A payment is a reimbursement for tax purposes if it is 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.
In general, the payer considers the expense to be their own and the recipient incurs the expenditure on behalf of the payer. The recipient may be reimbursed for all or part of the expense.
Is a reimbursement 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.
Example: Reimbursements not assessable and assessable
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.
Javier also 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.
End of example
Find out if a reimbursement your not-for-profit organisation gave to your volunteer is assessable income to that volunteer.