In July 2018, the Australian Taxation Office (ATO) published a draft taxation ruling (TR 2018/D2) on the provision of tax-free fringe benefits to religious practitioners – which will replace the previous ruling (TR 92/17).
The context is, in short, that under section 57 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), an employer can provide certain benefits to an employee without attracting FBT if all of the following are satisfied:
- the employee is a religious practitioner (i.e. a minister of religion, a full-time member of a religious order, or certain persons training to become ministers of religion or members of a religious order);
- the employer is a registered religious institution;
- the benefits are provided to the employee, the employee’s spouse or the employee’s child; and
- in a peculiarly back-handed phrasing, the benefits are NOT provided principally in respect of duties of the employee OTHER THAN pastoral duties or any other duties or activities directly related to the practice, study, teaching or propagation of religious beliefs.
Because the relevant provisions in the FBTAA are quite terse, religious institutions and their advisors have always relied on TR 92/17 to assist in interpreting those provisions.
The draft new ruling, TR 2018/D2, is overall mostly consistent with TR 92/17, but there are some significant changes.
For our clients who employ religious practitioners of various types, the new ruling may clarify the availability of FBT-free benefits for those employees. As we note at the end of this blog, if you have concerns about the potential impact of the new ruling on your organisation, there is an opportunity to comment.
‘Registered religious institution’
TR 2018/D2 was prompted in part by the changes introduced by the creation of the Australian Charities and Not-for-profits Commission (ACNC) from December 2012 (with some changes having been made to the ACNC system since). The ACNC system requires religious charities to register with the ACNC. This has resulted in an amendment to section 57, so that the exemption – which used to apply to ‘religious institutions’ – now applies to the relevant employees of ‘registered religious institutions’.1 Accordingly, there is no longer a need for TR 2018/D2 to explore the definition of ‘religious institution’ – a registered religious institution with the subtype ‘advancing religion’ is automatically deemed to be of the necessary religious nature.
Interestingly, instead of having to focus on the ‘religious’ nature of an organisation, TR 2018/D2 introduces a discussion of the term ‘institution’ (at ):
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. Whether a body has these characteristics depends on the facts in each case. Relevant factors include an entity’s activities, size, permanence and recognition. A structure which conducts activities of limited scale, controlled and operated by family members or friends is not an ‘institution’ in this context.
We expect that most of our clients reading this blog would satisfy this criterion comfortably.
‘Minister of religion’
The term ‘minister of religion’ has been qualified. TR 92/17 stated that, ‘in determining whether a person is a minister of religion, many, if not all, of the following characteristics should be present’. By contrast, TR 2018/D2 states that ‘except in rare cases’ a minister of religion would have all the listed characteristics. The list of relevant characteristics remains essentially the same; the person:
- is a member of a religious institution;
- is recognised 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;
- 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.
The expectation that the requirement that all characteristics would be present ‘except in rare cases’ may be an issue for ministers of some of our clients, especially those representing non-Christian religions.
Reflecting a more contemporary understanding of religious practice, TR 2018/D2 also better explains and defines some of the concepts that have always been involved in section 57 of the FBTAA. It acknowledges that the nature of contemporary religious practice may have changed the characteristics of ‘directly related religious activities’, and provides a number of updated examples of when duties are:
- pastoral vs non-pastoral;
- not pastoral or ‘directly related religious activities’;
- ‘directly related religious activities’;
- predominantly administrative;
- exclusively or predominantly pastoral; and
- not exclusively or predominantly pastoral or ‘directly related religious activities’.
These examples draw on and update some of the previous examples and reasoning found within TR 92/17.
The meaning of ‘pastoral duties’ has been expanded to include ‘generally duties associated with the spiritual care of people’, rather than just to members of the congregation of the religious body. Pastoral supervision of those engaged in pastoral duties has also now been explicitly acknowledged as an example of ‘pastoral duties’.
The term ‘directly related religious activities’ has also been clarified. At , the term is said to include ‘duties or activities undertaken by a full-time member of a religious order to the extent those duties or activities are related to the practice, study, teaching or propagation of their religious beliefs [religious activities]’. The term may also encompass incidental secular activities, provided there is a link to the religious belief of the participants, but not ‘secular or commercial activities that have a mere causative relationship to’ religious activities.
We expect these definitions to be helpful to the organisations with whom we work in understanding the activities to which the exemption will apply.
Opportunity to comment
As noted above, TR 2018/D2 is a draft ruling. The ATO is inviting the public to make comments on the draft ruling, including the proposed date of effect. An edited and anonymised version of the comments will be published on the ATO website.
Comments must be submitted by this Friday, 24 August 2018.
If you aren’t sure about the impact that the new draft ruling might have on your organisation, or if you would like assistance in preparing comments to the ATO about the new draft ruling, then don’t hesitate to get in contact with Philip de Haan or Jacquie Seemann.
1 See subsection 136(1) of the FBTAA.