There are 2 ways by which a religious organisation (hereafter “churches”) can remunerate their religious workers (“ministers”):

• by way of salary/stipend;
• by way of non-assessable benefits.

1.         Salaries or Stipends

Ministers are now regarded as “employees” under the “Pay As You Go” requirements.  Churches are therefore required to:

• Be registered with the Tax Office as an employer;
• Complete and forward to the Tax Office an “Employment Declaration” within 28 days of the commencement of any new employee;
• Withhold tax at the applicable rate and forward it to the Tax Office when lodging their Business Activity Statement.
• Provide employees with a “PAYG Summary” at the end of the June financial year.
• Make superannuation contributions on behalf of the minister every quarter (currently 9% of their salary).  These payments should be made within 28 days from the end of the quarter.

There are significant financial penalties imposed where an organisation fails to comply with the above.

2.         Providing Benefits

In addition to a salary/stipend, a church may provide non-assessable benefits to a minister.

Section 57 of the Fringe Benefits Tax Assessment Act states that where a religious institution provides a benefit to a religious practitioner, and the benefit is provided principally in respect of pastoral duties or duties directly related to the practice, study, teaching or propagation of religious beliefs, then the benefit is an exempt benefit.

Consequences of a benefit being an “Exempt Benefit”

The minister is not assessed on the receipt of exempt benefits.  The church pays no Fringe Benefits Tax on the payment of exempt benefits.  Exempt benefits are not required to be reported on the PAYG Payment Summary issued to the minister by the church.

Complying with the Section 57 Requirements

The benefit must be paid by a “religious institution”, such as a local church, denomination or church agency.

The employee is a “religious practitioner”, defined as a person considered appropriately qualified by the religious institution and called by its due processes to pastoral or related duties. Students undergoing religious instruction should fall within the definition.

Other church employees, such as personal assistants, administrators, caretakers, etc, are unable to receive exempt benefits.

The benefit should be provided principally in respect of pastoral or related duties.  Therefore, a minister will not be able to receive exempt benefits where their role is principally of a non-pastoral nature, such as administration or finance.

Determining How Much Will Be Paid as Stipend and Benefits

Whereas it is technically possible for a church to provide no stipend and 100% in exempt benefits to a minister, such extreme arrangements or anything close to it may be considered an inappropriate use of a generous concession.

In our opinion, a good rule of thumb is the amount of exempt benefits provided should not exceed the amount paid to the minister as salary or stipend.  That is, exempt benefits should not exceed 50% of the total financial package.

Determining What Type of Exempt Benefits Will Be Paid

The church and the minister should agree in advance and in writing as to the amount and type of benefits that will be provided.  A church Minute should also recognise the arrangement.

Some common benefits provided are:

• Motor vehicle expenses, including fuel, registration, insurance, loan repayments.
• Housing expenses, including rent, mortgage repayments, rates, insurance, electricity.
• Home office expenses, including telephone, internet, library, computer, desk or other office furniture.
• Ministry related hospitality expenses.
• Seminar or study costs, including travel and accommodation related to such.
• Education expenses for the minister’s family, such as school or university fees, textbooks.
• Health insurance for the minister’s family, as well as unrecouped medical and dental costs.

In our opinion, the following benefits would not be considered appropriate:

• Grocery and food supplies.
• Personal clothing and other household items.
• Holiday expenses.

Administering the Payment of Exempt Benefits

Exempt benefits must be paid or reimbursed by the church.  If a separate account is required from which benefits will be paid, then the account must be in the name of the church.

Signatories to the account must be in accordance with the constitution of the church.  Generally, 2 signatories would be required.

Accounts in the name of the minister (even where designated “Benefit Account”), or where the minister is the sole signatory, are not effective in providing exempt benefits.  All amounts received into such accounts will be assessed to the minister in addition to any amounts received by way of salary or stipend.

Since the Exempt Benefit Account is a church account, invoices and vouchers are the property of the church and must be retained in case of audit.  The church may entrust this obligation to the minister.

The Exempt Benefit Account should be disclosed in the Financial Statements of the church.

GST paid on exempt benefits by the church can be claimed back through the church’s Business Activity Statement.  The GST refunded would then generally be allocated to the Exempt Benefit Account.

Any surplus balance at the end of the financial year may be rolled over into the following year, or paid out as salary/stipend (with PAYG withheld) and included in the minister’s taxable income.  The amount may be forwarded to another church should the minister commence pastoral duties in another setting.

Conclusion

Ministers and those in leadership should ensure that they act with integrity. Churches and ministers have been accorded significant tax concessions by the government, and should not be careless with the concession.