Edited version of private advice

Authorisation Number: 1051635851152

Date of advice: 26 February 2020

Ruling

Subject: PAYG (withholding) for volunteers

Question 1

Are payments made by your entity to non-employee volunteers subject to PAYG withholding?

Answer

No

Question 2

Are payments made by your entity to employee volunteers subject to PAYG withholding?

Answer

Yes

This ruling applies for the following periods:

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commences on:

1 December 20XX

Relevant facts and circumstances

The entity is a not-for-profit organisation.

The entity receives annual grants totalling $XX from a State department for running programs.

The programs are currently run by seven volunteer facilitators. Two of the volunteers are also currently employed by your entity.

Each of the facilitators volunteers approximately XX hours of their time to the program.

The entity allocates the entirety of the grant money to provide one off annual lump-sum payments of approximately $XX to each of the volunteers.

Relevant legislative provisions

Subsection 6-5(1) of the Income Tax Assessment Act 1997

Section 6-10 of the Income Tax Assessment Act 1997

Section 8-1 of the Income Tax Assessment Act 1997

Subsection 15-2(1) of the Income Tax Assessment Act 1997

Subsection 12-1(1A) of Schedule 1 to the Tax Administration Act 1953

Section 12-35 of Schedule 1 to the Tax Administration Act 1953

Section 12-45 of Schedule 1 to the Tax Administration Act 1953

Reasons for Decision

Subdivision 12-B (which comprises sections 12-35 to 12-60) of the Tax Administration Act 1953 (TAA 1953) deals with PAYG withholding from payments for work and services which includes payments to employees. Section 12-35 of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Subsection 12-1(1A) of Schedule 1 to the TAA 1953, however, provides an entity need not withhold an amount under section 12-35 or section 12-45 of Schedule 1 to the TAA 1953 from a payment if the whole of the payment is not assessable income and is not exempt income of the entity receiving the payment.

Therefore, to work out whether an amount needs to be withheld from a payment it is necessary to determine whether the payment received by volunteers is assessable income.

Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments can be given various descriptions, including honorariums, reimbursements and allowances.

How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances.

Assessable income includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income as defined in section 6-10 of the ITAA 1997.

Ordinary Income

Section 6-5 of the ITAA 1997 includes income according to ordinary concepts, which is called ordinary income, is assessable income.

Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as ordinary income.

To determine if an amount is assessable, the full facts surrounding both the payment and the recipient must be considered. A payment that is not assessable to a volunteer will have many of the following characteristics:

·         The payment is to meet incurred or anticipated expenses.

·         The payment has no connection to the recipient'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 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. Whether the payment is 'token' depends on the full facts surrounding the payment and recipient's circumstances.

Based on the facts of this case we do not consider the payments to non-employee volunteers to be ordinary income. We consider that the payments are intended to offset some of the costs incurred by volunteers in participating in the program rather than a reward for their time or services rendered.

In contrast, the payments to employee volunteers have the character of ordinary income (section 6-5 of the ITAA 1997). Like non-employee volunteers the payment is still considered to be for expenses incurred rather than one for services rendered. However, due to the connection of the payments with their income producing activity, and the employee/employer relationship, it is our view that the payment is ordinary income to these individuals.

Statutory Income

Section 6-10 of the ITAA 1997 includes in a taxpayer's assessable income amounts that are statutory income.

According to the statutory income provision, subsection 15-2(1) of the ITAA 1997:

...your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you...

On the facts of this case, this provision does not apply to non-employee volunteers as the payments are not received for either services rendered or in respect of, or for in relation to their employment.

In contrast we consider the payments to employee volunteers have been received in relation to their employment with your entity. However, in this case, as paragraph 15-2(3)(d) of the ITAA 1997 excludes amounts that are ordinary income, the provision will serve to provide a secondary mechanism to classify the payment as assessable income.

Summary

Because payments to employee volunteers is assessable income and the employer/employee relationship is already established, the entity is required to withhold tax to these taxpayers in accordance with section 12-35 of Schedule 1 of the TAA 1953.

The payments made to external volunteers are not considered to be assessable income nor are they considered to be employees of the entity. The entity does not have an obligation to withhold tax made to these individuals.