Q&A: Volunteers and tax
By The Centre for Volunteering

Every month, volunteers ask us questions about volunteering such as where can I volunteer, how many hours a week can I volunteer and what do I need to know about tax as a volunteer?

We answer the most common of these questions on www.volunteering.com.au but have decided take a more in-depth look at some of your questions, featuring a new question and answer section in each issue of Volunteer Life.

In this issue, we look at volunteers and tax: reimbursements, honoraria, payments and allowances.

Firstly, you need to determine if you are a volunteer. The Australian Taxation Office's (ATO) Volunteers and tax guide (March 2005) says that as a general rule:

• 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 pay as you go (PAYG) withholding and fringe benefits tax (FBT) on payments they make, or benefits they provide, to volunteers.

Currently there is no legal definition of a volunteer for tax purposes.

Volunteering Australia defines formal volunteering as an activity which takes place through not for profit organisations or projects and is undertaken:

• to be of benefit to the community and the volunteer
• of the volunteer's own free will and without coercion
• for no financial payment, and
• in designated volunteer positions only.

If you engage in unpaid work that does not fit this definition you may wish to clarify your situation with the ATO.

Payments to volunteers
Generally volunteers are unpaid, and those engaging in volunteer work should do so for no financial payment. Occasionally volunteers may receive payment in the form of reimbursements, allowances and honoraria.

The ATO outlines that whether a payment is assessable income (income subject to tax) in the hands of a volunteer will depend on the nature of the payment and the recipient's circumstances.

They define payments to a volunteer that are not subject to tax as having many of the following characteristics:

• the payment is to meet expenses incurred or expected to be incurred
• the payment has no connection to the recipient's income-producing activities or services rendered
• the payment is not received as remuneration or as a consequence of employment
• the payment is not relied upon or expected by the recipient 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
• the payment is a token amount compared to the services provided or expenses incurred by the recipient. It is necessary to consider the full facts surrounding both the payment and the recipient in determining if the amount is a token amount.

Honoraria
Sometimes volunteers can receive an honorary reward for voluntary services or a fee for professional services voluntarily rendered. This is an honorarium.

The ATO states that honorary rewards for voluntary services are not assessable as income and related expenses are not deductible and are therefore not subject to income tax.

Reimbursements
The simplest way for volunteers to recoup out of pocket expenses is for the organisation they volunteer with to reimburse them directly. A reimbursement is a payment that covers the precise amount of expenses incurred by a volunteer.

Reimbursements are not treated as assessable income and are therefore not subject to income tax.

We recommend that reimbursements be agreed on before you use your money to purchase things on behalf of the organisation you are volunteering for.

Allowances
The ATO defines an allowance as a predetermined payment to cover an estimated expense. It is paid even if the recipient does not choose to spend the full amount.

If you receive an allowance, with no regard to expenses actually incurred and with no requirement to repay unspent monies, it may be treated as assessable income in the hands of the volunteer.

We do not endorse the use of allowances for volunteers.

Claiming income tax deductions
There are no specific provisions of the income tax law that allow deductions for expenses incurred while undertaking voluntary work. Voluntary work is usually unpaid and, if an individual receives a payment in their capacity as a volunteer, it is generally not assessable income. Most expenses incurred in undertaking voluntary work are not tax deductible.

Find out more
For more information on volunteers and tax download Volunteers and tax (2005) from the Australian Taxation Office.

Please note
This Q&A describes the most recent information available from the Australian Taxation Office Volunteers and tax (2005) guide. Please contact the Australian Taxation Office directly for advice on the taxation rights and responsibilities of volunteers.

Source
Volunteers and tax (2005), Australian Taxation Office (ATO)

Return to Volunteer Life.

The Centre for Volunteering [ABN 28 002 416 024]
Level 2, 228 Pitt Street, Sydney NSW 2000
T: 02 9261 3600 | F: 02 9261 4033 | E: info@volunteering.com.au
www.volunteering.com.au