To many, the concept of taxing a volunteer might sound wrong. Surely, as a volunteer, nothing is expected or received in return for the time and effort in performing a particular task out of free will? However, although volunteers are not remunerated in cash for their time and effort, certain non-profit organisations do provide non-cash benefits to assist in volunteer work (eg, motor vehicles or accommodation). The question is thus whether a non-cash benefit provided to a volunteer can ever be subject to tax. If the answer is yes, the question then turns to the form of taxation - capital/revenue, employee tax, provisional tax or even the application of double tax agreements (in the case of non-residents).
The first step in order to determine whether there are any tax implications is to refer back to the basic principles of taxation in South Africa. 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. In the case of a resident, 'gross income' refers to 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.
The concept of 'amount' is relevant in this enquiry for the reason that if there is no 'amount, there is no gross income to tax. In CIR v People's Stores (Walvis Bay) (Pty) Ltd, it was held that income ('amount' in the 'gross income' definition) need not be actual money; for example, it could be any 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 subjectively ascertainable monetary value. In Stander the question arose as to whether a non-transferable prize of an overseas trip constituted an 'amount'. The court decided 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, a volunteer could argue that non-cash benefits, such as the use of a motor vehicle, have no subjectively ascertainable monetary value and would therefore not fall within the 'gross income' definition. However, in The Commissioner for the South African Revenue Service v Brummeria Renaissance (Pty) Ltd 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 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 had an ascertainable monetary value that should be included in the taxpayers' gross income.
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 (eg, 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 monetary value. The correct test to be applied in order to determine whether the receipt or accrual has a monetary value is objective and not subjective.
By applying the Brummeria principles to a non-cash benefit given 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. However, this is 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 - whether the amount falls under Paragraph (c) of the 'gross income' definition (whether capital or not), which brings into play employee's tax consequences.
For further information on this topic please contact Ruaan van Eeden at Cliffe Dekker Hofmeyr Inc by telephone (+27 11 562 1000), fax (+27 11 562 1111) or email ([email protected]).