24 November 2011 External T.I. 2011-0400471E5 - Volunteer Rewards Program

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether compensation received in the form of reward points by a volunteer for services rendered is taxable under the Income Tax Act?

Position: A question of fact. The facts must be reviewed on an individual case-by-case basis in order to determine if the reward points received in exchange for services rendered is employment income, business income, or a non-taxable receipt.

Reasons: Where there is no employee/employer relationship and compensation is nominal and unlikely to ensure the provision of services, and does not represent the FMV of the services, there may be no tax implications. This determination may be affected if the value of the rewards points is unusually high or if points are awarded for a disproportionately minimal amount of work performed.

XXXXXXXXXX
						2011- 040047
						C. Underhill
November 24, 2011

Dear XXXXXXXXXX :

Re: Volunteer Rewards Program

This is in response to your letter of March 24, 2011, concerning the tax consequences of a rewards program offered by a ski club to its members for volunteering.

In the situation you described, the ski club is offering a rewards program for its members who volunteer at the ski club. The amount of reward points allocated to a member depends on the type of activity or event held at the ski club and the shift, schedule and/or position assumed by the volunteer. Generally, a member is awarded 5 reward points for each hour of volunteer time. One reward point equals $1.00. Reward points may be redeemed at the member's option for merchandise at the ski club store, extended trips and bus day trips offered by the ski club, lessons and programs offered by the ski club, and registrations at the ski club. Reward points are non-transferable, non-refundable, and have no cash value.

The Canada Revenue Agency (the "CRA") recognizes that many tasks undertaken today by volunteers are no longer performed gratuitously. Some volunteers receive sums of money, gift certificates or goods and/or services, of more than nominal amounts, in consideration for the services rendered. Generally, an amount received by an individual as compensation for services rendered will be taxable either as income from an office or employment or as income from a business depending on the particular circumstances.

Where an employment relationship exists between the volunteer and the organization, the compensation received by the volunteer would generally be taxable pursuant to section 5 or 6 of the Income Tax Act (the "Act"). For purposes of the Act, the determination of whether the relationship between parties is that of employer/employee or an independent contractor is a question of fact. The CRA relies on the basic tests developed by the courts in deciding whether a particular contract is a contract of services (employer/employee relationship) or a contract for services (client and independent contractor relationship). These tests generally consist of the control test, the integration test, the economic reality test and the specified results test. More importantly, a review of the contract and the actual circumstances surrounding the performance of services will determine the relationship. For further information, please refer to Guide 4110, Employee or Self-Employed.

Where no employment relationship exists, compensation received in excess of a nominal amount for services rendered to another party would generally constitute business income for purposes of the Act. Other than subsection 81(4) of the Act (which provides an income tax exemption for the first $1,000 received by an individual from a government, municipality or other public authority for duties performed as a volunteer in certain emergency situations), there is currently no provision in the Act that would provide an exemption from income tax for amounts received for services rendered by the volunteer. However, it is our view, where compensation paid to the volunteer is nominal, the volunteer will have no income tax implications; in other words, the amount will not be taxable.

To be considered nominal, the compensation paid to the volunteer must generally be significantly less in comparison to what it would have cost to have the same duties performed by a regular employee or independent contractor. Nominal compensation would not likely be enough to induce the provision of services by the volunteer, that is, the compensation received would not likely influence the individual's decision to volunteer. Nominal compensation also does not reflect the fair market value of the services rendered and it may not adequately reflect the amount of work performed or the quality of the services provided. The value of the total compensation received by the volunteer on an annual basis should also be considered when determining if the amount is nominal.

The determination of the income tax consequences of compensation received by volunteers cannot be determined without considering all the relevant facts. The facts must be reviewed on an individual case-by-case basis in order to determine if the reward points received by a volunteer in exchange for services provided is employment income, business income, or a non-taxable receipt.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch