KEY POINTS:
An anomaly in the tax law that means volunteers are taxed on anything they get for their trouble looks likely to be removed in this year's Budget.
Revenue Minister Peter Dunne is expecting recommendations from officials in the next few weeks, and hopes decisions can be made in time for Budget 2008.
At the moment a quirk in the law means that while paid employees don't pay tax on reimbursements for expenses incurred on the job, similar expenses claimed by those who volunteer their time are taxable.
Honoraria - payments made to volunteers who offer their professional services largely for free - are also taxed.
Charitable organisations say the inequitable situation is putting volunteers off.
Yvonne Wilson, manager of Rauawaawa Kaumatua Charitable Trust, which provides health, social and welfare services to kaumatua, said her organisation had found fewer people were willing to give their time, and she blamed the tax regime.
Wilson said that if volunteers were on a benefit or had another source of income, they incurred secondary tax on any reimbursements they received for their charitable work.
"So you're not only getting taxed for the contribution that you're making in regards to your reimbursements, you're actually getting that tax at a higher level."
Wilson said it was unfair that volunteers should be taxed.
"I think they're giving back to the community and they're giving back to not-for-profit organisations who struggle for funding anyway."
A report in the Business Herald before Christmas highlighted the issue. At the time National Party charities spokeswoman Paula Bennett said sorting out the problem wasn't rocket science and her party had pledged to make reimbursements and honoraria up to $500 tax-free.
While stopping short of detailing the changes that could be made, Peter Dunne said in principle the Government wanted to remove any disincentive to volunteering.
He said those who volunteered their money got a tax rebate, and that scheme was about to be increased - from April 1 people will be able to claim back a third of any cash donations they make to charity up to their annual net income.
"But for those who volunteer their time there's nothing, and clearly that's an anomaly and it needs to be sorted out," the minister said.
However reform has been slow.
Dunne said it had been an issue since the passing of the Charities Act 2005. A discussion paper at the end of 2006 had not led to any consensus and so Inland Revenue put out an issues paper last year.
The IRD had received 71 submissions.
In the paper, the IRD commented that many parties had "expressed surprise that there is any tax obligation at all" on volunteers.
Volunteering New Zealand wants all reimbursements to volunteers to be tax-free. In terms of honoraria, the devil would be in the detail, said executive director Tim Burns.
One of the problems was that honoraria were not defined at all in tax legislation, and a lot depended on what definition officials came up with, he said.
If honoraria were for time spent working on something, tax was fair enough, but if they were for reimbursing expenses then tax shouldn't apply.
SORTING IT OUT
* Volunteers are taxed on reimbursements for expenses incurred while doing their charitable work - anything from petrol money to shopping done for an elderly neighbour are taxable.
* Honoraria - payments received in recognition of professional services offered to charities for free - are also taxable, but there's no definition under the law.
* Revenue Minister Peter Dunne is proposing changes at the next Budget to remove "disincentives" to volunteering.
