Edited version of private advice

Authorisation Number: 1052002107571

Date of advice: 7 October 2022

Ruling

Subject: Religious practitioner and exempt fringe benefits

Question

Are the benefits provided by the employer to its CEO exempt benefits pursuant to section 57 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

1.     The employer is a religious institution registered with the Australian Charities and Not-for-profits Commission (ACNC) with a subtype of 'Advancing Religion'.

2.     The employer is part of a network, a not-for-profit ministry, working with leaders from a wide range of denominations globally.

3.     The employer's primary objective is to assist Christian Churches in re-establishing the priority and practice of evangelism through churches that are culturally relevant today and to promote the evangelical Christian faith.

4.     The employer has appointed the Chief Executive Officer (CEO) to assist the Board and lead staff to fulfill its strategic objectives.

5.     According to the position description, the pastoral duties and responsibilities of the CEO, amongst other things, include:

a)     Pastoral care and leadership of staff for the employer

b)     Collaboratively setting vision and mission with the board

c)     Pastoral connections with and support of church leaders connected to the employer

d)     Preaching at churches to promote Christianity and the employer's work

e)     Preaching at Australian conferences to promote stronger Christian life and leadership values

f)      Preaching to spread the importance of living lives called out as leaders and followers of Jesus who are ready to stand for their faith; and

g)     Connecting other country leaders to promote work between nations in growing the message of transformation.

6.     The CEO has been in the ministry for over XX years holding various positions, has formal qualification and accreditation/endorsement as a pastor.

7.     The CEO remuneration package consists of salary and wage as well as fringe benefits.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 (FBTAA) Section 57

FBTAA Subsection 57(a)

FBTAA Subsection 57(b)

FBTAA Subsection 57(c)

FBTAA Subsection 57(d)

FBTAA Subsection 136(1)

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

Taxation Ruling 2019/3 Fringe benefits tax: benefits provided to religious practitioners

Reasons for decision

Benefits provided to employees of religious institutions are exempt under section 57 of the FBTAA, where:

(a)  the employer of an employee is a 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.

All four conditions must be met for the exemption from fringe benefits tax to apply.

The Australian Taxation Office's (ATO) position concerning the above conditions is discussed in Taxation Ruling TR 2019/3 - Fringe benefits tax: benefits provided to religious practitioners (TR 2019/3).

(a)          Is the employer a registered religious institution?

A registered religious institution is defined under subsection 136(1) of FBTAA 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.

Paragraph 7 of TR 2019/3 explains that in considering whether a benefit is provided by a registered religious institution, administration by the ATO is limited to determining that the entity is an institution that maintains current ACNC registration with a subtype 'advancing religion'. This status has been confirmed.

An institution may take various forms, including a company limited by guarantee, an incorporated association, an unincorporated association, a trust, or a body established under statute or letters patent.

In the context of the FBTAA, the word 'institution' refers to a significant body which is a recognised part of society, and for which the grant of an exemption is seen to provide a public benefit. The employer demonstrates the required characteristics of an institution.

The employer is registered as a religious institution with the ACNC with a subtype 'Advancing Religion'.

Accordingly, it is accepted that the employer is a registered religious institution.

(b)          Is the benefit provided to an employee religious practitioner, or their spouse or child?

Subsection 57(b) of the FBTAA requires that an employee be a religious practitioner to receive an exempt benefit.

Subsection 136(1) of the FBTAA states that 'religious practitioner' has the meaning given to that term under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

A 'religious practitioner' is defined under subsection 995-1(1) of the 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.

Paragraph 11 of TR 2019/3 explains that to be exempt, the benefit must be provided by a registered religious institution to an employee who is a religious practitioner. 'Employment' is given a wider meaning than its ordinary meaning and includes holding an office or appointment. Employees are recipients of salary or wages. Here the term 'salary or wages' has a wider meaning than might ordinarily be the case. It includes payments and non-cash benefits made by a religious institution to a religious practitioner for activities done as a member of the institution in pursuit of the practitioner's vocation.

Paragraph 14 of TR 2019/3 provides that except in rare cases, a 'minister of religion' would have all of these characteristics:

•         is a member of a religious institution

•         is recognised by ordination or other admission or commissioning, or has authority from the religious institution to carry out the duties of a minister based on theological training or other relevant experience

•         is officially recognised as having authority on doctrine or religious practice

•         is distinct from ordinary adherents of the religion

•         is an acknowledged leader in spiritual affairs of the institution, and

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

Each of these characteristics are discussed below:

Member of a Religious Institution

In this case, the current CEO is a member of a religious institution and is also a board member for the employer.

Recognised by ordination or other admission or commissioning, or has authority from the religious institution to carry out the duties of a minister based on theological training or other relevant experience

The employer submits that one of the pre-conditions of employment is that the CEO holds the qualifications of, and be accredited as, a Pastor of a readily recognisable Christian denomination. Therefore, it is accepted that this characteristic is satisfied.

Officially recognised as having authority on doctrine or religious practice

Due to the religious ministry conducted by the employer and the pastoral role required to be performed by the CEO, it is accepted that upon being appointed, any individual to be considered for the role of CEO would be officially authorised or recognised as having authority on doctrine or religious practice.

Distinct from ordinary adherents of the religion

As the CEO must be a ministry and accredited pastor whose role would be to perform pastoral duties and preaching at churches and conferences, it can be concluded that the CEO of the employer has a position that is recognised as distinct from that of the ordinary adherents of the religion due to their academic training and experience in the Christian ministry.

Is an acknowledged leader in spiritual affairs of the institution

The predominant focus of the role is providing pastoral care and leadership to staff and Christian leaders, and inspiring and equipping Christian leaders to maximise their full leadership potential and ignite transformation that impacts the world for Jesus Christ. The CEO duties also include preaching at churches and conferences, making and maintaining pastoral connections with church leaders as well as setting vision and mission with the Board.

Therefore, it is accepted that the CEO would be an acknowledged leader in spiritual affairs.

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

The role of CEOis a ministerial role that must be filled by a religious practitioner. The CEO, therefore, would be authorised to act as a Minister on behalf of the employer and endorsed as a Pastor with the relevant churches and would have included ordination or other admission to conduct religious worship and other religious ceremonies.

Each of the other three elements of the definition of 'religious practitioner' do not need to be considered.

On this basis, it is accepted that the CEO would be a religious practitioner.

(c)          Will the benefits be provided to the employee?

It is accepted that the CEO is an employee of the employer, therefore this requirement is satisfied. The benefits provided to the CEO under the employment package, as outlined in the contract of employment, are provided to the employee of the employer.

(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?

To be exempt, subsection 57(d) of the FBTAA requires that a benefit must not be provided principally for duties other than pastoral duties, or duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs ('directly related religious activities').

Paragraph 49 of TR 2019/3 explains that the words 'directly related' point to a close connection between the duties or activities of the religious practitioner and the practice, study, teaching and propagation of religious beliefs. In this context, duties and activities will be directly related where, in their essential nature, they promote the practice, study, teaching and propagation of religious beliefs.

In this case, the predominant focus of the role of the CEO is providing pastoral care and spiritual leadership to staff and Christian leaders, inspiring and equipping Christian leaders to maximise their full leadership potential and igniting transformation that impacts the world for Jesus Christ. The CEO duties also include preaching at churches and conferences, making and maintaining pastoral connections with church leaders.

We therefore consider that the benefits provided to the CEO are principally in respect of pastoral duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs. Hence the requirements under subsection 57(d) of the FBTAA will be met.

Conclusion

As the employer in this case is a registered religious institution and the employee is a religious practitioner, and the benefits provided are principally in respect of the employee's pastoral duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs. The benefits to be provided would be exempt benefits pursuant to section 57 of the FBTAA.