Taxation of Volunteers

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 tax agreements in the case of non-resident 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, including 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 (Walvis Bay) (Pty) Ltd it was held that income, although expressed as ‘amount’ in the “gross income” definition, need not be actual money, but may be every 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 was non-transferable 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 The 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

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