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Edited version of private ruling
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Ruling
Subject: Payments of allowances to religious practitioners
Are you required to withhold under the Pay As You Go (PAYG) Withholding system from payments of allowances to religious practitioners?
Yes.
This ruling applies for the following periods:
Income year ending 30 June 2011
Income year ending 30 June 2012
Income year ending 30 June 2013
Income year ending 30 June 2014
Income year ending 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a non religious institution that will be making payments to various chaplains who belong to different religious organisations, in the course of your enterprise.
The payments are characterised as allowances such as a 'chaplain's allowance', 'uniform allowance' or a 'motor vehicle allowance' and in total these payments will not exceed $5,196 in an income year.
You wish to clarify whether the type or classification of a payment affects its eligibility for the variation of PAYG Withholding to nil that applies to certain payments to religious practitioners. Specifically you wish to clarify whether the type of allowance being paid affects this variation.
You also wish to clarify the treatment of payments to religious practitioners paid as a lump sum rather than a weekly amount, where the payment exceeds the nominated amounts of $100 per week, $200 per fortnight or $433 per month, but is less than $5,196 per income year ($433 multiplied by 12).
In your application you have ticked yes to the question 'have you sought an oral or written ruling for these issues before?'
A review of our records indicates that this correspondence was a general advice letter provided in relation to honorarium payments and not a private binding ruling.
Relevant legislative provisions
Section 12-47 of Schedule 1 to the Taxation Administration Act of 1953
Section 16-150 of Schedule 1 to the Taxation Administration Act of 1953
Section 16-155 of Schedule 1 to the Taxation Administration Act of 1953
Reasons for decision
Section 12-47 of Schedule 1 to the Taxation Administration Act of 1953 (TAA) provides the following:
An entity must withhold an amount from a payment it makes to a religious practitioner for an activity, or series of activities, if:
· the activity, or series of activities, is done by the religious practitioner in pursuit of his or her vocation as a religious practitioner; and
· the activity, or series of activities, is done by the religious practitioner as a member of a religious institution; and
· the payment is made by the entity in the course or furtherance of an enterprise that the entity carries on.
On our website, our document entitled Religious practitioners guide to PAYG withholding provides:
The amount required to be withheld from the following payments from an entity that is not a religious institution to a religious practitioner, is nil:
· for work or services performed by the religious practitioner except for the performance of chaplaincy and/or counselling services, and
· for the performance of chaplaincy and/or counselling services where the payment does not exceed the following amounts:
$100 where the entity pays the religious practitioner weekly, or
$200 where the entity pays the religious practitioner fortnightly, or
$433 where the entity pays the religious practitioner monthly.
Further, in relation to the provision of a payment summary, this document provides:
Payment summaries show the total payments made and amounts withheld from payments made to a religious practitioner during the financial year. You are not required to issue a payment summary to a religious practitioner for payments listed above under the heading What type of payments have the amount of withholding varied to nil [the paragraph included above].
In relation to the payment of allowances to religious practitioners, this document provides the following:
Allowances are separately identified payments made to a religious practitioner:
· for qualifications or special duties
· for expenses that cannot be claimed as a tax deduction, for example, normal travel between home and work, or
· for expenses that may be able to be claimed as a tax deduction, for example travel between work sites.
You should refer to PAYG Bulletin no. 6 - Taxing of allowances paid to religious practitioners for the 2000-01 and future income years for the correct tax treatment of allowances.
PAYG Bulletin no. 6 - Taxing of allowances paid to religious practitioners for the 2000-01 and future income years provides a definition of an allowance as:
· Table 1 of this bulletin lists the various types of allowances that a payee might receive and states how these allowances must be treated by the payer.
· Table 2 of this bulletin lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary.
Table 1 of this publication provides the following:
Allowances subject to PAYG withholding for the 2002-03 and future income years
Allowance type |
Withhold PAYG? |
Show on payment summary? |
Allowances paid for working conditions, qualifications, special duties For example: travelling time, first aid certificate, safety officer. |
Yes |
Yes (include total allowance in gross payment) |
Allowances for non-deductible expenses For example: part day travel (no overnight absence from payee's ordinary place of residence) meals (not award overtime meal allowance or overnight travel allowance) motor vehicle for non-deductible travel, e.g. home to work, including cents per kilometre payments. |
Yes |
Yes (include total allowance in gross payment |
Allowances for expected deductible expenses For example: motor vehicle for work related travel, including cents per kilometre payments in excess of Tax Office rate (1) overseas accommodation for deductible travel. |
Yes |
Yes (show total allowance separately in the allowance box with an explanation) |
Table 2 of this document provides:
The Commissioner has approved PAYG withholding variations for the 2002-03 and future income years for allowances as shown in this table, provided:
· the payee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance
· the payee is able to substantiate the tax deduction claimed, and
· the amount and nature of the allowance is shown separately in the accounting records of the payer.
Please refer to the footnotes for further information about certain allowances.
Allowance type |
Withhold PAYG? |
Show on payment summary? |
Cents per kilometre car expense payments using Tax Office rates (1) For payments made up to 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled. |
No |
Yes |
For payments made in excess of 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled. |
Yes |
Yes |
Domestic or overseas travel allowance involving an overnight absence from payee's ordinary place of residence (2) up to reasonable allowances amount |
No |
No |
over reasonable allowances amount An allowance for overseas accommodation must be subject to PAYG and be shown in the allowance box on the payment summary. |
Yes |
Yes |
Application of law to your circumstances
In your case, you will be making payments to religious practitioners in the course of your own enterprise.
The payments are characterised as allowances such as a 'chaplain's allowance', 'uniform allowance' or a 'motor vehicle allowance' and in total these payments will not exceed $5,196 in an income year.
You wish to clarify whether the type or classification of a payment affects its eligibility for the variation of PAYG Withholding to nil that applies to certain payments to religious practitioners. Specifically you wish to clarify whether the type of allowance being paid affects this variation.
You also wish to clarify the treatment of payments to religious practitioners paid as a lump sum rather than a weekly amount, where the payment exceeds the nominated amounts of $100 per week, $200 per fortnight or $433 per month, but is less than $5,196 per income year ($433 multiplied by 12).
The payments for which PAYG Withholding has been varied to nil are payments that are made either for services or work provided by the religious practitioner other than chaplaincy or counselling and payments for the provision of chaplaincy or counselling that are below the thresholds provided. The payments being referred to are specific payments being made in return for the provision of these services.
Our booklet Religious practitioners guide to PAYG withholding states that allowances are separately identified payments made to religious practitioners.
It is clear that there is a distinction made in the publications listed above between the treatment of general payments to religious practitioners in return for services - to which the variation may apply - and allowances paid to religious practitioners - to which it does not apply.
It is clear from the Bulletin and publication included above that the variation does not and is not intended to cover payments of allowances to religious practitioners.
Therefore, we conclude that you are required to withhold from payments of allowances to religious practitioners unless the allowance meets the limited criteria in 'table 2' to of the Bulletin as provided above in this notice.
Similarly, the correct treatment in relation to payment summaries is also provided within the two tables provided above.
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