Income - amounts received by volunteer worker to cover expenses

Are amounts received by the taxpayer as a volunteer to cover expenses, assessable income under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The amounts received by the taxpayer as a volunteer to cover expenses are assessable income under section 6-10 of the ITAA 1997 as they are included in assessable income by paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is a volunteer worker at a college.

The taxpayer works at the college twice a week as well as outside of school hours on occasions and incurs motor vehicle expenses.

The college offered the taxpayer an 'honorarium' payment to cover the taxpayer's costs such as travelling, food and clothing. The college pays the amount because of the volunteer nature of the position.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Paragraph 3 of Taxation Ruling IT 2639 defines 'income from personal services' and states that: '3. "Income from personal services" is income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect.'

Other characteristics of income that have evolved from case law include receipts that: • are earned; • are expected; • are relied upon; and • have an element of periodicity, recurrence or regularity.

The payments are not 'expected' by the taxpayer, as they are dependent on the goodwill of the college. The payments are not 'earned', as they do not directly relate to the services performed, rather they relate to personal expenses incurred in order to perform the volunteer duties. The taxpayer does not appear to 'rely' on the payments, as they incurred the costs prior to receiving the payments. However, the payments do have an element of regularity. The element of regularity, however, is not sufficient to characterise the payments as income according to ordinary concepts. Thus, the payments are not assessable under section 6-5 of the ITAA 1997.

Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.

Paragraph 26(e) of the ITAA 1936 provides that the value of all allowances, gratuities, compensation, benefits etc. given or granted in respect of employment or services rendered are included in assessable income.

Paragraph 2 of Taxation Ruling TR 92/15 states that a payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance. If a volunteer worker receives an allowance, with no regard to expenses actually incurred and with no requirement to repay unspent monies, the ATO will generally treat the payment as assessable income.

The taxpayer receives a regular amount to cover estimated expenses incurred. The amount is not paid to reimburse the taxpayer for expenses actually incurred. The amount is therefore an allowance under paragraph 26(e) of the ITAA 1936 and is included in assessable income under section 6-10 of the ITAA 1997.