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An honorarium is an ex gratia payment (i.e., a payment made without the giver recognizing themselves as having any liability or legal obligation) made to a person for their services in a volunteer capacity or for services for which fees are not traditionally required. This is used by groups such as schools or sporting clubs to pay coaches for their costs. Another example includes the payment to a guest speaker at a conference to cover their travel, accommodation, or preparation time.
An example of this are the payments made by Australian schools to their sporting coaches. They are ostensibly receiving a reimbursement for their costs in their voluntary role as coach. The concept of an honorarium has a tax implication. In Australia recipients of these funds make a tax declaration (known as the hobbyist form) to the tax office and therefore do not have to include this money in their annual tax return.
In Canada, honoraria are considered as salary and thus, taxable income under the Income Tax Act. In the case where a gift is substituted for honorarium (gift in lieu of money), it is still classified as a taxable benefit by Canada Revenue Agency.
In cases where an honorarium is paid to an individual who is not a resident of Canada, the honorarium is still subjected to income tax withholding (usually 15%) unless prior approval was obtained from Revenue Canada.
When honorarium is paid to an employee, such as mayors, chairpersons and local clubs and societies, it is not subject to withholding tax but is subject to income tax. However, if the payment was not made to the above mentioned category of people, it is subject to withholding tax rate between 33c to 48c.
Honoraria to employees are subject to Income Tax and National Insurance contributions under PAYE. However payments are made based on services required and not bound by any contractual arrangements.