NFPs with a strong volunteer base are in the fortunate position of receiving enthusiastic support to achieve their organisation’s goals. But free support can still come with obligations. Accountants specialising in NFP matters can help clarify your organisation’s reporting responsibilities when receiving volunteer services.
Volunteers make a significant contribution to Australia. Their advocacy, community work, and support are highly valuable. On a monetary basis, volunteers also contribute around 521 million hours to NFPs annually, according to ABS figures, and the economic value of these hours was estimated at $17.3 billion.
At what point does an NFP need to account for these valuable free services? NFPs may have reporting obligations to the Australian Taxation Office (ATO), the Australian Charities and Not-for-profits Commission (ACNC), and other regulators when it comes to volunteer services. They also have responsibilities to their volunteers.
Australian Taxation Office
According to the ATO, volunteers are people who do not work under a contractual obligation for remuneration, unlike employees or independent contractors. Reimbursing a volunteer for out-of-pocket expenses does not make them an employee.
In their capacity as volunteers, they do not have to pay tax on payments or benefits they receive.
Not-for-profit organisations are generally not liable for pay as you go (PAYG) withholding or Fringe Benefits Tax (FBT) on payments they make, or benefits they provide, to volunteers. However, some aspects of volunteering are affected by taxation regulations.
GST
If your organisation is registered for Goods and Services Tax (GST), it may be entitled to claim GST credits for purchases it makes for volunteers or when reimbursing volunteers for expenses they have incurred.
If the purchase or expense is more than $82.50 including GST, you need a tax invoice to claim a GST credit. Your organisation can still claim the GST credit even if the tax invoice is in the volunteer’s name.
FBT
The benefits your not-for-profit organisation provides to volunteers do not attract Fringe Benefits Tax (FBT).
The ATO gives examples where FBT does not apply, such as providing basic meals and accommodation to a volunteer sent to work on a rural project, or reimbursing a bushfire brigade volunteer for travel and other minor expenses.
PAYG withholding
Payments to volunteers are generally not subject to pay as you go (PAYG) withholding.
An exception may apply where the payment is for a supply of goods or services made in the course of an enterprise carried on by the volunteer, and the volunteer has not quoted their Australian business number (ABN).
The ATO gives this example: “Tom also agrees to make pies at his bakery for the charity’s pie drive for the cost of the ingredients. The charity reimburses Tom $150 for the cost of the ingredients. As Tom has made a supply in the course of his enterprise, he will need to quote his ABN to the charity to avoid an amount being withheld from the payment. If he does not quote his ABN, the rate of withholding in this situation would be 49% of the total payment.”
Tip: Be alert to reporting requirements, such as the volunteer’s ABN, where payment is for a supply of goods or services made in the course of an enterprise carried on by the volunteer.
ACNC reporting
As NFP regulations in Australia change, it is important to remember that the size of a charity helps determine its reporting obligations.
Your volunteer base may be relevant here. The ACNC criteria for size are based on revenue, and revenue includes in-kind donations, such as volunteer time or goods.
A medium charity has annual revenue of $250,000 or more, but less than $1 million. A large charity has annual revenue of $1 million or more. Medium and large charities need to submit an Annual Information Statement and a financial report that is either reviewed or audited.
Tip: A sizeable increase in volunteer numbers may affect your charity’s reporting obligations. Review your position regularly so your compliance approach stays current.
AASB income recognition requirements
The Australian Accounting Standards Board (AASB) requires public sector entities to recognise volunteer services as income at fair value if the fair value can be measured reliably and the services would have been purchased if they had not been donated.
Private sector NFP entities do not have to recognise volunteer services. However, the AASB encourages disclosure of qualitative information about the nature of the entity’s dependence on volunteer services.
There is also a policy option to account for donated services at fair value if the fair value can be measured reliably.
Private sector NFPs should note that if they choose to recognise volunteer services, once adopted, the accounting policy can only be changed if it meets the criteria in AASB 108.
Tip: When determining the value of a service as part of sponsorship or partnership discussions, the donor is responsible for advising the recipient of the market value of their donation, according to the ATO. If you are unsure, request this information directly from the donor.
For more details, see AASB 1058 Income of Not-for-Profit Entities.
