NFPs with a strong volunteer base are in the happy position of accepting enthusiastic and freely given support to achieve their organisation’s goals. But free doesn’t mean without associated obligations. Accountants specialising in NFP matters can help your organisation clarify its reporting responsibilities when receiving volunteer services.
Volunteers make a huge contribution to the nation. Their advocacy for causes and enhancement of community life are priceless. On a purely monetary basis, volunteers also contribute around 521 million hours to NFPs annually, according to recent ABS figures, and “the economic value of these hours was estimated at $17.3 billion”.
At what point does an NFP organisation have to account for these valuable free services? NFPs can have reporting obligations to the ATO, the ACNC and other regulators when it comes to volunteer services. NFPs also have responsibilities to their volunteers.
Australian Taxation Office
According to the ATO, volunteers are those who do not work under a contractual obligation for remuneration, as opposed to 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 not liable for pay as you go (PAYG) withholding and fringe benefits tax (FBT) on payments they make, or benefits they provide, to volunteers. However, it is important to be aware of how some aspects of volunteering are affected by taxation regulations.
GST – If your organisation is registered for GST it may be entitled to claim GST credits for purchases it makes for its volunteers or when it reimburses its volunteers for expenses they have incurred. If the purchase or expense is more than $82.50 (GST inclusive) you need a tax invoice to claim a GST credit. Your organisation can still claim the GST credits even if the tax invoice is in the name of the volunteer.
FBT – The benefits your not-for-profit organisation provides to volunteers do not attract fringe benefits tax (FBT). The ATO gives examples of volunteer benefits scenarios where FBT does not apply, such as providing basic meals and accommodation to a volunteer sent to work on a rural project, or a bushfire brigade volunteer reimbursed for travel and other minor expenses.
PAYG withholding – Payments to your not-for-profit organisation’s volunteers are generally not subject to pay as you go (PAYG) withholding. However, an exception would be in certain cases 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 of an exception that comes up, “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 BOX | Be alert to reporting requirements, such as the volunteer’s ABN, in situations where “payment is for a supply of goods or services made in the course of an enterprise carried on by the volunteer”. In the ATO’s baker volunteer service example, his making pies for charity is reported differently to painting a community centre for a charity.
As the regulations for NFPs in Australia are changing, a key factor to keep in focus is that the size of a charity will determine its reporting obligations. Your volunteer base counts here. The ACNC criteria for size are based on revenue, and revenue includes “in-kind donations (for example, volunteer time or goods)”.
A medium charity has an annual revenue of $250 000 or more, but less than $1 million. A large charity has an 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 BOX | Be aware that a sizable increase in volunteer numbers can tip your ‘small charity’ organisation into the next reporting bracket for compliance purposes.
AASB income recognition requirements
The Australian Accounting Standards Board (AASB) latest regulations make it mandatory for public sector entities to recognise volunteer services as income at fair value, if the fair value of those services 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 now encourages disclosure of qualitative information about the nature of the entity’s dependence arising from the volunteer services it receives. There is now 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 make the voluntary choice to take up the option of recognising volunteer services, once adopted, the accounting policy can only be changed if it meets the criteria in AASB 108.
TIP BOX | When determining the value of a service as part of your sponsorship or partnership conversations, it is the donor’s responsibility to advise the recipient of the market value of their donation, according to the ATO. If you are unsure, request the information directly from your donor.
For more details, see AASB 1058 Income of Not-for-Profit Entities.