An anomaly in taxation law sees volunteers being taxed. Photo / Herald on Sunday
Inland Revenue is considering whether to remove an anomaly in the tax law that means volunteers can be taxed on any small contribution they get for their trouble.
Bizarrely, paid employees aren't taxed when they're reimbursed for expenses they incur on the job but charitable workers can be.
Volunteers can also face a tax bill for "honorariums" - payments made in recognition of professional services provided largely for free.
Submissions on an IRD issues paper on the matter closed on Friday.
Volunteering NZ chief executive Tim Burns said at best the law was ambiguous. Although tax law specifically exempted reimbursements to employees, it said nothing about charitable workers or volunteers.
The IRD wasn't "jumping up and down" about it, but there had been instances of volunteers being asked to pay tax.
"In theory we should all be putting in a tax return each year, which we now don't do anyway. It could be a person who goes and does the shopping for somebody that can't get out, pays for it up front, goes back and gets a cheque for the reimbursement ... There's no way that should be considered declarable or taxable income."
Burns said honorariums also weren't clearly defined. He gave the example of an accountant doing the books for a charity, and being given a one-off sum for petrol in recognition of the effort. Technically tax should be paid on the petrol money.
Volunteering New Zealand is arguing that such contributions shouldn't be taxed at all.
National MP Paula Bennett said after a review of the charitable sector this year that her party pledged that if elected it would make reimbursements and honorariums up to $500 tax-free.
"It was by no means rocket science, you know, we couldn't believe it hadn't been done previously," she said.
In its issues paper, Inland Revenue conceded that many parties had "expressed surprise that there is any tax obligation at all".
It said the Government was actively trying to encourage a culture of giving, and the current tax regime "may increasingly be viewed as a disincentive to volunteering".
It said options included exempting reimbursements to volunteers from tax, setting thresholds at which reimbursements and honorariums started to attract tax, and requiring honorariums and reimbursements to be separated.
