Governance Risk & Operations · 4 January 2028
Calling a payment to a volunteer an honorarium does not make it tax-free, and the ATO is explicit about this: the name or description attached to a payment does not determine how it is taxed. What matters is the nature of the payment and the volunteer's own circumstances, and getting this distinction wrong can leave a volunteer with an unexpected tax bill your association never intended to create.
The Distinction Most Boards Genuinely Miss
An honorarium paid as a honorary reward for voluntary service, unconnected to the volunteer's own profession or income-producing activity, is generally not assessable income. The same payment becomes assessable, however, where it is effectively a fee for professional services the volunteer voluntarily provided in an area connected to their own livelihood. A volunteer who happens to be a graphic designer and is paid an honorarium specifically for producing an association's annual report using their own professional skills and equipment has received assessable income, precisely because that payment connects directly to their income-producing profession, regardless of how appreciative and voluntary the underlying gesture was.
Reimbursements Over Allowances, Every Time
A reimbursement, precise compensation for an expense the volunteer has incurred and can substantiate, is not assessable income. An allowance, a predetermined fixed amount paid regardless of what the volunteer actually spends, carries meaningfully greater risk of being treated as assessable income, since it is not tied to any genuine, verifiable expense. Sector guidance specifically discourages the use of allowances for exactly this reason: they quietly transfer a tax compliance burden onto volunteers who may have no idea they now carry one. A volunteer receiving a fixed, predetermined allowance rather than a genuine, receipted reimbursement may be building an unexpected tax obligation they never asked for and your association never intended to create, simply because the payment was not tied to an actual, substantiated expense.
The Payg Withholding Trap Connected To A Volunteer'S Own Business
A specific trap arises where a volunteer is reimbursed for materials or supplies connected to their own business's trading stock, rather than a personal purchase entirely separate from their livelihood. Where this connection exists, the association may need to withhold from the payment unless the volunteer quotes their ABN. A tradesperson volunteering and using materials from their own business's stock sits in different tax territory from the same tradesperson making an entirely personal purchase unconnected to their business for the same volunteering activity.
- Assess whether any honorarium or payment to a volunteer connects to that volunteer's own profession or income-producing activity, since this connection, not the payment's label, determines whether it is assessable.
- Default to genuine, receipted reimbursements over fixed allowances wherever practical, given the meaningfully lower risk of unintentionally creating assessable income for the volunteer.
- Require volunteers to substantiate expenses with receipts before reimbursing, since this is what distinguishes a reimbursement from a payment more likely to be treated as an allowance.
- Confirm whether PAYG withholding applies where a reimbursement connects to a volunteer's own business supplies, requesting an ABN from the volunteer where this connection exists.
- Build a clear, written volunteer payments policy setting out how and when reimbursements, allowances, and honorariums are approved, giving both the organisation and its volunteers clarity before any payment is made.
Volunteers give their time freely, and the least an association can offer in return is genuine clarity about the tax consequences of any payment it makes to them. A well-designed volunteer payments policy protects both the organisation's own compliance position and the volunteers who never expected their generosity to come with an unexpected tax obligation attached.
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— Annie