GST issues registers

Charities consultative committee resolved issues

Part 7 - Reimbursements, volunteers and payments to contractors

Issue 1: Organisations depend upon volunteers to maintain services. How are volunteers and organisations largely staffed by volunteers affected by the GST?

Non-interpretative - straight application of the law

Principle

Reimbursements to an organisation's employees, agents, partners and officers are not creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (the 'Act'), unless the relevant person is acting as an agent in making the acquisition. The organisation would therefore not be entitled to an input tax credit for such reimbursements. In some situations the organisation may reimburse the expenses of a person that were not incurred by the person whilst acting as an agent.

For example, if the person acting as agent acquires something for the organisation, that acquisition is effectively made by the organisation, and could therefore be a creditable acquisition. However, if the person, on his or her own behalf, incurs, for example, petrol expenses, in making that acquisition, and the organisation reimburses him or her for those expenses, the organisation has not made an acquisition. The organisation would therefore not be entitled to an input tax credit in relation to such a reimbursement.

Division 111 of the Act covers an organisation's entitlement to claim input tax credits where it reimburses an employee, agent, officer, partner or volunteer for expenses they incur in connection with carrying on the organisation's enterprise.

Charitable institutions

Where a GST registered endorsed charity, a gift-deductible entity (GDE) or a government school reimburses an individual for an expense he or she incurs that is directly related to their activities as a volunteer of that organisation, the organisation will be entitled to claim the input tax credits on these acquisitions.

To enable the organisation to claim the input tax credit, the volunteer will need to provide the organisation with the tax invoice for the acquisition they have made.

Organisations that are not charitable institutions

Where volunteers of organisations that are not endorsed charities, gift-deductible entities or government schools are reimbursed for expenses they incur in carrying out their activities as volunteers, the organisation will have no entitlement to claim the input tax credits. This will affect organisations such as sporting clubs and other non-profit organisations.

A non-profit organisation is entitled to an input tax credit where it makes a creditable acquisition. For example, an organisation may make a creditable acquisition where it purchases uniforms and provides the uniforms to its volunteers. However, the non-profit organisation would not be entitled to an input tax credit where it reimbursed the volunteer for cost of the uniform.

Note that if the organisation acquires something through an agent who was acting on its behalf in making the acquisition, the organisation is making that acquisition. The consideration an organisation pays through the agent for that acquisition is covered by the general rules about creditable acquisitions, not by Division 111.

For more general information on GST and volunteers please refer to the fact sheet Volunteers and tax (NAT 4612).

When can you claim the input tax credit?

If you are an employer and are registered for GST, you can claim an input tax credit for reimbursed employee expenses if:

•

Your employee incurred the expense in activities directly related to their employment or the reimbursement constitutes an expense payment benefit for FBT purposes.

•

GST was payable when the employee incurred the expense.

•

The employee is not entitled to an input tax credit for the expense you are reimbursing.

•

The expense is not listed as a non-deductible expense.

What is a reimbursement?

You can claim the input tax credit where you reimburse an employee but not where you pay an employee an allowance.

You make a reimbursement when you compensate an employee an exact amount for a specific purpose. If you reimburse an employee for a proportion of a purchase it may also be considered a reimbursement.

You can reimburse an employee for an expense they have incurred but not yet paid for. For example, you may reimburse an employee for a credit card purchase before they have paid their bill.

If you provide an employee with money for expenses they have not yet incurred, and the employee has to repay you any amount they do not use, you are considered to be reimbursing the employee.

Which reimbursements can you claim for?

You are only entitled to an input tax credit where you reimburse an employee for an expense that is directly related to their duties as an employee or the reimbursement constitutes an expense payment benefit for FBT purposes.

Example

Helen employs Lee in her small software consultancy in Melbourne. She asks Lee to attend a business conference in Brisbane.

Helen tells Lee that she will cover his expenses up to a maximum of $500. He will have to provide tax invoices for expenses of $82.50 or more, and receipts for expenses of less than $82.50.

Helen gives Lee $500 in advance. When Lee returns from the conference he provides tax invoices for $350 and repays Helen $150. (All Lee's receipts were in the form of tax invoices.)

Helen has reimbursed Lee's expenses, so she is entitled to claim an input tax credit for any GST included in the price of the goods and services he paid for.

What is an allowance?

If you pay an employee an amount to cover an estimated expense, and the employee does not have to repay any amount they do not spend, you are generally paying an allowance.

Example

Helen asks Lee to go to Brisbane to attend another conference. This time she pays him a travel allowance of $450.

Helen does not ask Lee to keep any receipts, but when he returns he gives her tax invoices for $350. He does not have to repay any of the $450 that he did not spend.

Helen has not reimbursed Lee's expenses. She has paid him an allowance. She is not entitled to an input tax credit for his expenses, regardless of the tax invoices she asked him to provide.

What if an employee spends more than their allowance?

If the employee spends more than their allowance they have been given, and the employer pays the employee the amount they have overspent, the whole payment is still considered an allowance. This applies even if the employee is required to account for the extra expenditure with receipts or tax invoices.

Example

Helen asks her employee Linda to go to Sydney for a conference. She pays Linda a travel allowance of $450. Linda will not need to repay any of the allowance that she does not spend but she will have to provide receipts for her expenses. Helen tells Linda that she will top up the allowance if she needs to spend more than $450.

When she returns, Linda gives Helen tax invoices for $550 and Helen pays her an additional $100.

The whole $550 ($450 plus the additional $100) is an allowance. Helen is not entitled to any input tax credit in relation to Linda's expenses.

What about payment for notional expenses?

If you make a payment to an employee based on a notional (rather than actual) expenses, you are not making a reimbursement.

For example, if you make 'a cents per kilometre' payment to cover work-related use of an employee's private car, you are paying an allowance, not making a reimbursement. You are not entitled to claim an input tax credit.

Example

Syd uses his car on a regular basis for work purposes. His employer, Mel, requires Syd to keep a record and pays him a monthly amount based on the engine size of Syd's car and the number of kilometres he travel for work purposes.

Mel is not making a reimbursement and is not entitled to an input tax credit.

Specific questions and answers

Question 1. Are there GST implications when a hospital supplies its volunteers with light meals?

Non-interpretative - straight application of the law

Where the supply of a light meal is not directly linked to the provision of the volunteer labour, namely there is no pre existing agreement or understanding that the volunteer will receive a meal in return for their labour the supply of the meal would not be subject to GST as there is no consideration for the supply. However, where a light meal is supplied as part of an agreement or understanding the hospital has with its volunteers it is a supply for consideration in that the volunteer provides labour which is in part consideration for the meal.

For more information on the provision of food to volunteers and the application of GST please refer to the fact sheet: Volunteers and tax (NAT 4612).

Question 2. Is GST payable on uniforms if:

•

the charity buys the uniform?

•

the charity asks the recipient to make a contribution towards the cost of making the uniform that is less than 50% of the market value?

•

the charity sells the uniform to the recipient?

Non-interpretative - straight application of the law

If a registered supplier makes a taxable supply of uniforms to a charity, then the price must include GST. The charity (if registered) is entitled to a credit for the GST included in the price if it buys the uniforms in carrying on its enterprise.

Where a recipient makes a contribution which is less than 50% of the GST inclusive market value of the uniform, the supply of the uniform by the charity is GST-free.

If a registered charity sells the uniform to the recipient for a price that is both 50% or more of the market value of the uniform and 75% or more of the consideration it provided in acquiring the uniform, the price to the recipient must include GST.

Question 3. Will the expenses which organisations incur to support their volunteer workforce be treated as legitimate input tax credits?

Non-interpretative - straight application of the law

If charities are registered and they pay GST on acquisitions to support their volunteer workforce they will be entitled to input tax credits on those acquisitions.

Question 4. There will be an increase in 'out of pocket' expenses for volunteers. As volunteers are not 'entities' they cannot claim input tax credits. How will this be treated?

Non-interpretative - straight application of the law

Subsection 111-18 has been added to the legislation to enable a charity to claim input tax credits for reimbursements to volunteers of expenses. These expenses must be directly related to the activities of the charity.

Question 5. Are payments made by way of honorariums, such as guest speakers, be subject to GST?

Non-interpretative - straight application of the law

Payments made to a guest speaker who is registered will be subject to GST where the activities are made in respect of the speaker's enterprise.

Question 6. Will GST apply to contractors who are employed by a charitable or not-for-profit organisation? If so, would it therefore be better for organisations to hire on a permanent basis?

Non-interpretative - straight application of the law

Contractor services are subject to GST and the entity is entitled to input tax credits. Organisations will need to consider whether to employ or use contractors, based on their own circumstances, the services required and balancing these with the costs associated with maintaining employees.

Question 7. Do psychologists and social workers in government funded services have the same status as private professionals?

Non-interpretative - straight application of the law

Where the psychology and social work is provided by a recognised professional and is recognised as being necessary as appropriate treatment then the supply would be GST-free. The supply of psychology and social work services are specifically covered by section 38-10.

Question 8. Is a charity (or other non-profit body) required to deduct the 46.5% withholding tax from payments made to volunteers to reimburse them for their expenses (such as petrol money)?

Non-interpretative

For information on volunteers and withholding tax refer to the fact sheet Volunteers and tax (NAT 4612).

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