Reimbursements of employment or volunteer-related expenses for the church’s work are generally not considered a taxable benefit, provided the employee’s or volunteers’ personal expenses are not being reimbursed.
It is a good idea for the church to reimburse employees/volunteers for ministry expenses. This not only requires them to keep careful records of amounts paid for the benefit of the church, but it also permits the church to claim the GST/HST rebate on such reimbursed expenses. If the reimbursement involves mileage driven for the charity, the charity will also be able to claim the GST/HST.
All reimbursement amounts paid to employees/volunteers to cover expenses must be reasonable and properly documented. The amounts paid will likely be treated as income and be subject to CPP, EI and income tax if they are not reasonable or properly accounted for.
If documentation or calculations are submitted before payment is issued, it is a reimbursement. If amounts are provided in advance of the expense being incurred, the payments are advances or allowances, such as a flat, monthly payment. The general rule for allowances for personal or living expenses or for any other purpose is that they need to be treated as taxable benefits. Advances given for ministry expenses must be substantiated by an Expense Report to avoid taxation.
All reimbursements must be submitted using an Expense Report which includes: