In our article Tax deduction for notional costs of volunteers We described a ruling by the Gelderland District Court concerning a charity shop. The charity shop was run by a foundation. On 29 April 2016, the Supreme Court handed down its judgment in the appeal in cassation against the District Court’s ruling. As the proceedings bypassed the Court of Appeal, this constitutes what is known as a leap cassation.
Costs for volunteers
Work carried out by volunteers is not paid (or is paid relatively little). Unpaid (staff) costs cannot be deducted from the profit on which corporation tax is payable.
A foundation is liable for corporation tax only if, and to the extent that, it carries on a business. By operating the charity shop, the foundation to which these proceedings relate was carrying on a business.
Notional costs for volunteers
Deduction is only possible if the unpaid staff costs are treated as notional expenses. In that case, the organisation in question must be a foundation that qualifies as ANBI or if SBBI. And the foundation’s profits must be generated primarily (that is to say, by 70% or more) through the work carried out by volunteers.
The notional costs for volunteers are then calculated by multiplying the hours worked by the volunteers by the minimum wage, less the amount actually paid to the volunteers.
Mainly
The dispute centred on this 70% criterion. The Supreme Court upheld the District Court’s ruling. Fictitious deductible costs for volunteers only apply where 70% of the work has been carried out by the volunteers. In total, 22,306 hours were worked within the foundation’s organisation in one year, of which 8,410 were worked by the volunteers. This means that the volunteers had worked less than 70% of the total number of hours. Consequently, the deduction of notional costs for volunteers did not apply.
The burden of proof that the volunteers have worked 70% or more than the hours worked rests with the foundation claiming the deduction. Of course, there are still a number of variations on the case in question that could be envisaged. For instance, not all ANBIs and SBBI organisations operate entirely with their own capital. The question then is how the hours worked by paid staff and volunteers should be allocated.
See also
The volunteer scheme remains a hot topic
Volunteering as a tax-deductible donation