Edited version of your written advice

Authorisation Number: 1051311987528

Disclaimer

You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

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Date of advice: 24 November 2017

Ruling

Subject: Definition of employee

Question 1

Does the relationship between a religious institution and a religious practitioner meet the definition of an employee under the Superannuation Guarantee Administration Act 1992 (SGAA)?

Advice

No. The relationship between the client and a Minister called to service does not meet the definition of an employee under the SGAA.

Question 2

If the answer to question 1 is no, does the religious institution have to pay mandatory Superannuation Guarantee (SG)?

Advice

No. As the relationship between the client and a Minister called to service is not one of employer and employee, the client is not required to make mandatory SG contributions as stipulated in the SGAA on behalf of the Minister.

Question 3

If the answers to questions 1 and 2 is no, then is the religious institution able to make other employer contributions?

Advice

No. As the relationship between the client and a Minister called to service is not one of employer and employee, the client is unable to make employer contributions on behalf of a Minister. However it may be able to make other contributions. Please see ‘Other comments’.

Question 4

If the answers to questions 1, 2, and 3 are no, are there any other means by which the religious institution can make contributions to a nominated super fund of a religious practitioner?

Advice

The scope of this question does not fall under the SGAA and as such cannot be answered with binding advice.

Question 5

If the religious practitioner is able to direct the religious institution to make personal contributions on their behalf, are these amounts preserved?

Advice

The scope of this question does not fall under the SGAA and as such cannot be answered with binding advice.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 Section 12

ATO View documents

Superannuation Guarantee: Work arranged by intermediaries SGR 2005/2

Case law

Ermogenous v Greek Orthodox Community of SA Inc. [2002] HCA 8

Reasons for decision

Subsection 12(1) of the SGAA states ‘employee’ and ‘employer’ take their ordinary meaning. Subsections 12(2) to 12(11) expand those terms and make certain provisions to avoid doubt.

The client is a religious institution which facilitates and promotes the objects of a religion in the state via its constitution and by-laws. It oversees the registration and ordination of Ministers, assists with the establishment of churches within the state, operates a number of ministries, and provides advice and support to its members that include the Ministers and the churches. Each state has its own union that are affiliated to a national body.

The national body’s website provides some insight into how the religion is practiced.

Whilst the client’s constitution has some requirements that need to be met by a church to retain membership it also clearly points out the right of each church being free to govern and administer its own affairs.

The client provides guidance material to the churches on remuneration to Ministers under a calling which also includes the provision of superannuation at the SG rate.

There is no standard template currently used by the churches when engaging a Minister as a spiritual appointee despite initial indications that one existed. Instead a basic letter is provided by the church with updated terms. No copy of such letter has been provided.

After discussions between your legal representative and our tax officer a draft version of a Spiritual Appointment agreement (SAA) was provided. It would appear that any response provided to the advice request may be for the purposes of defining the terms of the agreement.

The application states that a Minister may be engaged under a contract of employment but no details have been provided as to what the terms are to be able to compare with the call process.

The above provides some background which will explain the difficulty of being able to provide any definitive or prescriptive answer to the question being asked. The difficulty lies with the fact that each church established will have its own constitution separate to the constitution of the union. Each church will have some form of leadership group that are appointed by its members and through its constitution can determine the terms of a Minister’s calling.

There are also elements of the operation of the church governed by the client. Further the churches can either be unincorporated (not considered a legal entity) or incorporated.

Existence of a contract

Before we can determine whether a Minister is considered to be engaged under a contract of employment in regards to the SAA we need to step back and consider whether a contract would be considered to exist in the first instance, especially in the context of an appointment of a Minister by a church.

Paragraph 34 of Superannuation Guarantee: Work arranged by intermediaries (SGR 2005/2) states in part :

….An employment relationship cannot exist in the absence of a contract. The indicators listed by the courts in determining whether a contract is one of employment can only be applied once it is determined that a contract exists. They cannot be applied to determine whether a contract exists in the first place. The issue of whether a contract exists is a separate and distinct matter from the categorisation of a contract as one of employment or otherwise.

Paragraph 36 advises that a contract is considered to exist where the following elements are present:

● the parties must intend to be legally bound by their agreement;

● there must be an offer by one party and its acceptance by the other; and

● the promises which constitute the agreement must be supported by consideration (unless the agreement is in the form of a deed).

At paragraph 38,

The contract may be written, it may be partly written and partly oral, it may be wholly oral or it may even be implied from the parties' actions.

A duly completed and signed SAA appears to satisfy the second and third elements.

The first element is one which has been the subject of many court cases over the years in regards to a minister of religion but continues to cause much discussion as decisions in each of these types of cases are very much reliant on the particular facts and the rules governing the religious institution involved.

The client is relying on a long standing presumption that an arrangement between a church and Minister of Religion is not intended to create legal relations.

The High Court in Ermogenous quite clearly did not agree that “ such assumptions can be made”.

Further they noted that identifying intention requires an

objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour)” and “ what is it that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened.

Apart from the SAA, information that would assist in determining whether the necessary intention exist includes the constitutions of the client and the churches to gain an understanding of the doctrine and principles of the religion, the workings of the church and in particular its relationship with its Minister(s) and the guidelines prepared by the client. We have obtained some of this information from your website and the website of the national body and the Australian Charities and Not-for-profits Commission (ACNC) website.

The client’s Constitution and By laws

A clause sets out the objects of the union which include:

… to encourage, admonish, coordinate and give direction to the work of the Kingdom of God undertaken by Churches and other bodies and organisations set up under this Constitution or the By Laws.

To promote unity amount the Churches in Faith, Fellowship and Work.

Members of the union include the churches and the Ministers.

For admission and retention of membership each member must adhere to a set of doctrines.

The Constitution requires a church to adhere to a minimum number of standards for it to be admitted and maintained as a member of the union. These include:

a Minister must be appointed or removed by a “ duly constituted meeting of church members”

an appointed Minister must be registered

‘the Executive leaders (e.g. Board, Elders or diaconate) are appointed or removed by a duly constituted meeting of church members”.

The above should be evident in a constitution or other governance document of the Church.

Some insight into the beliefs and practices of the client were provided.

The core values are identified in the guidelines.

The Ministerial Services group set up within the client are responsible for the registration and ordination of Ministers as well as deal with any disciplinary matters concerning the Minister.

The introduction to the guidelines established for the registration and ordination of Ministers states:

The evidence of their calling is seen in:

● The candidate’s own sense of call to ministry,

● The attestation of those who know them well, particularly their home church, that their lives conform to New Testament requirements for leadership, suitability for ministry and affirmation of call,

● In their diligence both in initial and ongoing equipping themselves for the ministry

● needed by the churches, and

● The call to a specific ministry role.

Those seeking Registration must be involved in:

● The exercising of leadership

● The regular ministry of God’s Word

● Pastoral care of and/or responsibility for a specific group of people

● Ongoing ministry, full-time or part-time, honorary or salaried

The guidelines set out the qualities required for a Minister to be registered. These include:

● Evidence of the call of God on their life for ministry

● Affirmation by their home church for suitability for ministry

● Evidence of personal spiritual growth

● Leadership skills and abilities

● A desire to see the extension of the Kingdom of God

● Doctrinal beliefs and vision consistent with those of

● Been a member of a Church for a minimum of two years

● Christian, godly character suitable for pastoral ministry

● Relates well with people, is personable

● Proven ministry experience over a period of time in or their local church

Where a Minister is deficient in any of the above qualities, Ministerial Services may reject or defer their registration. Further they must have a mentor and a personal ministry development plan.

As part of the registration process a Minister must adhere to the Code of Ethics.

The Code of Ethics and Ministry Practice document further highlights the spiritual nature of a Ministers calling.

The pastorate is not merely a profession, but a calling from God which pervades every part of a minister’s life. 1 Timothy 4:16 says, “Watch your life and doctrine closely”.

Ministers are encouraged to continue education…….to promote growth in their faith, knowledge, character and ministry skills.

The Minister’s primary loyalty is always to Lord Jesus Christ who is the head of the Church. Ministers called to serve within the xxx denomination will express their loyalty to the wider work of xxx by prayerful interest, support and participations as they are able in the corporate endeavours of the denomination.

As followers of Christ, Ministers are called as “salt and “light”( Matthew 5:13&14) in the world

Where conflict arises between ministry colleagues the principles of Matthew 18 must first be applied. In the event the conflict is not resolved and relationship restored, ministers will seek the assistance of a suitable mediator.

Whilst people enter into a pastoral ministry in response to a call from God and the church, this call requires that they carry out ministry in a professional and accountable manner.

Breaches are referred to the client’s relevant Group to investigate and make recommendations to Ministerial Services.

There is an internal appeals process available to Ministers against a decision of Ministerial Services that affects them. However, once a decision is made they have no further rights of appeal. The guidelines are silent on whether there are external legal avenues available.

As mentioned earlier apart from the client’s requirement for churches to adhere to the doctrines and congregational involvement in the call process and selection of church leaders, they are free to govern in accordance with their own constitution.

These constitutions may also set out the church’s relationship with its Minister(s).

We have reviewed some of the constitutions of the affiliated churches. Each of the constitutions reviewed have similar underlying themes in regards to their beliefs, the Church leadership which includes the Ministers (referred to as Pastors) and the call process.

The following is an example of the relevant terms set out in those constitutions that may provide some insight:

Beliefs

● Each of the member churches are to adhere to a minimum set of doctrines. The overarching principles are contained in the Old and New Testaments of the Bible. It is the supreme authority on all matters of faith and practice.

● Generally all authority in the church is vested in its members.

Principles of church life in regards to its leadership

● The Pastor is a part of the leadership/executive officers of the church. The leadership of the church may consist of a council, elders and diaconate.

● They are considered the spiritual leaders in the life and service of the church and are considered to be called by God to their positions. Some of the wording in the constitutions provide an indication as to the status of the Pastors:

● Pastors accept their office from the Lord Jesus Christ and the Church members will esteem and acknowledge our Pastors as over us in the Lord. We will by all means endeavour to strengthen their hands.

● Be the keeper of the vision of the church…give the lead in pastoral care of the Church and the spiritual guidance of all Members…

● Direct and oversee the spiritual life, ministry and vision of the Church

● All Pastors are appointed or terminated via a vote/ballot of a certain number of members of the Church. The call/termination process is generally undertaken at a meeting of the Church members and requires a majority (2/3, 3/4) of members present and voting. The call process will usually set out the timing (which can be indefinite or for a specific period) and terms of appointment.

● A Pastor’s call may be terminated by either side with three months’ notice and the Church may pay the stipend and allowance in lieu of that notice.

● If found guilty of any moral offence or misconduct (by the client as the ultimate disciplinary authority) they are automatically terminated.

● Pastor recommendations for a call can come from either the church leadership (sometimes after consulting with the client on suitable candidates) or the members themselves.

● A Pastors call can be subject to Annual/Biennial reviews which is then presented to a members meeting.

● Pastors are accountable to God through the Church. This accountability is based on their understanding of the New Testament.

Spiritual Advisor Agreement

Whilst the terms set out in this agreement appear employment like they need to be understood in light of the structure and rules of the religion, the client and its affiliated Churches.

The terms of the agreement cover both recommended and optional remuneration. The agreement is in part based on the client’s remuneration guidelines which provides for a set figure for the stipend which can be adjusted based on qualifications/experience, exempt fringe benefits, superannuation, provision of leave, and optional provision of equipment such as mobile phone, computer or a car.

However, these guidelines state they are

provided for the assistance for Churches and Ministers to set an acceptable basis for negotiation……as part of the pastoral call process. All matters relating to a Minister’s call are based on mutual agreement and trust with both parties seeking to know both God’s will in the situation and that the other is satisfied with the arrangements.

The Constitutions reviewed are very much based on the Scriptures and set out the spiritual basis of the roles of the leaders which includes the Pastor.

Each Church is responsible for setting its terms based on its financial ability to support the Pastor and the vote of the members. The amount of the stipend offered and access to other benefits can therefore differ between each Church. The basis for the financial support is based on the Scriptures

Further the introduction to the agreement clearly states that the relationship between the Church and the Pastor it is not be construed as one of employment or contractor nor evidence of an intention to create a legal relationship. On signing the Pastor is acknowledging the spiritual appointment is not that of an employee of the Church.

On review of the available facts it would appear that a Minister of Religion accepting a call of a Church that is a member of the client may not be intended to establish a legal relationship but one of a spiritual compact.

A more definitive view would require further facts surrounding the rules, by-laws, policies and practices of each church and the processes and other documentation involved in appointing its Pastor.

Conclusion

Under the SGAA an employer must provide a minimum level of superannuation support to an employee. Under subsection 12(1) “employer” and “employee” take their ordinary meaning under common law. The relationship between them is contractual, referred to as a contract of service.

Subsections 12(2) to (11) expand this meaning to person who would not necessarily be common law employees. In particular subsection 12(3) extends the application to a person who works under a contract that is wholly or principally for the labour of the person.

On the view that it is unlikely that a contract is considered to exist between a Minister and the client, the SGAA would not apply to impose any obligations on the client under subsections 12(1) or 12(3).

The remaining provisions extending the application of the SGAA to persons who would not be considered common law employees do not specifically cover Ministers of Religion.

On the basis of the information currently available it would seem that there is no requirement under the SGAA for the client to provide a minimum level of super for a Pastor appointed under a SAA.