Taxation of Volunteers
30 June 2011
Posted by: Author: Ruaan Van Eeden
Taxation of Volunteers
Can a non-cash benefit provided to a volunteer ever be subject to tax?
To many people, the concept of taxing a volunteer in any way or form might sound like sacrilege.Surely, as a volunteer, nothing is expected nor received in return for the time and effort in performing a particular task out of free will?
Although it is true, in a general sense, that volunteers are not remunerated in cash for their time and effort, certain non-profit organisations provide non-cash benefits to assist in volunteer work,such as motor vehicles or accommodation.
The question is whether a non cash benefit provided to a volunteer can ever be subject to tax.If the answer is yes, the question turns to the form of taxation—capital / revenue, employee's tax,provisional tax, or even the application of double taxation agreements in the case of nonresident volunteers.
Where does one start? The first step to determine whether any tax implications would be to refer back to the basic principles of taxation in South Africa.In other words, for anything to be taxable in South Africa (subject to certain exemptions) it must fall within the definition of "gross income” in Section 1 of the Income Tax Act(the Act).
In the case of a resident, the definition of gross income means"the total amount, in cash or otherwise, received by or accrued to a taxpayer during the relevant year of assessment, excluding receipts and accruals of a capital nature”.For purposes of this article, and as a first step in the enquiry, the concept of "amount” is of relevance for the reason that if there is no"amount”, then there is no gross income to tax.
In CIR v People's Stores (WalvisBay) (Pty) Ltd, it was held that income, although expressed as an "amount” in the gross income definition, need not be actual money, but may be any form of property earned by the taxpayer,whether corporeal or incorporeal.Although an "amount” need not be actual money, it was held in Stander v CIR that, in the context of gross income, a non-cash benefit must be able to have a monetary value, subjectively ascertainable.
In the case of Stander, the question arose as to whether a non-transferable prize of an overseas trip constituted an "amount”.The court held that whatever the prize might have cost the institution that gave it was in itself irrelevant—as the prize in this instance was nontransferable,no monetary value could be attached to it.By applying the Stander principle, an argument could be made by a volunteer that non-cash benefits, such as the use of a motor vehicle, have no subjectively ascertainable money value and would therefore not fall within the gross income definition.
However,in the case of Commissioner for the South African Revenue Service v Brummeria Renaissance (Pty) Ltd and Others, the court concluded that the subjective test applied in Stander is wrong and held that the test is in fact objective. In Brummeria the Supreme Court of Appeal (SCA) had to consider the taxpayers' contention that the interest-free loans did not result in any "amount” being "received by” them which could be, and was,wrongly included in their "gross income".The SCA held that the right to use the loan capital interest free has an ascertainable money value that should be included in the gross income of the taxpayers.Brummeria therefore establishes the principle that the concept of"amount” in the definition of gross income is to be interpreted widely.
Furthermore, even where the receipt or accrual of a right is in a form other than money (such as the right to use a vehicle), which cannot be alienated or turned into money, it does not mean that the receipt of the right has no money value.The correct test to be applied in order to determine whether the receipt or accrual has a monetary value is an objective one and not subjective.
By applying the Brummeria principles to a non-cash benefit provided to a volunteer, it can be argued that there is an objectively ascertainable "amount” in the hands of a third party.For example, the provision of a vehicle free of charge would have an ascertainable market value, possibly based on what a third party would have paid under a lease or rental agreement.
In principle, then, it appears that tax consequences could flow from the provision of non-cash benefits to volunteers.This is, however, only the start of the enquiry, as one would have to determine whether any capital gains tax issues arise if the amount is in fact capital in nature or,possibly of greater importance, if the amount falls under Paragraph(c) of the gross income definition(whether capital or not) which brings into play employee's tax consequences.
Source: By Ruaan van Eeden (Tax breaks)