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Ruling

Subject: Taxable income - religious practitioner

Question:

Is your income received for working as a pastor assessable?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You work as a church pastor on a full-time basis for Christian denomination, which is also a tax exempt charitable entity.

You have a religious qualification obtained and you are authorised to provide religious services of behalf of your church including giving Holy Communion.

You also train others and engage in missionary activities in the Pacific Islands.

You receive a weekly payment for your services.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-47 

Income Tax Assessment Act 1997 Section 995

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

Reasons for decision

Income from providing personal services

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states your ordinary income according to ordinary concepts is assessable income. The phrase 'income according to ordinary concepts' is not defined in the taxation legislation. However, the characteristics of ordinary income have been developed by case law and generally fall into three categories:

· income from providing personal services;

· income from property; or

· income from carrying on a business.

Thus, a payment paid in consideration for the performance of services is generally assessable income (Hayes v. FCT (1956) 96 CLR 47 at 57-8 per Fullagar J and Reuter v. Federal Commissioner of Taxation (1992) 111 ALR 716 at 730 per Hill J).

Another characteristic of ordinary income is periodicity, regularity or recurrence (MIM Holdings Ltd v. Commissioner of Taxation (1997) 363 FCA at 13 per Northrop, Hill and Cooper JJ).

In your case, the income you receive from your church work as a full-time pastor is assessable income because you receive it from providing personal services and because it has the characteristic of periodicity, regularity or recurrence.

Withholding tax from religious practitioners

Section 12-47 of the Taxation Administration Act 1953 is about payments to religious practitioners for withholding purposes. It provides an entity (such as an employer and/or religious institution) must withhold an amount from a payment it makes to a religious practitioner for their activities if:

a) the activity, or series of activities, is done by the religious practitioner in pursuit of his or her vocation as a religious practitioner; and

b) the activity, or series of activities, is done by the religious practitioner as a member of a religious institution; and

c) the payment is made by the entity in the course or furtherance of an enterprise that the entity carries on.

(Paragraph 9-20(1)(f) of the A New Tax System (Goods and Services Tax) Act 1999 states an enterprise is an activity, or series of activities, done by a religious institution.)

Section 995-1 of the ITAA 1997 defines the term 'religious practitioner' to mean:

a) a minister of religion; or

b) a student at an institution who is undertaking a course of instruction in the duties of a minister of religion; or

c) a full-time member of a religious order; or

d) a student at a college conducted solely for training persons to become members of religious orders.

Taxation Ruling TR 92/17 provides guidance on the term 'religious practitioner'. Paragraph 13 states in determining whether a person is a minister of religion, many, if not all, of the following characteristics should be present:

a) the person is a member of a religious institution;

b) the person is recognised officially by ordination or other admission or commissioning, or, where the particular religion does not require a minister to be formally ordained, the person is authorised to carry out the duties of a minister based on a specified level of theological or other relevant training or experience;

c) the person is recognised officially as having authority in matters of doctrine or religious practice;

d) the person's position is distinct from that of the ordinary adherents of the religion;

e) the person has acknowledged leadership in the spiritual affairs of the religious institution;

f) the person is authorised to discharge the duties of a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies.

In your case, you meet the definition of a 'religious practitioner', as found in the taxation legislation because your full time occupation is ministering religion as a member of a religious institution. It follows the payments you receive from your church in respect to your occupation is taxable.

Please note, the fact that the entity which pays you is a tax exempt charitable entity and they did not withhold any PAYG amounts from your wages does not change the above. The gross payments you receive are assessable under section 6-5 of the ITAA 1997.

Gifts/Tithings

Taxation Ruling IT 2674 provides gifts to missionaries, ministers of religion and other church workers will be assessable income when they are paid in relation to a church worker performing their income producing activity for their church.

IT 2674 further explains a gift received in these circumstances is assessable income even if:

· the donor is not legally obliged to make the gift; or

· gift is made by a family member, friend or fellow worker; or

· if the church worker is an employee, the gift comes not from the employer but from somebody else; or

· the gift is made so that the church worker can acquire a capital asset; or

· the gift is received in kind rather than in money; or

· the church worker is not in any way motivated by the prospect of receiving the gift but is motivated only by a genuine commitment to religious beliefs.

In your case, as you are a church worker, any gifts or tithings you receive are assessable income.

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