Edited version of private advice

Authorisation Number: 1012676310211

Ruling

Subject: Fringe benefits - tax exempt benefits

Question 1

Are reimbursements by the Church of mortgage payments, living expenses, utilities capital investments and investment costs (local and overseas, property and financial investments) incurred by its employee pastor and their spouse and children who are residing in Australia exempt benefits pursuant to section 57 of the FBTAA?

Detailed reasoning

Section 57 of the FBTAA exempts benefits provided to employees of religious institutions where the following conditions are fulfilled:

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

(b) the employee is a religious practitioner;

(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 Church is a religious institution that has been endorsed as a charitable institution for the advancement of religion. The church employs pastors who are ordained ministers. A 'religious practitioner' is described in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as

(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.

These ordained pastors attend to the religious needs of the community, conducting services, preaching and in general propagating the faith through education and spiritual counselling. The pastors are principally engaged for these duties by their employer, the Church. The pastors are religious practitioners. The Church as a religious institution may provide their religious practitioners with benefits pursuant to section 57 of the FBTAA when the benefits are provided by virtue of their principal duties. Paragraph 57(c) specifically includes benefits provided to a pastor's spouse and children as exempt benefits.

Benefits provided are not limited in scope if the benefit is provided to the pastor in respect of the pastoral duties performed. Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' employees examples to illustrate the broad range of benefits that may be provided by the religious institution to its employee. At paragraph 32 it states:

A minister of religion, whose duties are exclusively or predominantly of a pastoral nature, is provided with a residence and a motor vehicle in addition to a stipend. Those benefits are not provided principally in respect of duties other than the minister's pastoral duties, and the benefits are exempt from fringe benefits tax. Similarly, if the religious institution pays the school fees for a child of that minister, that benefit is an exempt benefit.

Any expense incurred by the pastors and their spouses and children may be provided as a benefit by the religious institution if the benefit is provided in respect of the pastors principal duties as a religious practitioner. Mortgage payments, living expenses, utilities, capital investments and investment cost (local and overseas, property and financial investments) of the pastors and their spouses and children are exempt expenses pursuant to section 57 of the FBTAA.

Question 2

Are reimbursements by the church of mortgage payments, living expenses, utilities capital investments and investment costs (local and overseas, property and financial investments) incurred by the employee pastor's elderly parents and other relatives who are residing in Australia exempt benefits pursuant to section 57 of the FBTAA?

Detailed reasoning

Section 57 of the FBTAA exempts benefits provided to employees of religious institutions where the following conditions are fulfilled:

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

(b) the employee is a religious practitioner;

(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 Church is a religious institution that has been endorsed as a charitable institution for the advancement of religion. The Church employs pastors who are ordained ministers. A 'religious practitioner' is described in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as

(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.

These ordained pastors attend to the religious needs of the community, conducting services, preaching and in general propagating the faith through education and spiritual counselling. The pastors are principally engaged for these duties by their employer, the Church The pastors are religious practitioners. The Church as a religious institution may provide their religious practitioners with benefits pursuant to section 57 of the FBTAA when the benefits are provided by virtue of their principal duties. Paragraph 57(c) specifically includes benefits provided to a pastor's spouse and children as exempt benefits. However, paragraph 57(c) of the FBTAA does not include elderly parents or other relatives.

Benefits provided are not limited in scope if the benefit is provided to the pastor in respect of the pastoral duties performed. Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' employees examples to illustrate the broad range of benefits that may be provided by the religious institution to its employee. At paragraph 32 it states:

A minister of religion, whose duties are exclusively or predominantly of a pastoral nature, is provided with a residence and a motor vehicle in addition to a stipend. Those benefits are not provided principally in respect of duties other than the minister's pastoral duties, and the benefits are exempt from fringe benefits tax. Similarly, if the religious institution pays the school fees for a child of that minister, that benefit is an exempt benefit.

Any expense incurred by the pastors and their spouses and children may be provided as a benefit by the religious institution if the benefit is provided in respect of the pastors principal duties as a religious practitioner. Mortgage payments, living expenses, utilities, capital investments and investment cost (local and overseas, property and financial investments) of the pastor's elderly parents or other relatives residing in Australia are not exempt expenses pursuant to section 57 of the FBTAA.

Question 3

When the Church reimburses the pastors for expenses incurred by the pastors' elderly parents who are residing overseas, are the reimbursements an expense payment benefit pursuant to section 20 of the FBTAA?

Detailed reasoning

Are the pastors' elderly parents 'associates' for the purposes of the FBTAA?

Section 136(1) of the FBTAA states that 'associate' has the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

For the purposes of this Part, the following are associates of an entity (in this subsection called the "primary entity") that is a natural person (otherwise than in the capacity of trustee):

(a) a relative of the primary entity;

(b) a partner of the primary entity or a partnership in which the primary entity is a partner;

(c) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner;

A relative of a person for the purposes of section 136(1) of the FBTAA 1986 has the meaning provided by section 995-1 of the ITAA 1997.

relative of a person means:

(a) the person's ^*spouse; or

(b) the *parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or ^*adopted child of that person, or of that person's spouse; or

(c) the spouse of a person referred to in paragraph (b).

The definition of relative clearly encompasses the pastors' elderly parents. Therefore when the Church provides a benefit to the pastors or the pastors' relatives, as associates of the pastor, in respect of the pastors' employment arrangements, the Church is providing a fringe benefit.

A fringe benefit, as defined in subsection 136(1) of the FBTAA, arises where a benefit is provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and where such a benefit is not otherwise exempted.

Subsection 136(1) of the FBTAA provides that a fringe benefit which comes within the expense payment definition in section 20 of the FBTAA will be an expense payment fringe benefit. Section 20 sets out the circumstances of when this type of benefit occurs.

Where a person (in this section referred to as the ``provider''):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the ``recipient'') to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the ``recipient''), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

'Provider' is defined in subsection 136(1) of the FBTAA to mean 'the person who provides the benefit'.

'Person' is defined in subsection 136(1) of the FBTAA to include:

(a) a body politic

(b) a body corporate

(c) a partnership

(d) any other unincorporated association or body of persons; and

(e) a person in the capacity of trustee.

The Church is an incorporated association which is a body corporate and therefore a person for the purposes of the FBTAA.

'Recipient' is defined in subsection 136(1) as 'the person to whom the benefit is provided'. The pastor is the recipient when the Church pays the expenses of the pastor and their associates.

Section 20 of the FBTAA provides that an expense payment benefit will arise in two ways:

• where the provider (in this case the Church) reimburses the recipient (in this case the employee) for expenses they incur, or

• where the provider (The Church) pays a third party in satisfaction of expenses incurred by the recipient (the employee).

The Church has advised that it reimburses the pastors for expenses that they incur by either paying the bill for the expense to a third party or by reimbursing the pastor for an expense when a receipt is produced.

Although parents are not specifically included in subsection 57(c) of the FBTAA as members of a pastor's immediate family, they are included in the definition of 'associate' for the purposes of the FBTAA. They are associates of the employee pastor. When the Church reimburses its employees for expenses incurred by the employees' associates, an expense payment benefit will arise by virtue of section 20 of the FBTAA.

Question 4

Are the expense payment benefits referred to in Question 3 above exempt benefits pursuant to section 57 of the FBTAA?

Detailed reasoning

See response to question 2. Note that section 57 of the FBTAA does not make any reference to residency. Therefore benefits provided by the religious institution such a, mortgage payments, living expenses, utilities, capital investments and investment costs (local and overseas, property and financial investments) of the pastor's elderly parents residing overseas would not be exempt pursuant to section 57 of the FBTAA.

Question 5

Would the expense payment benefits referred to in Question 3 above constitute expense payment fringe benefits by virtue of sections 20 and subsection 136(1) of the FBTAA?

Detailed reasoning

It is an expense payment benefit, (see response to question 3) which is not an exempt benefit (see response to question 4).

The reimbursements would be expense payment fringe benefits if they satisfy the definition of fringe benefit under subsection 136(1) of the FBTAA.

Basically Subsection 136(1) of the FBTAA states a non-exempt benefit, as we have in this case, will be a fringe benefit, if provided by an employer to an employee of the employer or an associate of an employee, in respect of the employment of the employee.

The facts provided with the private ruling application state the pastor is employed by the Church and the benefits are provided by the Church. Also the response to question 3 indicates that the elderly parents are associates of the Pastor. Therefore, the benefits will be expense payment fringe benefits if provided in respect of the pastors' employment.

It can be concluded from the facts that there is no reason for the benefits being provided other than the Pastor is an employee of the Church. Hence the re-imbursement of expenses incurred by the pastors' elderly parents or other relatives who reside overseas, are expense payment fringe benefits.

This ruling applies for the following periods:

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

1 April 2015 to 31 March 2017

1 April 2015 to 31 March 2018

The scheme commences on:

1 April 2013

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Church is a religious institution.

The Church is endorsed as a tax concession charity (charitable institution, advancement of religion).

The Church is incorporated as an association.

The Church employs ordained ministers whose job description states that the pastor:

• Is required to preach teach, counsel and give positive leadership input into the lives of members of the congregation

• Co-ordinates the preaching and speaking rosters of the congregation and invites speakers as desired in accordance with the constitution of the church

• Provides pre-marital education, perform wedding ceremonies, conduct funeral services and deal with the relevant paperwork.

• Will pray for the sick, visit members and provide spiritual counsel to those who are hospitalised or grieving.

• Will watch over all groups and activities of the congregation under his care.

• Shall hold baptism and membership classes and conduct baptisms and child dedications as necessary

• Shall receive application for membership as well as deal with transfers of membership in accordance with the constitution of the church.

The pastors principally perform these pastoral duties.

Elderly parents are living overseas. Expenses incurred by the parents are reimbursed to the pastor by the Church.

The Church currently provides its pastors with prospective salary sacrifice arrangements.

Pastor X lives with his/her children in a rental property under the children's name.

Pastor Y's elderly parents live overseas, in an apartment under mortgage. Pastor B contributes to her/his parents' mortgage payment. The apartment which the pastors' parents reside in is under the parents' name.

The Church understand that expenses incurred by pastors' associates (section 318 ITAA 1936) are claimable as part of their exempt fringe benefits. The unordained pastor has a temporary residency status, is single and the eldest sibling in her/his family and shares financial responsibility with her/his younger sibling in supporting the living expenses of her/his elderly parents residing in Country A, and contributes towards the mortgage payments on her/his parents' residence. She/he will inherit half the value of that property in the future. Should the Pastor and her/his parents live in Australia under one roof, the parents' mortgage would be claimable against the pastors' exempt fringe benefit proportion.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 57

Section 20

Section 136(1)

Income Tax Assessment Act 1997

Section 995-1

Income Tax Assessment Act 1936

Section 318