Page Contents

Introduction – PAYG Withholding and Employer Obligations
PAYG Withholding
How Much to Withhold
ATO PAYG Withholding Variations
Reporting Obligations
Single Touch Payroll
Other PAYG Withholding Events
Payments on Termination
Volunteers
WorkCover
Payroll Tax
Superannuation Guarantee
Member Choice Superannuation
Payday Super

Employer Obligations

There are numerous issues with which a church must deal when it has employees. These include determining the treatment of salaries, allowance and other remuneration payments, PAYG withholding, superannuation and Work Cover. You also need to consider the implications of making payments to volunteers.

You may have fringe benefits tax (FBT) and salary packaging considerations. Churches may be able to access various FBT concessions and exemptions as part of the salary package for its ministers. Due to the extent of these issues, we have included a separate chapter on Salary Packaging.

There is also specific legislation dealing with the treatment of religious practitioners for tax purposes. These rules affect GST, FBT, PAYG withholding and ABN rules. We have incorporated these rules into a separate chapter (see Religious Practitioners). However, the normal rules for employing staff as outlined in this chapter still apply to religious practitioners in most circumstances. You may need to refer to the specific religious practitioner rules in Religious Practitioners in the following situations:

  • You make payments to religious practitioners that are not employees (for example a visiting speaker who is also a religious practitioner);
  • Your minister is not a common law employee (some religious practitioners are not employees at common law, but rather are considered to be holders of an office or undertaking activities in the pursuit of a vocation); and
  • Locum payments (often paid to relief a minister or religious practitioner on extended leave)

PAYG Withholding Tax

One of the important issues regarding payroll is ensuring the correct amount of tax is withheld from payments made to employees. Payments on which withholding tax is required include:

  • Salaries and wages to employees;
  • Salary and wages to an officeholder;
  • Certain payments to religious practitioners;
  • Return to work payments to individuals;
  • Eligible termination payments; and
  • Payments for unused leave on an individual’s retirement or on termination of employment.

Salaries and wages include allowances, commissions and bonuses. Note that no PAYG withholding tax is required on fringe benefits. Therefore, it is important to distinguish between salaries, allowances and fringe benefits. Fringe benefits are generally the payment or reimbursement of specific expenses whereas salaries and allowances are definite predetermined amounts. Allowances are paid even if the employee does not choose to spend the full amount. Further discussion on the types and treatment of fringe benefits and the advantages of including fringe benefits in salary packages can be found in Salary Packaging.

Declarations and Variations

The amount to be withheld depends on the type of payment, whether the payee has provided a tax file number (TFN) or withholding declaration, and whether the Australian Taxation Office (ATO) has issued a withholding variation in respect of the payment.

TFN and Withholding Declarations

Your employee may give you, the employer, a TFN declaration. It is not compulsory to provide such a declaration. However, if no declaration is given and the ATO has not issued a withholding variation in respect of the payment, you must withhold tax at the top marginal rate, currently 47% including Medicare. Note that no TFN declaration is required from individuals under 16 years of age and not earning enough to pay tax (currently $18,200 per annum).

The TFN declaration requires the employee to answer questions about residency status, whether they are claiming the tax free threshold from you, entitlement to rebates and details of any outstanding HELP debt. You must forward the completed declaration to the ATO within 14 days of receiving it from the employee. The TFN declaration can be found on the ATO website. The form can be filled online or a paper form may be requested.

If the employee wishes to adjust the information previously provided in their TFN declaration, for example they have repaid their HELP debt, they should complete a withholding declaration.

Remember that TFNs are subject to privacy laws and unauthorised use or disclosure is a serious offence and can result in substantial penalties. Therefore, you should be careful how you store TFNs and have a clear policy on who has access to these details.

Your employee may give permission on the TFN declaration for the TFN to be provided to their superannuation fund. You must pass on the TFN with your next payment to the superannuation fund unless you receive the TFN less than 14 days before the payment. In this case, you have 14 days from when you receive the TFN to pass it on to the superannuation fund.

Medicare Levy Variation Declaration

Some religious practitioners are entitled to a Medicare levy reduction based on family income levels. They can choose to complete a Medicare levy variation declaration to prevent the need for the employer to deduct amounts for Medicare for which the employee will not ultimately be liable.

This variation can also be used to increase the amount of tax being withheld for those employees who are subject to the Medicare levy surcharge. This occurs where the employee’s income or family income is above certain thresholds and no or insufficient private hospital health insurance is held.

PAYG Withholding Tax Variations

Individuals can apply to the ATO for a reduction in the amount of tax to be withheld from their salaries, allowances and bonuses. Applications can be found on the ATO website. Common reasons for completing such a variation include:

  • Allowances will be fully expended;
  • Employee has a negatively geared rental property; and
  • Employee has substantial deductions to claim.

If the variation is approved the ATO will advise the employer of the amount of tax to be withheld for the remainder of that financial year. You will then use this rate provided by the ATO to withhold tax from payments to the employee and not the usual tax withholding tables.

It is important to remember that most variations expire at the end of the financial year. If you have not received a new variation notice from the ATO at the start of a new financial year, you must revert to the published withholding tables to calculate the PAYG withholding tax.

​​​How Much to Withhold

The amount to be withheld on payments to employees is generally worked out under the withholding schedules or tables published by the ATO and these are discussed below. However, an individual can apply to the ATO for a varied withholding tax rate. If this application is approved, the employer should withhold tax in accordance with this variation for the period specified by the ATO. All such variations will cease at the end of each financial year. The ATO can also provide withholding variations for particular types of payments. These variations apply to all or a class of employees.

Withholding Schedules

Salaries and Wages

There are various withholding schedules published by the ATO and you should ensure that you use the correct one. Factors that determine the required schedule are:

  • Timing of payments – quarterly, monthly, fortnightly or weekly;
  • Whether the employee has a HELP debt;
  • Whether the employee has completed a Medicare levy variation; and
  • Whether you pay annual leave loading.

The schedules can be downloaded from the ATO website. The ATO also provides a Tax Withheld Calculator, which can be found at: https://www.ato.gov.au/Calculators-and-tools/Tax-withheld-calculator/

What is the Tax Withheld Calculator?

The schedules should also be used for payments of allowances unless a specific variation exists. The allowance is added to the salary paid to determine the total payment for the period. Variations for allowances are discussed later.

Bonuses

The ATO publishes a schedule to assist in determining the tax to be withheld from bonuses. As the bonus may relate to more than one pay period, it is necessary to adjust the tax to be withheld. The schedule can be found at:
https://www.ato.gov.au/tax-rates-and-codes/schedule-5-tax-table-for-back-payments-commissions-bonuses-and-similar-payments

Employment Termination Payments

The taxation of termination payments was altered effective 1 July 2007. For more information refer to ATO: https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/employment-termination-payments

Unused Leave Payments on Termination of Employment

This covers accrued annual and long service leave owed to the employee at the time their employment ceases. The amount of tax to withhold depends on the period to which the leave relates and whether the employment has ceased because of redundancy or an approved early retirement scheme. The PAYG withholding schedule can be found at: https://www.ato.gov.au/rates/tax-tables/

Payments in Arrears

Occasionally employers make payments that relate to significant periods of time. This usually occurs where there has been a mistake in the amount of salary and wages paid in earlier periods and a once off lump sum is paid to correct the error. Circumstances where the lump sum payment in arrears withholding schedule should be used include where the payment accrued during a previous year of income and one of the following applies:

  • The salary and wages accrued more than twelve months before the date you pay it; and
  • The salary and wages are paid to the person after reinstatement to duty following a period of suspension and the amount accrued during the period of suspension.

Lump sum payments in arrears should be shown separately on the employee’s income statement. The payment in arrears withholding schedule can be found at: https://www.ato.gov.au/assets/0/104/1328/1465/6841dca5-2ac8-4047-a98d-42fa7dcb38dd.pdf

ATO PAYG Withholding Variations

The ATO can approve PAYG withholding variations for various types of payments. Relevant variations are discussed below.

Allowances

Allowances are payments made in addition to normal salary and wages and are designed to compensate the employee for additional costs incurred in undertaking their duties. They are definite predetermined amounts and are paid even if the employee does not choose to spend the full amount. If you do reimburse the employee for specific expenses and specific amounts, the payment will be a fringe benefit and not an allowance.

Allowances are usually paid for:

  • working conditions, such as danger;
  • qualification or special duties, such as safety officer;
  • expenses that cannot be claimed as a tax deduction by the employee, such as normal travel between home and work; and
  • work related expenses that may be able to be claimed as a tax deduction by the employee, such as car travel, uniform costs, books and overseas travel.

Allowances in the first three categories are subject to the normal PAYG withholding tables and are included on the employee’s income statement as an addition to salary and wages. Allowances in the last category (for work related expenses) are also subject to the normal PAYG withholding rules unless the ATO has issued a PAYG variation. However, they must be shown separately as allowances on the employee’s income statement.

The ATO has approved PAYG withholding variations for certain specific work related expense allowances. However, before you can use the variations, you must meet both of the following requirements:

  • the employee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance; and
  • the amount and nature of the allowance is shown separately in your accounting records

The following variations for allowances are relevant to churches.

Allowance type
Are you required to withhold from allowances?
Is the allowance to be included on the income statement? If so, how is it to be shown?

Cents per kilometre car expense payments using ATO rates (1)

For payments made by applying the ATO rate to the number of
kilometres travelled where the usage is up to 5,000 business kilometres.

 No Yes
(show total allowance separately in allowance box with an explanation)
For payments made in excess of 5,000 business kilometres by
applying the ATO rate to the number of kilometres travelled.		 Yes
(from the payment for the excess over 5,000 km)		 Yes
(show total allowance separately in allowance box with an explanation)

Domestic or overseas travel allowance involving an overnight

absence from payee’s ordinary place of residence (2)

Up to reasonable allowances amount

 No No
Over reasonable allowances amount

An allowance for overseas accommodation must be subject to
PAYG withholding and be shown in the allowance box on
the income statement.

 Yes
(from excess over reasonable allowances amount)		 Yes
(show total allowance separately in allowance box with an explanation)

The ATO publishes an annual ruling setting out the reasonable allowance amounts for travel expenses. This ruling can be downloaded from the ATO website here.

Payments to Locums

The ATO has varied the withholding rate on certain payments to locums to nil. The payment must be made by a religious institution to a religious practitioner. The rules do not apply to payments made by non-religious institutions.

The nil withholding tax rate applies to payments for the provision of locum services performed for a period that does not exceed 2 days in a quarter. However, the church must still issue an income statement at year-end. Further information can be found in Zero PAYG Withholding Rate on who is a locum and how the 2 day test is applied.

Visiting Speakers

The ATO does not believe locum includes visiting speakers. If your visiting speaker is a religious practitioner, you must withhold tax under the normal PAYG withholding rules. However, the ATO has agreed that individual churches or denominations can apply for the nil withholding rate to be extended to payments made to religious practitioners for activities including the delivery of services, sermons and participating in other aspects of services. You should contact your denomination to determine whether your church is covered by such a nil withholding variation. If it is not, your church may want to apply separately. Any variation is likely to apply for a two year period only.

​​​​​Reporting Obligations

Employee

You must provide every employee with a completed income statement after the end of the financial year. You will also need to provide a summary to certain religious practitioners that received amounts from you. The requirements for religious practitioners are outlined in more detail in Religious Practitioners. You should ensure that your employees receive their income statement by 14 July.

The main items to be shown on an income statement are:

  • church’s name and employee’s name;
  • employee’s TFN (if previously provided);
  • total gross payments;
  • allowances that are required to be shown separately;
  • total tax withheld;
  • reportable fringe benefits; and
  • certain lump sum payments on termination of employment.
Reportable Fringe Benefits

Reportable fringe benefits should be shown for the year 1 April to 31 March. However, exempt benefits provided to religious practitioners are excluded from this reporting requirement. Therefore you should only include fringe benefits provided to staff who are not religious practitioners. Even for these staff, disclosure is only required if the total taxable value of fringe benefits for the employee exceeds $2,000.

It is the grossed up taxable value of the benefit that is shown on the payment summary. Benefits are grossed up at the 1.8868 rate, meaning that the reportable fringe benefit shown on the payment summary must exceed $3,774 (grossed up value of $2,000 of benefits). Reportable fringe benefits exclude car parking and entertainment benefits.

ATO

You must forward to the ATO all TFN and other withholding declarations received from employees within 14 days of receipt. You must notify the ATO on your Business Activity Statement or Instalment Activity Statement of the amount of gross payments and PAYG withhold tax for the period.

Gross payments include:

  • salaries and wages;
  • bonuses;
  • commissions;
  • allowances other than for work related expenses that may be able to be claimed as a tax deduction by the employee;
  • holiday pay or bonuses; and
  • amounts paid for unused long service leave and annual that accrued after 17 August 1993, except if paid in respect of redundancy, invalidity or an approved early retirement scheme.

Single Touch Payroll

Single Touch Payroll (‘STP’) is a federal government initiative designed to streamline an employer’s reporting obligations to government agencies in respect of employee payments. STP commenced on 1 July 2018, and further changes known as STP Phase 2 commenced on 1 January 2022.

STP requires payroll information to be reported through STP-compliant software at the time of a payroll transaction. This includes details of salary and wage income, PAYG withholding tax and superannuation liabilities.

Initially, employers were only required for STP purposes to report information in relation to an employee’s taxable salary and wage income. As a result of STP Phase 2, information in relation to salary sacrificed superannuation and benefits is now required to be reported. This enables government agencies to have information in relation to the full value of an employee’s remuneration rather than just their taxable salary and wage income.

The main consequence for churches as a result of STP Phase 2 is the requirement to report information in relation to exempt benefits provided to ministers of religion where these are salary sacrificed. This is despite the fact that the exempt benefits will not result in a ‘reportable fringe benefit amount’ for fringe benefits tax (‘FBT’) purposes.

Before reporting exempt benefit amounts it is necessary for churches to consider a minister of religion’s employment status and whether the exempt benefits are provided in accordance with a salary sacrifice arrangement.

The definition of an employee for STP purposes is different to the definition of an employee for FBT purposes. As a result of this, some ministers of religion who are not common law employees may not be considered to be employees for STP purposes. This is even though they are treated as employees for FBT purposes and are eligible to receive exempt benefits accordingly. Legal advice may therefore be required to clarify a minister of religion’s employment status.

Once it has been determined that a minister of religion is an employee for STP purposes, consideration is required as to whether the exempt benefits they receive are provided in accordance with a salary sacrifice arrangement. A salary sacrifice arrangement is where a portion of an employee’s remuneration that would be able to be provided as salary and wage income is reduced or sacrificed and something else is provided in lieu of this.

Most churches provide exempt benefits to a minister of religion as a portion of an agreed remuneration amount. If the exempt benefit portion was not provided then the church would most likely pay the minister of religion additional salary and wage income. Where this happens, it is correct to say that the exempt benefits are provided in accordance with a salary sacrifice arrangement and they will need to be reported as salary sacrificed amounts for STP purposes.

It is possible, however, for some exempt benefits to be provided to ministers of religion either in addition to their agreed remuneration or not in accordance with a salary sacrifice arrangement. An example of this is where a church only agrees to pay for an expense of a minister of religion but would not agree to provide the same amount as additional salary and wage income if the minister paid for the expense personally.

In most situations exempt benefits provided to ministers of religion are in accordance with a salary sacrifice arrangement and will need to be reported for STP purposes. However, churches will need to correctly assess the circumstances associated with the provision of exempt benefits so that their reporting obligations can be complied with.

Other PAYG Withholding Events

Supplies of Goods or Services

Where you make payments to individuals or entities that are not employees, you will still need to deduct PAYG withholding unless an exemption applies. The most commonly used exemption is the provision of an Australian Business Number (ABN). If the supplier quotes ABN and you have no reason to believe the ABN is incorrectly quoted, you do not need to deduct any tax. Other exemptions to the requirement to withhold tax include:

  • The payment excluding GST does not exceed $75;
  • The supply is wholly input taxed (for example residential rent, financial services, most school tuckshops); and
  • The payee is an individual and the supply is made in the course of a private recreational pursuit or hobby, or is wholly of a private or domestic nature for the payee. The payee should give you a written statement to that effect and you should have no reasonable grounds to believe the statement is false or misleading.

Voluntary Agreements

You can enter into a voluntary agreement with an individual who is not an employee to withhold tax. The individual must have an ABN. A voluntary agreement can apply to a specific task or apply to successive arrangement between you and the payee. Either you or the payee can end a voluntary agreement at any time by notifying the other in writing. A voluntary agreement can be downloaded from the ATO website: https://www.ato.gov.au/Forms/Voluntary-agreement-for-PAYG-withholding/.

Payments on Termination

When an employee leaves, you will usually make a final payment to them. These final payments often receive special tax treatment. Therefore you need to determine how much tax to deduct. There may also be specific employer reporting obligations.

Employment Termination Payments

An employment termination payment (ETP) is a lump sum payment made by an employer to an employee in consequence of the termination of employment or paid to another person because of the death of the employee. It includes payments in lieu of notice and golden handshakes. It does not include unused annual leave and long service leave and the tax free components of a genuine redundancy payment or an early retirement scheme payment.

Life Benefits

Any part of an employment termination payment that relates to pre 1 July 1983 service is tax free. From 1 July 2012, the concessional tax treatment for ETPs has changed that two caps may apply:

  • ETP cap ($260,000 in 2025-26 income year)
  • Whole-of-income cap ($180,000). The cap amount is reduced by all taxable income the employee earned during the income year in which the ETP was paid.

Which caps are relevant depend on whether an ETP payment is excluded or non-excluded. If an ETP payment is an excluded ETP payment, then only the ETP cap applies. If an ETP payment is a non-excluded ETP payment then both caps have to be considered (see below).

Excluded ETP payments are:

  • Genuine redundancy payments (see below);
  • Early retirement scheme payments (see below);
  • Payments made to employees who lose their job due to invalidity (see below);
  • Compensation payments for disputes relating to personal injury, harassment, discrimination or unfair dismissal; and
  • Death benefits payment (see below)

All other ETP payments are non-excluded.

The taxable component of an excluded ETP is taxed concessionally up to the ETP cap provided it is received within 12 months of the termination of employment. For the year ending 30 June 2025, the ETP cap is $260,000. For employees on or over preservation age (depends on date of birth, see bottom of page), payments up to the ETP cap is taxed at 17%* with any excess being taxed at the top marginal rate of 47%*. If the employee is under preservation age, payments up to the ETP cap is taxed at 32%*with the balance taxed at 47%*.

All other payments are non-excluded payments. Non-excluded ETPs are taxed at the lower of the ETP cap, $260,000 and the whole-of-income cap, $180,000. In effect, the concessional limit is $180,000. The whole-of-income cap is reduced by any taxable income the employee receives in the income year in which the employee receives the ETP payment. (For example, if an employee receives salary of $30,000 in the tax year, before receiving an ETP payment in that year, their whole-of-income cap will be reduced to $150,000).

Non-excluded ETPs are taxed concessionally up to the relevant cap (lower of ETP cap or whole-of-income cap) provided the ETP is received within 12 months of the termination of employment. For employees on or over preservation age (depends on date of birth, see bottom of page), payments up to the relevant cap are taxed at 17% with any excess being taxed at the top marginal rate of 47%*. If the employee is under preservation age, payments up to the relevant cap are taxed at 32%* with the balance taxed at 47%*.

Where an ETP is composed of both excluded and non-excluded components, the excluded component is used first to reduce the ETP cap. Then, for the non-excluded payments, you must determine which is the lower of the (reduced) ETP cap and whole-of-income cap. For a detailed example please refer to:

https://www.ato.gov.au/Rates/Schedule-11—Tax-table-for-employment-termination-payments/?anchor=How_to_work_out_the_withholding_amount#How_to_work_out_the_withholding_amount

*Note that this includes 2% medicare levy.

Death Benefits

Any part of an ETP that relates to pre 1 July 1983 service is tax free. The remaining component of a death benefit termination payment is concessionally taxed up to the ETP cap provided it is received within 12 months of death. The ETP cap for death benefits is also $260,000 for the 2025-26 year. If the death benefit is paid to a dependent, then it is tax free up to the cap. Any excess is taxed at 47%*. If the death benefit is not paid to a dependent, it is taxed at 32%* up to the ETP cap with the balance taxed at 47%*.

A dependent is:

  • A surviving spouse or defacto spouse;
  • An ex-spouse;
  • Any child of the deceased under 18; and
  • Any person who is financially dependent (receives all or a major amount of necessary financial support) on the deceased at the time of death or at the time the payment is made.

The Government has extended the meaning of dependent to include interdependent relationships. An interdependent relationship is one of continuing mutual commitment to financial and emotional support between two people who reside together. The definition will also include a person with a disability who may live in an institution but is nevertheless interdependent with the deceased. Examples provided by the Government include:

  • Two elderly sisters who reside together;
  • An adult child who resides with and cares for an elderly parent; and
  • Same sex couples who reside together.

*Note that this includes 2% medicare levy.

Early Retirement

Churches are unlikely to be able to offer early retirement schemes. Such schemes must be:

  • Offered to all employees within a class (e.g. all employees of a particular age);
  • Entered into with a view to rationalising or reorganising your operations with specific objectives; and
  • Be approved by the Commissioner of Taxation.

Where an employee ceases employment under an early retirement scheme, part of the termination payment will be tax free. For the 2025-26 income year, the tax free amount is $13,100 plus a further $6,552 for every completed year of service. Early retirement applies to those seeking retirement before the age of 65. The non-tax free component is treated as a taxable employment termination payment.

Invalidity

To be considered an invalidity payment, the employee must terminate employment because of their disability. You require two legally qualified medical practitioners to certify that the disability is likely to result in the taxpayer being unable ever to be employed in a capacity for which they are reasonably qualified because of education, training or experience. Disability can be physical or mental. Termination of employment must occur before the last retirement date relating to the employment. This will be 65 unless there is some other date specified in the conditions of employment or an award.

Where an employee ceases employment due to invalidity, part of the termination payment is tax free. The tax free component is calculated as AB/C where:

A is the amount of the termination payment

B is the number of whole days in the period from the date when the employment terminated until the last retirement day (usually age 65)

C is the sum of the number of whole days in the eligible service period plus the number of days in item B

The non-tax free component is treated as a taxable employment termination payment.

Redundancy

Redundancy applies where the employer no longer requires employees to carry out work of a particular kind. It generally arises where dismissal is not caused by any consideration peculiar to the employee. Genuine redundancy might arise where a church is closed down or reduces the number of employees. Termination must occur before the employee’s 67th birthday (see dates here).

A payment made in lieu of notice on termination of employment for redundancy is treated as a genuine redundancy provided it is additional to what the person would have received from voluntary retirement.

Where an employee ceases employment due to bona fide redundancy, part of the termination payment will be tax free. For the 2025-26 income year, the tax free amount is $13,100 plus a further $6,552 for every completed year of service. The non-tax free component is treated as a taxable ETP.

Death Benefits

If you are paying a death benefit to a dependent, no tax should be deducted. There are no specific reporting requirements unless the payment exceeds $5,000, in which case you must notify the ATO of the payment. You should contact the ATO to obtain this form.

Payments to non-dependents are treated as untaxed eligible termination payments. However, special tax rates apply. If the non-dependent has provided a tax file number, tax at 32% should be deducted from the post 1 July 1983 component. No tax should be withheld from the pre 1 July 1983 component. If no tax file number is provided, you must withhold tax at 47% from both components.

Death benefit payments must be made in cash and cannot be rolled over to a superannuation fund.

Annual Leave

If the employee is leaving for reasons of genuine redundancy, approved early retirement or invalidity, then tax should be deducted from the payment for unused annual leave at the rate of 32%. Note that if the employee uses up all their annual leave before they cease employment, annual leave will be treated as ordinary salary and taxed accordingly.

If the employee is leaving for other reasons, you need to split the unused annual leave between leave that accrued prior to 18 August 1993 and leave that accrued after that time. As an employee is considered to have used their oldest leave entitlements first each time they take holidays, very few employees will still have leave accrued from before 18 August 1993. However, if there is leave (including leave loading) accrued prior to this date, deduct tax on this component at 32%.

For leave accrued post 18 August 1993, you should deduct tax using the marginal rates. How to calculate the relevant marginal rates, and a worked example, can be found here: https://www.ato.gov.au/Rates/Schedule-7—Tax-table-for-unused-leave-payments-on-termination-of-employment/

Note that all payments for unused annual leave made after the death of an employee are tax-free. Therefore, you should deduct no tax in this situation. The payment should still be disclosed on the employee’s income statement.

Long Service Leave

If the employee’s eligible service period commenced before 16 August 1978, you will need to divide the long service leave payout into the pre and post 16 August 1978 components. You should deduct tax on only 5% of the pre 16 August 1978 component at normal salary rates.

Tax on the post 16 August 1978 component depends on the reason for termination of employment. If the employee is leaving for reasons of genuine redundancy, approved early retirement or invalidity, then tax should be deducted at the rate of 32%. If the employee is leaving for other reasons, leave accrued between 16 August 1978 and 18 August 1993 is taxed at 32%. Leave accrued after 18 August 1993 is added to salary income and taxed at normal rates.

To calculate the tax on the 5% of leave accrued pre 16 August 1978 and the total leave accrued post 18 August 1993, you should divide this total amount by 52 and add to normal weekly gross earnings. Use the ATO tax instalment schedules to calculate the difference between tax deducted from normal weekly earnings and the tax deducted from the new earnings amount. Multiply the result by 52.

Note that all payments for unused long service leave made after the death of an employee are tax-free. Therefore, you should deduct no tax in this situation. The payment should still be disclosed on the employee’s income statement.

Preservation Age Table
Date of Birth
Preservation age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56
1 July 1961 – 30 June 1962

57
1 July 1962 – 30 June 1963

58
1 July 1963 – 30 June 1964

59
From 1 July 1964

60

Volunteers

There is no legal definition of volunteer. If you make payments to people who do work for you, you need to determine whether the person is a volunteer, an employee or independent contractor.

Employees

Factors that may indicate an individual is an employee include:

  • paid for time worked;
  • receive paid leave;
  • agree to provide their personal services;
  • work set hours; and
  • are recognised as part of parcel of the church’s organisation.

Contractors

Independent contractors differ from employees in that:

  • they are contracted for a given result (e.g. paint the church hall);
  • they can determine how the work is performed and can delegate tasks to others;
  • they bear the commercial risk and can make a profit or a loss;
  • they generally provide all their own materials, tools and equipment;
  • they do not receive paid leave; and
  • they offer their services to the public at large.

The meaning of contractor differs for different obligations. For example, a person may be a contractor for PAYG withholding purposes but an employee for the purposes of the Fair Work Act. You should seek legal advice if you are unsure of the correct classification.

Volunteers

Volunteers do not fit into either of the above categories. They do not work under a contractual obligation for remuneration. They enter into any service of their own free will and do not usually expect to make a profit from the arrangement.

Having determined that you do have volunteers, you need to consider the treatment of any payments made to your volunteers. The ATO includes the following general rule.

  • Volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers, and
  • Non-profit organisations are not liable for PAYG withholding on payments they make or FBT on benefits they provide to volunteers.

However, as always, there are exceptions and these are discussed below.

Payments to volunteers may have many different names, including honoraria, reimbursements and allowances. However, how the payment is described will not necessarily determine its tax treatment. You need to look at the facts in each case, particularly the circumstances of the volunteer. If the activity for the volunteer is largely a pastime or a hobby it is unlikely the payment will be assessable income to them. Characteristics of a non-assessable payment include:

  • Covers expenses incurred or to be incurred;
  • Has no connection to the volunteer’s usual income producing activities;
  • Is not received as remuneration or as a consequence of employment;
  • Is not relied on or expected by the volunteer to meet daily living expenses
  • Is not legally required;
  • Is a token amount compared to the services provided or expenses incurred; and
  • Honoraria and allowances.

The ATO describes an honorarium as an honorary reward for voluntary services or a fee for professional services voluntarily rendered. Allowances are a predetermined amount to cover estimated expenses. They are paid even if the volunteer does not fully expend the amount.

You need to look at the factors listed above to determine whether honoraria and allowances are assessable. If a payment is not taxable to the volunteer, neither are any expenses they incur deductible to them.

Example

Jane, a church member, helps out in the church office on an irregular basis. You pay her a token amount as appreciation for her efforts. This amount is unlikely to be assessable income to Jane. However, Susan runs a legal practice and offers to assist on a voluntary basis in drawing up legal documents for the purchase of a church property. Any payment to Susan is likely to be assessable. The payment would be a reward for services connected to her usual income producing activities




If the church concludes that the recipient is not an employee or a religious practitioner but is unsure whether the payment is assessable income to the volunteer, it may be possible to leave the decision to the recipient. If the volunteer believes the payment is not assessable, they can complete the form “Statement by a supplier (Reason for not quoting an ABN to an enterprise)”.

With regard to honorariums paid to visiting speakers, it may be possible to avoid the need to consider whether to deduct tax by paying the honorarium directly to the visiting speaker’s home church or governing body. However, GST will then need to be considered if the recipient is registered for GST. If the two churches are part of the same GST religious group, no GST liability arises. If the visiting speaker is participating in the service and the payment is to another church, the payment is likely to be a GST free religious service. If there is no GST exemption, you will need to obtain a tax invoice in order to claim back the GST input tax credit.

Reimbursements

A reimbursement arises when the volunteer is reimbursed exactly for an expense incurred. Factors that also indicate a reimbursement include the requirement for the volunteer to provide documentation of the expenses and that any unexpended amounts must be returned.

Reimbursements will not be assessable if:

  • The payment does no more than reimburse the volunteer for expenses actually incurred, and
  • The payment is not for a supply made in the course of an enterprise of the volunteer.

Example

Dan, who runs a plumbing business, uses some of his materials to repair leaking pipes at the church hall. Any reimbursement by the church for costs incurred will be assessable to Dan as they relate to his plumbing business.

Implications for the Church
Claiming Input Tax Credits

Churches can claim the GST included in the cost of items it buys for its volunteers or expenses it reimburses to volunteers provided the activity is not input taxed. If the expense relates to an input taxed fundraising event or a non-profit sub-entity, the GST cannot be claimed.

Remember that tax invoices must be held if the GST inclusive expense is more than $82.50. You should ensure that you obtain the necessary paperwork from volunteers before reimbursing their expenses.

Entertainment

You cannot claim input tax credits for the GST included in the cost of entertainment. However, light meals, such as hot or cold sandwiches, morning and afternoon tea or non-alcoholic refreshments, are not entertainment and the GST can be claimed.
Food or drink provided in a social setting such as dinners, parties and social functions are entertainment.

Fringe Benefits

FBT may be payable on benefits provided to employees or their associates in respect of their employment. Generally benefits provided to volunteers do not meet these requirements.

PAYG Withholding

Payments to volunteers are not usually subject to PAYG withholding. However, if the payment is made to a volunteer who is carrying on an enterprise (e.g. the plumber who helps out fixing the damaged pipes), you will need to withhold tax if the payment is more than $75 and no ABN is provided.

Victorian WorkCover

WorkCover is insurance against injury in the workplace and covers the employer for the cost of wage replacement, medical and legal costs for any of its workers injured at work. It is a state levy and therefore the definition of religious practitioner for tax purposes does not apply. Only payments you make to common law employees or certain contractors are included rateable remuneration for WorkCover purposes.

In Victoria, WorkCover is compulsory for employers paying more than $7,500 per year in wages, salaries, superannuation, taxable fringe benefits and certain other payments. The fringe benefits amount to use is the grossed up figure.

In Victoria, WorkCover is not paid on exempt benefits. However, if there is a workplace accident, you will still be insured for the exempt benefits component of the employee’s wages.

Victorian WorkCover is currently levied at an average of 1.62% of wages, however this rate varies depending on the claim history of the employer, the industry they work in and the size of the employer.

Payroll Tax

Employers who pay wages over a certain threshold must register for payroll tax. In Victoria the threshold is $83,333 monthly, and payroll tax is paid at 4.85% of wages (except for Victorian regional employers) over $1,000,000 per annum. (The rates and thresholds do vary substantially from state to state.) Payroll tax is payable monthly by the seventh day of the following month.

The definition of “wages” includes wages, salaries, commissions, some allowances, superannuation, fringe benefits, and many other payments to employees and some contractors.

Wages are usually exempt where they are paid by churches, however wages paid by churches to people engaged in commercial or business activities are not exempt.

In addition, fringe benefits that are exempt under the Fringe Benefits Tax Assessment Act 1986 will also be exempt for payroll tax purposes.

Therefore, churches will almost never have a payroll tax liability.

More information, and circumstances for Victorian regional employers, can be found here: https://www.sro.vic.gov.au/payroll-tax.

Superannuation Guarantee

Churches are required to provide a minimum level of superannuation support for all their employees, including their ministers. For the 2025-26 income year, minimum superannuation contributions are 12% of the employee’s earning base up to a maximum salary and wages amount of $62,500 per quarter. Failure to make the required contributions by the due date will result in the imposition of the superannuation guarantee charge.

Updated superannuation guarantee percentages for the next few income years can be found here: https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage#Superguaranteepercentage

When must payments be made?

Prior to 1 July 2003, you could make these contributions on an annual basis by 28 July following the year end.

However, from 1 July 2003, employers must make their superannuation contributions at least quarterly, rather than annually. Contributions must be paid by 28 October, 28 January, 28 April and 28 July each year for the previous quarter. Contributions must be made to a complying superannuation fund or a Retirement Savings Account. From 1 July 2026 employers must pay employees superannuation at the same time as their salary and wages. Refer below to Payday Super for more information.

Prior to 1 January 2005, employers were required to report in writing to their employees and advise the employee of:

  • the amount contributed;
  • the name of the fund into which the contributions were made; and
  • if possible, the fund’s telephone number.

As there was no specific format for the report, you could report to your employees in any of the following ways:

  • letter signed and dated by the employer;
  • e-mail;
  • payslip; or
  • copy of a receipt for contributions from the superannuation fund.

From 1 January 2005, this reporting requirement was abolished. Therefore unless there is a requirement to report superannuation contributions in the employee’s award, no reporting obligations now apply

What is included in the employee’s earnings base?

The employee’s earning base is generally ordinary time earnings paid during the period. It includes salary and wages, remuneration while on annual leave, sick leave and long service leave and performance bonuses. However, it excludes fringe benefits, ex gratia payments, non-performance bonuses, annual leave loading, payments during maternity leave and termination payments.

By salary packaging a minister’s salary, the church may reduce its superannuation payments as there is no obligation to provide superannuation contributions in relation to fringe benefits. However, many churches choose to calculate superannuation as 12% of the minister’s entire package, rather than just the salary component.

Failure to pay the required contributions

Employers who do not meet pay their superannuation contributions by the required date or fail to meet the minimum superannuation contribution level must pay the Superannuation Guarantee Charge (SGC). The charge comprises the outstanding superannuation contributions, plus administrative costs, charges and penalty interest. Failure to report contribution details to your employees may also attract a penalty. The SGC is remitted to the ATO by using a form that can be down loaded from the ATO’s website.

Member Choice Superannuation

Member choice of superannuation fund rules commenced on 1 July 2005. The compliance requirements only apply to superannuation guarantee contributions and not to any other contributions that you make for employees, such as through salary sacrifice.

Standard Choice Forms

One of the important aspects of the rules is the standard choice form. The form allows employees to choose an alternate fund of their choice. If they choose an alternate fund, they must provide you with specific fund information before you can accept their choice. This includes the name and contact details of the fund, the fund ABN, account number, method of receiving payments, and other written statements.

The form also provides the name of the fund into which the employer will contribute if the employee does not make a choice. The form can be downloaded from the following Government website. https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/SUPER17983Superannuation_standard_choice_form.pdf

To be a complying default fund, it must offer a minimum level of life insurance cover for members at a premium of at least $0.50 per week and with the level of cover shown in the following table:

Age Range

 20-34 35-39 40-44 45-49 50-55

Level of insurance

 $50,000 $35,000 $20,000 $14,000 $7,000

The new laws impose the following obligations on employers in regards to the standard choice form:

  • By 28 July 2005, you must give a standard choice form to each employee you employed on 1 July 2005
  • For new employees commencing after 1 July 2005 you must give a standard choice from within 28 days of their employment commencement
  • You must give a standard choice form within 28 days of being asked by an employee unless you have already given the employee a form within the last 12 months
  • If you become aware that a fund chosen by an employee can no longer receive your contributions (for example the fund is no longer a complying fund), you must give the employee a standard choice form within 28 days

Note you do not need to give a standard choice form to an employee if the employee has already, by written notice to you, indicated an eligible fund chosen to receive their superannuation guarantee contributions. You are only obliged to allow one choice of fund in any 12 month period.

In limited circumstances, you may reject a fund chosen by the employee. Circumstances include the employee failing to provide sufficient information about the chosen fund or the employee has chosen another fund within the last 12 months. If the fund is not rejected, it becomes the employee’s chosen fund at the latest two months after you receive the standard choice form.

It is important to understand that employers should NOT advise employees of which fund to choose or provide any investment advice unless they hold an AFS Licence. Significant penalties can apply for providing investment advice.

You will need to ensure you can substantiate that you have complied with the super choice requirements. This should include an acknowledgement from the employee that the Standard Choice form was provided. Note you do not need to follow up employees who have not returned their standard choice form. If no response is received, you should pay the superannuation guarantee amounts to the default fund.

State and Federal Awards

Provisions in State awards requiring contributions to be made to a particular superannuation fund take priority over the choice of fund laws. Therefore contributions made by employers in accordance with State awards are deemed to comply with choice of fund provisions.

However, choice of fund rules take precedence over Federal awards. If an employee chooses a superannuation fund, the choice will bind the employer in preference to the superannuation fund set out in the award. If the employee fails to make a choice, the Federal award will then apply.

Penalties for Non-Compliance

Failure to comply with the choice of fund laws results in an increased superannuation guarantee charge.

The penalty is generally 25% of the superannuation guarantee contributions paid but subject to a maximum per employee of $500 for a quarter or for a notice period. A notice period can be several quarters as determined by the Commissioner.

Example

An employee’s earnings for the quarter are $15,000. You pay the required superannuation guarantee contributions of 12%, being $1,800 to a complying superannuation fund within 28 days of the end of the quarter. However, you did not give the employee an opportunity to choose the fund to which they wanted their contributions paid. The penalty for failure to comply with the choice of fund rules is:

25% x $1,800 = $450

If the calculation had resulted in an amount greater than $500, the penalty would have been reduced to $500

Payday Super

From 1 July 2026, employers will be required to pay their employees’ compulsory superannuation contributions around the same time as payment of their salaries and wages. This measure as well as other changes to superannuation guarantee contributions is known as ‘Payday Super’.

Current Requirements

Employers are presently required to pay superannuation contributions at the rate of 12% on an employee’s ‘ordinary time earnings’. This essentially means an employee’s normal earnings, and it excludes certain salary and wage income such as overtime, unused leave entitlements paid on termination of employment and other termination payments.

The required superannuation contribution must be paid into an employee’s superannuation fund by the 28th day after then end of the March, June, September and December quarters. If this does not happen then the employer must lodge a superannuation guarantee charge (SGC) statement with the ATO. The requirement to lodge a SGC statement operates on a self-assessment basis, although this can be brought to an employer’s attention by the ATO.

The SGC comprises the required superannuation contribution (if this has not already been paid), interest at the rate of 10% from the start of the relevant quarter to when the SGC amount is paid and a $20 administrative charge per employee. It is also calculated on the relevant employee’s salary and wage income for the quarter rather than just their ordinary time earnings. The SGC amount is non-deductible for income tax purposes.

New Requirements

Compulsory superannuation contributions will now need to be paid around the time of payment of the employees ‘qualifying earnings’ (QE). QE encompasses an employee’s ordinary time earnings plus other amounts that are subject to superannuation. This includes salary sacrificed superannuation contributions and earnings by people who are deemed to be employees for superannuation purposes, such as certain contractors.

The day on which QE is paid is called the QE day. The periods for which the superannuation contributions must reach an employee’s superannuation fund and be able to be allocated to their account are as follows:

  • Usual period payments (e.g. an employee’s normal salary) – within 7 business days after the QE day
  • Extended usual period payments (e.g. a new employee’s salary or payments to a current employee that has changed superannuation funds) – within 20 business days after the QE day
  • Exceptional circumstances (e.g. where a natural disaster has been declared for a class of employers) – within the later of 20 business days after the QE day or 20 business days from when the ATO provides an ‘exception circumstance determination’
  • Out-of-cycle payments (such as bonuses, commissions and backpay) – within 7 business days after the next QE day for the employee (if applicable), other wise 7 business days from the QE day

A business day is any day other than the weekend or a day that is a public holiday for the whole of any state or territory, even one that is not in the state or territory in which the employer operates.

If the above requirements are not met then payment of an SGC liability must be made. The SGC will still include the required superannuation contribution (if this has not already been paid). However, interest will be calculated in accordance with the ATO’s general interest charge rate. Also, the administration fee will include an uplift based on the employer’s superannuation compliance history and whether they have made a voluntary disclosure regarding the late paid superannuation. The administrative uplift can be up to 60% of the final SGC liability.

Payment of the SGC will no longer be attended to by an employer lodging an SGC statement. They will instead make a voluntary disclosure in an approved form to be determined by the ATO, which will then determine the SGC amount.

Although the SGC will be higher, it will now be deductible for income tax purposes.

The highest amount on which superannuation must be paid is known as a ‘maximum contributions base’ (MCB). This was previously measured on a quarterly basis. However, it will now be measured on an annual basis.

The MCB will be calculated as the relevant concessional contribution cap divided by the superannuation guarantee rate. Once the MCB has been reached, no further superannuation contributions are required. This will ensure that an employee’s concessional contribution cap is not exceeded.

More information on Payday Super can be found on this section of the ATO website: https://www.ato.gov.au/businesses-and-organisations/super-for-employers/payday-super.