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Edited version of your written advice
Authorisation Number: 1013045099820
Date of advice: 14 July 2016
Ruling
Subject: Fringe benefits tax exempt benefits
Question
Will either of the following benefits provided by the religious institution to a retired pastor be exempt benefits in accordance with section 57 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
• a reimbursement of expenses; or
• loan repayments for an investment property.
Answer
Yes
This ruling applies for the following periods
1 July 2016 to 31 March 2017
Year ending 31 March 2018
Year ending 31 March 2019
Year ending 31 March 2020
Year ending 31 March 2021
The scheme commences on
1 July 2016
Relevant facts and circumstances
• The employer is the religious institution and the employee is X, who is the pastor of the religious institution. X will retire formally in July but will continue to perform their pastoral duties after their retirement.
• X received a salary from the religious institution during the period in which they were formally employed as the pastor of the religious institution.
• The pastor, X is a director of X other organisations and performs some management and administrative work.
• X's primary role is in teaching, preaching and propagating religious beliefs and pastoral care and defining the spiritual direction of the religious institution.
• X's pastoral duties form a substantial part of their role and not a minor part or insubstantial part.
• The religious institution proposes to provide the retired pastor with some benefits after their retirement either in the form of a reimbursement of their expenses that they can provide receipts for, or make loan repayments on their behalf in respect of the mortgage on their investment property.
• The Australian Charities and Not-for-profits Commission register lists the religious institution as a registered charity for the purpose of advancing religion.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986
Section 57
Paragraph 57(d)
Subsection 136(1)
Reasons for decision
A reimbursement of expenses and loan repayments are expense payment benefits that come within paragraphs 20(a) and 20(b) of the FBTAA.
However, section 57 of the FBTAA provides that a benefit provided to a religious practitioner who is an employee of a registered religious institution will be an exempt benefit where four conditions are met.
Section 57 states:
Where:
(a) the employer of an employee is a registered religious institution;
(b) the employee is a religious practitioner;
(c) the benefit is provided to the employee, or to a spouse or a child of the employee; and
(d) the benefit is not provided principally in respect of duties of the employee other than:
(i) pastoral duties; or
(ii) any other duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs.
the benefit is an exempt benefit.
The four conditions are discussed below in relation to the expense payment benefits provided by the religious institution to the pastor of the religious institution X.
(a) Is the religious institution a registered religious institution?
Subsection 136(1) of the FBTAA defines 'registered religious institution' to mean:
an institution that is:
(a) a registered charity; and
(b) registered under the Australian Charities and Not-for-profits Commission Act 2012 as the subtype of entity mentioned in column 2 of item 4 of the table in subsection 25-5(5) of that Act.
Column 2 of item 4 in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 applies to an:
Entity with a purpose to which paragraph (d) of the definition of charitable purpose in subsection 12(1) of the Charities Act 2013 applies
The purpose to which paragraph (d) in subsection 12(1) of the Charities Act 2013 applies is 'the purpose of advancing religion'.
The Australian Charities and Not-for-profits Commission register lists the religious institution as a registered charity for the purpose of advancing religion. Therefore, the religious institution is a registered religious institution.
(b) Is the pastor a religious practitioner?
A 'religious practitioner' is defined in subsection 136(1) of the FBTAA as having the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).
Subsection 995-1(1) of the ITAA 1997 defines a 'religious practitioner' to mean:
(a) a minister of religion;
(b) a student at an institution who is undertaking a course of instruction in the duties of a minister of religion;
(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.
Guidance as to the application of this definition is provided in paragraphs 11 to 19 of Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' (TR 92/17).
In discussing the circumstances in which a person will be considered to be a minister of religion paragraph 12 of TR 92/17 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 considering these requirements, the identified employee is a pastor. Their primary role is in teaching, preaching and propagating religious beliefs and pastoral care and defining the spiritual direction of the religious institution. Therefore, the characteristics of his duties and activities are in accordance with the requirements of Taxation ruling TR 92/17 and the definition in subsection 136(1) of the FBTAA to consider them as a religious practitioner.
On the basis of these factors, it is accepted that the pastor, X is a religious practitioner for the purposes of section 57 of the FBTAA.
(c) Will the benefits be provided to an employee, spouse or child of the employee?
The benefits will be provided to the employee, X.
'Employee' is defined in subsection 136(1) of the FBTAA and includes a 'former employee', which is in turn defined in the same subsection to mean someone that used to receive salary or wages. Further, paragraphs 9 and 10 of Miscellaneous Taxation Ruling MT 2016 support the view that in relation to former employees, the reference to duties of the employee is a reference to the former duties of the former employee.
As X used to receive a salary from the religious institution, they meet the definition of 'employee' for the purposes of section 57 of the FBTAA.
This is also consistent with ATO Interpretative Decision 2001/332 which indicates that exempt benefits can be provided by a religious institution to a retired pastor pursuant to section 57 of the FBTAA.
(d) Will the benefits provided be principally in respect of pastoral duties of the employee or any other duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs?
In discussing this requirement, paragraphs 20 to 22 of TR 92/17 state:
20. For a benefit to be exempt, it must not be provided principally in respect of duties of the employee other than pastoral duties (subparagraph 57(d)(i) of the FBTAA), or other duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs (subparagraph 57(d)(ii) of the FBTAA). The latter duties and activities are referred to in this Ruling as 'directly related religious activities'.
What are pastoral duties?
21. Pastoral duties generally are duties associated with the spiritual care of the members of the congregation of a religious body. The following are examples of pastoral duties:
(a) communication of religious beliefs;
(b) teaching and counselling adherents and members of the surrounding community;
(c) providing adherents and members of the surrounding community with spiritual guidance and support;
(d) attendance at an in-service training seminar by a person or persons conducting the seminar, provided that the seminar is of a spiritual nature; and
(e) meeting with and visiting adherents, the sick, the poor, or persons otherwise in need of emotional and spiritual support.
What are directly related religious activities: i.e. practice, study, teaching or propagation of religious beliefs?
22. The duties or activities must be related directly to the practice, study, teaching or propagation of religious beliefs to meet the requirements of paragraph 57(d) of the FBTAA. The duties or activities may include secular activities if it can be shown that there is a direct link between those activities and the religious beliefs of the person concerned.
Furthermore, paragraph 27 of Taxation Ruling TR 92/17 addresses what is meant by the word principally as stated in paragraph 57(d) of the FBTAA. It states that a benefit provided to a minister of religion whose duties are exclusively or predominantly pastoral generally satisfies the 'principally' test.
The applicant in its submission confirms that the position occupied by the pastor, X, also involves some management and administrative tasks, outside the tasks, duties and activities of a religious practitioner. However those tasks and duties do not take up the majority of their time but rather, the pastor's time will be primarily devoted and directly related to the practice, study, teaching or propagation of religious beliefs and pastoral care and defining the spiritual direction of the religious institution. X's pastoral duties form a substantial part of their role and not a minor part or insubstantial part. As the pastor, X, is uninvolved in the day to day running of the religious institution, but was extensively involved in leading, preaching, teaching and propagating religious beliefs and pastoral care; the 'principally' test is satisfied
A reimbursement of any eligible expenses incurred by the retired pastor, X (where identifiable by invoice) or loan repayments for their investment property can be provided as benefits by the religious institution if the benefits are provided in respect of the pastor's principal duties as a religious practitioner.
As the benefits are entirely provided in respect of the pastoral duties and directly related religious activities, the benefits are exempt benefits pursuant to section 57 of the FBTAA.
Conclusion
As all of the four criteria in section 57 of the FBTAA are met both the reimbursement of the pastor's expenses and the loan repayments for their investment property will be exempt benefits under section 57 of the FBTAA.
However, it should be noted that this conclusion only applies to the arrangement described. For example, it will not apply if the retired pastor receives an allowance, rather than a reimbursement of expenses.
It should also be noted that X will not be able to deduct, from their assessable income, any interest incurred on the loan for the investment property to the extent that the interest has been paid by the religious institution. This is in accordance with section 51AH of the ITAA 1936.
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