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Providing Exempt Benefits

Jun 28, 2021

Are you providing exempt benefits to the correct people?

If your church employs staff you need to be aware of any fringe benefits you provide and the FBT (fringe benefits tax) implications that may arise. Your church may be able to provide exempt benefits to some of your employees, but there are certain criteria that need to be met and the amounts need to be paid in particular ways. Continue reading to find out more.

A fringe benefit is a payment to employee, but in a different form to salary or wages. The payment of such benefits is governed by the Fringe Benefits Tax Assessment Act 1986, and in general will attract fringe benefits tax. 

This article focusses on section 57 of the Act which outlines the circumstances when payment of fringe benefits to an employee of a religious institution may be exempt from fringe benefits tax. 

In order to qualify for tax concessions your church needs to be a ‘registered religious institution’. This means that it needs to be:

  • A registered charity with the Australian Charities and Not-for-profits Commission (ACNC)
  • Registered with the ACNC for the charity subtype ‘advancing religion’
  • An Institution (this can mean different legal forms – activities, size, permanence and recognition will be relevant)


You may need to seek legal advice if you are unclear whether your church is an “institution”.


Only ‘religious practitioners’ of your church will be eligible to receive exempt benefits. A religious practitioner is a:

  • Minister of religion
  • Student at an institution who is undertaking a course of instruction in the duties of a minister of religion
  • Full-time member of a religious order
  • Student at a college conducted solely for training people to become members of religious orders


According to Taxation Ruling 2019/13 section 14 except in rare cases, a minister of religion would have all of these characteristics:

  • is a member of a religious institution
  • is recognised by ordination or other admission or commissioning, or has authority from the religious institution to carry out the duties of a minister based on theological training or other relevant experience
  • is officially recognised as having authority on doctrine or religious practice
  • is distinct from ordinary adherents of the religion
  • is an acknowledged leader in spiritual affairs of the institution, and
  • is authorised to act as a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies.


Exempt benefits can only be provided principally in respect to the employees’ ‘pastoral duties’ or other duties directly related to the practice, study, teaching or propagation of religious beliefs. Administrative duties, even those undertaken by a minister of religion, do not qualify for exempt benefits.


Pastoral duties are duties associated with the spiritual care of people. Examples of pastoral duties undertaken by religious practitioners are:

  • communication of religious beliefs
  • teaching and counselling adherents and members of the community
  • providing adherents and members of the community with spiritual guidance and support
  • conducting an in-service seminar of a spiritual nature
  • meeting with or visiting adherents, the sick, the poor, and others who need emotional and spiritual support, and
  • providing pastoral supervision to those engaged in pastoral duties.


You will need to review each staff members’ duties on an individual basis to determine if, and the extent to which, they qualify to receive exempt benefits.


Refer to Taxation Ruling TR 2019/3 for more information and specific examples of duties.


If you are providing benefits to an employee who is not a religious minister and/or who is not principally involved in pastoral duties or other religious duties then these benefits may be subject to FBT.


The actual payment of exempt benefits will be addressed in a separate blog post. While it is technically possible to pay 100% of a religious practitioners remuneration as exempt benefits, commonly churches and denominations take a more conservative approach and limit the portion that can be paid as exempt benefits. Your denominational body should be able to provide their guidance around this.


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Sources:

https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/

https://www.ato.gov.au/non-profit/Getting-started/In-detail/Types-of-charities/Registered-religious-institutions--access-to-tax-concessions/

https://www.ato.gov.au/Non-profit/Your-workers/In-detail/FBT-and-religious-practitioners---examples/?page=1#Directly_related_religious_activities

https://www.ato.gov.au/law/view/document?DocID=TXR/TR20193/NAT/ATO/00001&PiT=99991231235958

http://www.addministry.org.au/Documents/Docs/Fringe_Benefits_for_Churches_2019.pdf

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If you are new to the world of receiving exempt benefits this post will help you to understand what they are and outline a couple of the most common way that churches pay them. Your church will have made an assessment of whether you are eligible to receive exempt benefits (for more on this see the ‘Providing Exempt Benefits’ post). If you are eligible, it means that you are able to receive a portion of your remuneration tax-free. This amount will be paid to you via a different mechanism to your taxable remuneration (i.e. it cannot be paid to you in cash). Your exempt benefits must be used for personal expenses that you incur. Historically there has been a list of eligible uses but there are no legal restrictions on their use. There are a couple of exceptions that should be noted. Exempt benefits cannot: Be accessed as ‘cash’, which includes accounts where you are able to draw down that. benefit as cash. This includes a line of credit on a home loan or a cash advance on a credit card. Used to make additional payments into your super. For donations, including offerings and tithes. To pay for fines (speeding, parking, tax debt etc). For any expenses that are claimed as tax deductions. There are a number of ways that you can receive your exempt benefits, each with their advantages and potential disadvantages. The options that are available to you will be determined in part by the administrative capacity of your church. You may also be able to use a combination of options to suit your specific circumstances. Option 1 – your exempt benefits are paid onto a salary packaging debit card This is the simplest method for receiving your exempt benefits. Salary packaging debit cards are issued by Baptist Financial Services or the major banks and are designed specifically to meet the needs of religious practitioners and others who receive similar benefits. Your church would pay the exempt benefit portion of your salary onto the debit card and then it would be available for you to spend on your living expenses. There is no need to maintain or submit receipts. Limitations include: A possible cap on the amount that can be maintained on the card Transaction fees You do not receive back the GST Option 2 – your church reimburses you for exempt benefit expenditure The church maintains a running balance of the exempt benefits owed to you and you submit claims or request reimbursement for your exempt benefit expenditure. You will need to maintain and submit tax invoices with your claim. There may be a mechanism for you to be reimbursed for the GST portion of your claim (your church will need to be registered for GST and have a policy of returning the GST to the Pastor, something which they are not obligated to do). Limitations include: Time and effort taken obtain receipts and prepare the claim More administration on the part of the church Option 3 – your church makes home loan, car loan or rent payments on your behalf If you provide the details to your church they may be able to facilitate payments on your behalf from your exempt benefits. If you choose this method it is important to note that you cannot subsequently withdraw cash (from a re-draw facility for example). If you do then the cash becomes taxable income. Limitations include: There is generally no GST on such payments, hence you miss out on the benefit of receiving it back Tax implications should you ever want to access any re-draw on your mortgage A note about Centrelink If you are receiving family tax benefits or Centrelink payments be aware that you need to communicate very clearly about your exempt benefits. While there is no direct cash benefit, exempt benefits can fall within Centrelink’s income tests. In your communication make sure they know you are a ‘minister of religion’ and be prepared with the details of the benefits you receive. Sources: http://www.addministry.org.au/Documents/Docs/Fringe_Benefits_for_Churches_2019.pdf https://www.corneyandlind.com.au/resource-centre/fringe-benefits-centrelink/

Employing People in WA

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*** Note that the following information relates to Western Australia When it comes to employing people in Western Australia, your Church may fall under the state industrial system or the national industrial relations system. It is important that you know which applies as there are different rights and obligations under each. If your church is an unincorporated association or an incorporated association that is not trading then you will fall under the WA state system. It is anticipated that most West Australian churches fall into the state system. If your church is an incorporated association that is trading then you will come under the national industrial relations system. What you need to determine: Your legal structure. If you have no idea what your legal structure is, then you can look up the Australian Business Register to find out: https://abr.business.gov.au/ If you think you are trading, whether that trading activity is ‘sufficiently substantial’. You may need to get legal advice if you are not sure. Once you have determined which system your church falls under then you need to read about the rights and obligations under that system. Your staff will be entitled to minimum benefits so make sure that you are familiar with what they are. Lots of support is available – call the helplines in the diagram or get in contact with us and we can help get you started in the right direction.

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