Edited Version of private advice

Authorisation Number: 7915134379080

Date of advice: 12 March 2020

Ruling

Subject: Provision of exempt benefits under section 57 of the Fringe Benefits Tax Assessment Act 1986

Question

Is the provision of benefits by the church community to its employee music director exempt from Fringe Benefits Tax under section 57 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following periods:

FBT year ended 31 March 2020

FBT year ended 31 March 2021

FBT year ended 31 March 2022

The scheme commences on:

1 April 2019

Relevant facts and circumstances

A religious worship community in Australia is registered with the ACNC as a charity with the purpose of advancing religion.

The community advises that the church to which it belongs has deemed that only ordained pastors are eligible for Fringe Benefits tax (FBT) exemption under section 57 of the FBTAA. The community does not believe this position to be correct.

The community has employed a music director to lead the music ministry in the community's worship activities.

Under the employment agreement, the employee's role is music director for the community and the employee is to report to the ordained minister for the community.

The duties and responsibilities of the music director are detailed in the Position Description.

The Position Description provides that salary and employment conditions are determined in accordance with experience and skill level under the Lay worker remuneration schedule for the church to which the community belongs.

The music director has been installed into their position in an official Rite that explicitly recognises their status as a Lay Worker, which is an important role in mission and ministry.

The employee has been commissioned to carry out the duties of a non-ordained lay minister, assisting the ordained minister in a wide variety of pastoral and administrative responsibilities.

The overarching church to which the community belongs reserves the key sacramental activities such as baptism and weekly worship services for ordained clergy - as the employee is not ordained, they cannot perform these functions as can no other lay minister.

Nor has the employee been commissioned to perform the sacramental ministry as a lay person by the local bishop.

Weddings and funerals are non-sacramental activities and the worship community does not currently perform many of these activities.

The employee's position was called a music director as they could not be called a 'worship pastor' as the rules of the church limit the title 'pastor' to ordained clergy only.

The types of benefits offered to the employee are in accordance with those authorised by the overarching church and they include various expenses incurred by the employee and paid by the church on behalf of the employee.

The employee is currently studying a Graduate Diploma of Divinity through an Australian School of Theology.

The Melbourne School of Theology website describes the learning outcomes for a Graduate Diploma of Divinity as:

·        A broad overview of the Scriptures, theological themes, and historical context.

·        An understanding of some of the major theological tenets of the Christian faith which underpin any coherent theological worldview and philosophy of ministry.

·        An ability to communicate the core doctrines of the Christian faith.

·        Skills in at least one pastoral ministry area

The employee is not a full-time member of a 'religious order', or a student at a college conducted solely for training persons to become a member of a religious order, as the church to which the community belongs does not have religious orders.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 57

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Summary

The provision of benefits by the parish to its employee musical director will not be exempt under section 57 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as the requirements of that provision are not satisfied.

Detailed reasoning

Section 57 of the FBTAA provides that:

Where:

(a)   the employer of an employee is a registered religious institution; and

(b)   the employee is a religious practitioner; and

(c)   a benefit is provided to, 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)     any 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.

A registered religious institution is defined in subsection 136(1) 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.

The entity referred to in paragraph (b) is 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 (advancing religion)

The community is registered with the ACNC as a charity with the purpose of advancing religion and therefore satisfies the definition of a registered religious institution in subsection 136(1).

Subsection 136(1) defines a religious practitioner to have 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; 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

Paragraph 15 of Taxation Ruling TR 2019/3 states:

Except in rare cases, a religious order would have all of these characteristics:

·        members are part of a religious community and are pursuing a religious life on a full-time basis

·        members regularly participate in activities such as private and public prayer, religious study, teaching, care of the aged, missionary work or church reform

·        controlled by, or supervised by, or affiliated with, or partially or wholly funded by a religious institution

·        in principle, members renounce the possession of private property, and

·        members make a long-term commitment to the order.

The community has advised that the church does not have religious orders in the sense referred to above, Therefore, the employee is not a full-time member of a religious order or a student at a college conducted solely for training persons to become members of religious orders.

A minister of religion and a student at an institution who is undertaking a course of instruction in the duties of a minister of religion are the relevant parts of the definition of religious practitioner for consideration in the present circumstances.

Minister of religion

In paragraph 6 of Taxation Ruling TR 2019/3 Fringe benefits tax: benefits provided to religious practitioners, we accept that: "Religious practitioners are, in essence, ordained ministers of religion, lay persons commissioned to perform the ministry of a minister of religion, other persons acting in those capacities from time to time, members of religious orders, and students undertaking certain religious studies or training [emphasis added]".

The term 'minister of religion' is not defined in the Fringe Benefits Tax Assessment Act 1986 and takes on its ordinary meaning in the context of where it appears. It covers members of the clergy (or their equivalent) across religions (paragraph 13 of Taxation Ruling TR 2019/3).

Paragraph 14 of Taxation Ruling TR 2019/3 states:

Except in rare cases, a minister of religion would have all of these characteristics:

(a)   is a member of a religious institution

(b)   is recognized by ordination or other admission or commissioning, or, where the religion does not require formal ordination, has authority to carry out the duties of a minister based on theological training or experience

(c)   is officially recognised as having authority on doctrine or religious practice

(d)   is distinct from ordinary adherents of the religion

(e)   is an acknowledged leader in spiritual affairs of the institution, and

(f)     is authorised to act as a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies.

We have considered each of these characteristics in relation to your employee's situation:

(a)   is a member of a religious institution

We accept that the church employee is a member of a religious institution as the church satisfies the definition of a registered religious institution in subsection 136(1).

This requirement is met.

(b)   Is recognised by ordination of or other admission or commissioning, or, where the religion does not require formal ordination, has authority to carry out the duties of a minister based on theological training or experience

We acknowledge that the employee has been formally commissioned under an official rite by the worship community as a lay minister in a specific ministry of music director.

However the employee has not been specifically recognised by the rite of ordination to have the authority to carry out the duties of a minister based on broader theological training or experience more generally. The overarching church to which the worship community belongs requires ordination in order to have this requisite authority. For example, the worship community is not permitted under the rules of the church to call its worship director a "worship pastor". We also note that the employee is remunerated as a Lay Worker by the church and not as an ordained minister.

In addition, you advised us that the employee has been commissioned to carry out the duties of a non-ordained lay minister assisting the ordained minister leading the worship community in a wide variety of pastoral and administrative responsibilities. You also advised us that the church reserves the sacramental activities of Baptism and weekly worship services for ordained clergy like the minister leading the worship community - as the employee is not ordained, he cannot perform these functions as can no other lay minister.

In addition, the employee never has been commissioned to perform the sacramental ministry of a minister of religion as a lay person, nor has he ever acted in that capacity from time (paragraph 6 of TR 2019/3). His role as music director is to work in conjunction with the ordained minister, but not to replicate his unique role as an ordained minister.

This requirement is then not met.

(c)   Is officially recognised as having authority on doctrine or religious practice

We also acknowledge that the employee has a recognised authority in a specific area of religious practice, namely liturgical music and its place in worship services, and also exercises this authority in church services in various ways, including in leadership roles as lay worker.

However, the employee is not officially recognised as having authority on doctrine or religious practice more generally, in the same way exhibited by the ordained minister leading the community. As stated above, the worship community is not permitted under the rules of the church to call its worship director a "worship pastor". As noted above, the employee is also remunerated as a Lay Worker by the church and not as an ordained minister.

In addition, as stated above, you advised us that the employee has been commissioned to carry out the duties of a non-ordained lay minister assisting the ordained minister leading the worship community in a wide variety of pastoral and administrative responsibilities. You also advised us that the church reserves the sacramental activities of Baptism and weekly worship services for ordained clergy - as the employee is not ordained, he cannot perform these functions as can no other lay minister.

This requirement is not met.

(d)   Is distinct from ordinary adherents of the religion

We accept that as a Lay Worker the employee is distinct from ordinary adherents in that he has been installed into a defined musical ministry position by the worship community in a special rite, which recognises his special role in mission and ministry.

This requirement is met.

(e)   Is an acknowledged leader in spiritual affairs of the institution

We accept that the employee has been installed into a defined musical ministry position by the worship community, which has a special role in mission and ministry.

Furthermore, the Position Description for the employee recognises the leadership role that the employee will play in the music ministry for the worship community and also in worship and outreach activities more broadly.

We acknowledge then that the employee has an acknowledged role in musical ministry and also in broader worship and outreach activities as a lay worker, working in collaboration with the ordained minister leading the community.

However, the employee is not an acknowledged leader in spiritual affairs of the church in the same way as the ordained minister leading the worship community, who has had this unique leadership role recognised through the rite of ordination. As stated above, the worship community is not permitted under the rules of the church to call its worship director a "worship pastor". As noted above, the employee is also remunerated as a Lay Worker by the church and not as an ordained minister.

In addition, as noted above, you advised us that the employee has been commissioned to carry out the duties of a non-ordained lay minister assisting the ordained minister leading the worship community in a wide variety of pastoral and administrative responsibilities. You also advised us that the church reserves the sacramental activities of Baptism and weekly worship services for ordained clergy - as the employee is not ordained, he cannot perform these functions as can no other lay minister.

This requirement is then not met.

(f)    Is authorised to act as a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies.

We acknowledge that the employee has a recognised role in musical ministry and also in broader worship and outreach activities as a lay worker, working in collaboration with the head pastor (as noted above at point (e)).

However, the employee is not authorised to act as a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies, for example, Baptisms and the weekly worship services. Only an ordained minister of the church has this unique and specific authority. As stated above, the worship community is not permitted under the rules of the church to call its worship director a "worship pastor". As noted above, the employee is also remunerated as a Lay Worker by the church and not as an ordained minister.

In addition, as stated above, you advised us that the employee has been commissioned to carry out the duties of a non-ordained lay minister assisting the ordained minister leading the worship community in a wide variety of pastoral and administrative responsibilities. You also advised us that the church reserves the sacramental activities of Baptism and weekly worship services for ordained clergy - as the employee is not ordained, he cannot perform these functions as can no other lay minister.

This requirement is not met.

A student at an institution who is undertaking a course of instruction in the duties of a minister of religion

The employee is currently studying a Graduate Diploma of Divinity through an Australian School of Theology. However, this course of instruction is not specifically in the duties of a minister of religion, but also prepares graduates for lay ministerial roles. Therefore, we consider the employee is not a student at an institution who is undertaking a course of instruction in the duties of a minister of religion.

Conclusion

Two out of the six characteristics of a minister of religion are then satisfied in the employee's circumstances. All the characteristics of a minister of religion are not satisfied in the employee's situation, as is required under paragraph 14 of Taxation Ruling TR 2019/3, therefore he is not considered to be a minister of religion. Moreover, the employee is not a student at an institution who is undertaking a course of instruction in the duties of a minister of religion. The employee does not then qualify as a religious practitioner for the purposes of section 57 of the FBTAA.

Accordingly, as the employee is not a religious practitioner for the purposes of section 57 of the FBTAA, which is a condition that must be satisfied for section 57 to apply, we do not need to consider whether the benefits that the worship community provide to the employee are provided principally in respect of the employee's pastoral duties or directly related religious activities.

As all of the requirements of section 57 of the FBTAA are not met, the provision of benefits to the employee music director will not be the provision of an exempt benefit under that provision.

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