Welcome back to 2016. Hopefully you were actually able to get away, take a holiday break and have returned refreshed and ready to get into the year.
Now let’s just say you did take that holiday, and you either saw first hand or read about people more disadvantaged than you and yours. So, given it was the season for good deeds, you thought to yourself, maybe you could do something to help. And maybe, you thought, if it was something to do with donating time in your area of expertise, it might even be tax deductible.
Better still, you might even combine that with your next holiday adventure.
But before you jet off to help those in need, you might like to think about the tax implications of volunteering first.
Payments to volunteers
According to the ATO, if you’re volunteering, you can be paid in cash or provided non-cash benefits (or given a combination of both). Of course, you might have heard these referred to as “honorariums”, i.e. financial payments intended as honorary rewards, “reimbursements”, i.e. payments to cover the precise amount of expenses you incur or “allowances”, i.e. definite, predetermined payments to cover your anticipated expenses.
However, the treatment for tax purposes depends on the nature of the payment and your circumstances as a volunteer – not simply its name or description. If your activities are considered a hobby (as opposed to income producing, i.e. receipts that are earned, relied upon, expected and have an element of regularity or recurrence), money and other benefits received as a result of such activities are not assessable income.
So, for example, if you’re a carpenter who receives a $300 honorarium for your volunteer services as a cook – it’s not assessable. However if you’re repairing a roof or building a school (i.e. using your carpentry skills), you are required to declare this payment as assessable income.
As volunteer work is generally unpaid, payments to volunteers are generally not assessable income and as such, any expenses you incur as a volunteer are generally not tax deductible. You can read more on that with the ATO here.
Donations come in many forms – money, physical goods and your time are all valuable donations to not-for-profit organisations. However, to be tax deductible, a gift needs to fulfill three conditions:
- It must be made voluntarily
- Made to a Deductible Gift Recipient (DGR)
- In monetary form ($2 or above) or certain types of property.
Have you ever wandered down the street to your local Woolworths and come across a Salvation Army volunteer collecting donations at the entry? And maybe you even felt so kind as to make a donation?
Well, did you know? For voluntary donations (given they’re of more than $2 of course) such as these, you’re likely to be able to claim a tax deduction, given the Salvation Army’s DGR status.
However, if you decide to volunteer your valuable time, unfortunately the ATO classes this as a gift of service and therefore it is not deductible as no money or property is transferred to the DGR.
You can always read more on the ATO’s rulings on donations here, including purchasing raffle tickets, contributions made at fundraising events and more.
Just to recap, and as a general rule:
- You do not have to pay tax on payments or benefits you receive in your capacity as a volunteer unless you’re working in your area of expertise
Of course, if you’d like to know more, you might like to read the ATO’s rulings on volunteers. Alternatively, if you’re a not-for-profit business owner, you might like to read up on volunteers and GST, Fringe Benefits Tax (FBT) and PAYG withholding.
And if you want to combine building orphanages, serving soup to the homeless or any other volunteer activities as part of your next holiday adventure (as long as you’re not seeking a tax deduction), go for it.
As always, if anything above strikes a chord with you, we recommend you seek professional advice. If you’d like to chat, you can call Kerry on 6023 1700, drop us a note or connect with Kerry via LinkedIn.