakery business. He volunteers to paint a community centre for a charity. Tom pays $80 for additional material not supplied by the charity. The charity reimburses Tom $80 for the cost of the material. As Tom has not made the supply in the course of his enterprise as a baker he does not need to quote his ABN to the charity and the charity will not be required to withhold from the payment to Tom.
Example – PAYG
Tom also agrees to make pies at his bakery for the charity’s pie drive for the cost of the ingredients. The charity reimburses Tom $150 for the cost of the ingredients. As Tom has made a supply in the course of his enterprise, he will need to quote his ABN to the charity to avoid an amount being withheld from the payment. If he does not quote his ABN, the rate of withholding in this situation would be 49% of the total payment.