Tax Treatment of Volunteers

A volunteer can be defined as someone who enters into any service of their own free will, or who offers to perform a service or undertaking. This differs to an employee who would be under a contractual obligation for remuneration.

It is important to determine whether an individual is a volunteer or an employee of an organisation as this will affect the tax treatment of payments made. Generally volunteers do not have to pay tax on payments or benefits they receive. Also non-profit organisations are not liable for PAYG withholding or FBT on payments they make to volunteers.

The facts and circumstances of each individual need to be considered when determining whether they are a volunteer or an employee.

Payments through cash and/or non-cash benefits made to a volunteer may be referred to as honoraria, reimbursements and allowances. The nature of the payment and the recipient’s circumstances determine whether it’s assessable income in the hands of the volunteer.

Generally, payments which are earned, expected, relied upon and have an element of regularity are treated as assessable income.

An honorarium is a reward for voluntary service or a fee for voluntary professional services rendered. Honorary rewards are not assessable income and related expenses are not deductible. However fees for professional services voluntarily rendered are assessable income and related expenses may be deductible.

Reimbursement payments are compensation for an expense already incurred. A reimbursement of a volunteer’s expense incurred while carrying out the organisation’s activities will not be assessable income of the volunteer provided it is not more than the expenses incurred and it is not a payment for a supply made in the course of an enterprise of the volunteer.

An allowance is a payment which is a definite predetermined amount to cover an estimated expense, which can be paid even if the recipient does not choose to spend the full amount. Depending on the facts surrounding the allowance payment and the relationship between the volunteer and the organisation the payment may be assessable to the volunteer.

Expenses incurred by volunteers are generally not tax deductible as voluntary work is usually unpaid and, if an individual receives a payment it is generally not assessable income.

If an organisation is registered for GST it may be entitled to claim GST credits for purchases that it makes for its volunteers or when it reimburses its volunteers for expenses they have incurred.

Generally benefits provided to volunteers do not attract FBT. FBT is a tax payable by employers who provide fringe benefits to employees and/or associates. A genuine volunteer would not be an employee as they do not work under a contractual obligation for remuneration.

If you have any queries on the tax status of employees or volunteers, please contact this office.