Page Contents

Fringe Benefits for Religious Practitioners | Webinar
Is any tax payable in relation to fringe benefits?
Exemptions for Churches
Religious institution
Religious practitioner
Recipient of the benefit
Duties of the employee
Non-exempt benefits
FBT implications of benefits
Exempt benefits
Concessionally valued fringe benefits
Ordinary fringe benefits
Ordinary benefits to package
Credit card issues
Other FBT issues – Reimbursements
Loan redraws
Package guidelines
Disclosure of fringe benefit values

Salary Packaging – Introduction

Salary packaging is an arrangement whereby an employee sacrifices some of their future salary entitlement in return for receiving remuneration in a different form, such as fringe benefits or superannuation.

In church organisations it is common for ministers to receive fringe benefits, such as the provision of a manse and payment of work-related expenses, in addition to a stipend. Fringe benefits can also include non-work related expenses. It is less common to provide fringe benefits to non-ministerial staff as the tax benefits are less significant.
Where fringe benefits are provided they are usually advantageous for the following reasons:

  • It can enable an employee to receive remuneration benefits with a lower overall tax impost;
  • It can result in increased loyalty from employees; and
  • Exempt fringe benefits can result in lower payroll on-costs for employers.

Fringe Benefits for Religious Practitioners | Webinar

Saward Dawson’s FBT specialist Murray Nicholls presented this webinar on the 21st of July 2021:

Is any tax payable in relation to fringe benefits?

Employers are responsible for remitting tax paid in respect of an employee’s salary and this is known as PAYG withholding tax. Employers are also liable for any tax associated with fringe benefits provided to an employee, and this tax is known as fringe benefits tax (FBT).

Employers usually include any FBT payable in an employee’s salary package calculation to ensure they are no worse off as a result of the employee electing to take their remuneration in a different form.

Exemptions for Churches

It is possible for certain non-profit employers to structure remuneration arrangements so that any fringe benefits provided are not subject to FBT. Churches are within this category of employers and the applicable taxation provision states that benefits will be tax-free where the following conditions are satisfied:

  • The employer is a registered religious institution;
  • The employee is a religious practitioner;
  • The benefit is provided to the employee, their spouse or their child; and
  • The benefit is not provided principally in respect of duties of the employee other than:
    • Any pastoral duties; or
    • Any duties or activities that are directly related to the practice, study, teaching or propagation of religious beliefs.

Religious institution

For an organisation to be a religious institution:

  • It must be registered with the Australian Charities and Not-for-profits Commission (ACNC) with a purpose that is advancing religion (even if this is not the organisation’s primary purpose).
  • Its objects and activities must reflect its character as a body instituted for the promotion of some religious object; and
  • The beliefs and practices of the members of that organisation must constitute a religion.

Further, the following factors are important in determining whether a particular set of beliefs and practices constitute a religion:

  • Belief in a supernatural being, thing or principle; and
  • Acceptance of canons of conduct which give effect to that belief, but which do not offend against the ordinary laws.

It is clear that most churches meet the definition of a religious institution. However, schools established by churches are generally educational, rather than religious institutions, while theological colleges may be religious institutions.

To determine whether an organisation is a religious institution it is necessary to examine its constitution and see whether its primary or dominant object is religious in character.

Religious Practitioner

The FBT provisions define a religious practitioner to mean:

  • A minister of religion;
  • A student at an institution who is undertaking a course of instruction in the duties of a minister of religion;
  • A full-time member of a religious order; or
  • A student at a college conducted solely for training persons to become members of religious orders.

Churches will usually only need to consider the first part of the definition, being a minister of religion. No definition of minister of religion exists in the FBT provisions, but the taxation ruling which discusses this issue states that many, if not all, of the following factors should be present in a minister of religion:

  • The person is a member of a religious institution;
  • The person is recognised officially by ordination or other admission or commissioning, or, where the particular religion does not require a minister to be formally ordained, the person is authorised to carry out the duties of a minister based on a specified level of theological or other relevant training or experience;
  • The person is recognised officially as having authority in matters of doctrine or religious practice;
  • The person’s position is distinct from that of the ordinary adherents of the religion;
  • The person has acknowledged leadership in the spiritual affairs of the religious institution; and
  • The person is authorised to discharge the duties of a minister or spiritual leader, including the conduct of religious worship and other religious ceremonies.

This definition of a religious practitioner is not restricted to someone who is an ordained minister of religion. It can include associate ministers, Christian workers, missionaries and also lay persons acting in the capacity of a minister of religion. However, it is important for churches to consider their own circumstances to determine whether they meet the above requirements. For example, in some churches, a lay person may be able to meet the various conditions and qualify as a minister of religion. However, in other churches, lay people cannot be commissioned and do not have authority in matters of doctrine. Therefore they are not ministers of religion and do not qualify for the FBT exemption.

In determining whether a person is a member of a religious order, many, if not all, of the following factors should be present:

  • Members generally are separated from secular society to pursue the religious life on a full-time basis and normally live together as part of a community;
  • Members participate regularly in activities such as private and public prayer, religious study, teaching, care of the aged, missionary work or church reform;
  • The order is related to a particular religious institution and generally is directly or indirectly under the control and supervision of, or is funded, either partially or wholly, by that body;
  • Members renounce in principle any possession of property and they live under a strict set of rules requiring moral and spiritual self-sacrifice and dedication to the goals of the organisation at the expense of their material well-being; and
  • Members of the order make a long-term commitment to the order.

Nuns are examples of members of a religious order. However, it is unclear whether missionaries are included in the meaning of members of religious orders. In the same ruling, it states that missionaries are religious practitioners only if they fall within the definition of minister of religion, members of religious orders or a student in training to be one. Therefore, it appears that simply being a missionary will not be adequate to qualify as religious practitioner. In order to qualify, missionaries need to meet most, if not all, of the above factors for being a minister of religion or a member of a religious order.

Recipient of the benefit

To ensure any benefit provided is a fringe benefit that is potentially exempt from FBT, it must be provided to an employee or their associate. In most denominations religious practitioners are treated as employees. However, in some denominations this is not the case and religious practitioners are not employees at common law, but are considered to be holders of an office or are undertaking activities in the pursuit of a vocation.

However the legislation effectively deems religious practitioners to be employees for FBT, GST, ABN and PAYG withholding tax purposes, regardless of their actual status under common law. Accordingly, in most circumstances the requirement that the benefit be provided to an employee or their associate will be satisfied.

The exemption of benefits provided to a spouse or child of a religious practitioner is important as it means that the value of benefits does not need to be apportioned amongst the recipients. For example, assume a minister and his family stay rent-free in a church manse as part of the minister’s appointment. The accommodation benefit received by the family members is exempt, even though they are not religious practitioners and do not directly undertake pastoral duties.

Duties of the Employee

To ensure that benefits provided to religious practitioners are exempt from FBT they must not be provided principally in respect of duties of the employee other than pastoral duties or directly related religious activities.

Pastoral work is defined in the relevant taxation ruling to include the following:

  • Communication of religious beliefs;
  • Teaching and counselling adherents and members of the surrounding community;
  • Providing adherents and members of the surrounding community with spiritual guidance and support;
  • Attendance at an in-service training seminar by a person or persons conducting the seminar, provided that the seminar is of a spiritual nature; and
  • Meeting with and visiting adherents, the sick, the poor, or persons otherwise in need of emotional and spiritual support.

However, pastoral work does not generally include the administration of a church, church department or school. The Taxation Office states that the “administration of a church” and “work undertaken by a director of a department of a Diocese or similar unit of ecclesiastical administration” do not constitute pastoral duties. Therefore if benefits are provided to ministers working in administrative roles, the benefits may not be exempt but rather subject to FBT.

Directly-related religious activities include the practice, study, teaching or propagation of religious beliefs. This broad definition can encompass many of the activities which are not directly pastoral but are undertaken by churches and para-church organisations. For example, missionary work to the extent that it is not pastoral in character, may be directly related to the teaching or propagating of religious beliefs.

Most religious practitioners perform duties that are predominantly or exclusively pastoral in nature, or involve directly related religious activities. However, this may not be the case where a religious practitioner is operating predominantly or exclusively as an executive pastor or as a church administrator. In these circumstances it will be necessary to examine the facts in respect of what duties are the benefits principally being provided.

For taxation purposes, principally means more than 50%. The job description of the religious practitioner will generally give an indication as to whether the duties performed are principally pastoral. Where the benefits are provided as part of a package and are not specific to any duty, the job description will need to be structured so that at least 50% of the religious practitioner’s time and duties are pastoral or involve directly related religious activities for the benefits to be exempt. If the job description reflects that the duties are exclusively or predominantly non-pastoral duties, the benefit will not be exempt.

However, where the benefit is provided specifically in respect of pastoral duties it is exempt even if a minister’s duties may be predominantly non-pastoral.


A minister works for a denominational head office and spends most of his time attending to administrative duties. However, on most days he also spends some time visiting church members to attend to their pastoral needs. If a motor vehicle was made available for the minister for visitation purposes, this would be an exempt benefit as it is provided principally in respect of his pastoral duties.

Non-exempt benefits

If you do not meet all of the four conditions under Exemptions for Churches, then you will need to calculate the FBT liability on the benefits provided. The actual FBT liability on a particular fringe benefit depends on whether the benefit is exempt, concessionally valued or an ordinary fringe benefit. The FBT may also be reduced by a FBT rebate.

Calculation of FBT

FBT is calculated on the “grossed-up” taxable value of a fringe benefit. Grossing-up is a procedure which effectively converts the benefit to the gross salary that would have to be earned by the employee to purchase the benefit from their after-tax salary, as if the employee was on the top marginal tax rate.

Where the benefit does not include GST or the employer cannot claim an input tax credit for GST, grossing-up is achieved by multiplying the taxable value of a fringe benefit by a factor of 1.8868 (ie 1 / [1 – 47%]). This ensures that the payment of either a net salary amount or a net fringe benefit attracts the same amount of either personal tax or FBT, and is illustrated in the following example of a benefit provided by a private enterprise employer:

Fringe benefit provided $5,500
Gross-up factor 1.8868
Grossed-up taxable amount $10,377
FBT at 47% $4,877
Plus fringe benefit $5,500
Total salary sacrifice amount $10,377

This equates to the following amount of salary required to purchase a benefit of $5,500 from after-tax dollars where the employee is on the top marginal tax rate:

Gross Salary $10,377
Less: tax & Medicare levy -$4,877
Net disposable income $5,500

The effect of the GST on FBT

A GST registered employer can utilise the 1/11th GST component of an expense as an input tax credit when paying their GST liability. As fringe benefits include GST, an advantage could be obtained if employees receive fringe benefits instead of salaries. Therefore a gross-up factor of 2.0802 applies to benefits where the employer can claim an input tax credit. This ensures neutrality remains in the taxation of salaries and fringe benefits.

A higher amount of FBT will be payable by employers, but this will be offset by the GST input credit they can utilise. The example below demonstrates how the neutrality between salary packaging taxable benefits and paying for these from after-tax salary will be maintained:

Fringe benefit provided * $5,500
Gross-up factor 2.0802
Grossed-up taxable amount $11,441
FBT at 47% $5,377
Plus fringe benefit $5,500
Less GST input tax credit -$500
Total salary sacrifice amount $10,377
* Includes $500 GST

FBT Rebate for Churches

Where a church provides fringe benefits to employees who do not meet the FBT religious practitioner exemption, the church will need to pay FBT. A 48% rebate is applied to ensure that the amount of FBT paid is reduced (provide the church has been endorsed for this purpose by the ATO). However, only fringe benefits with a grossed-up taxable value of no more than $30,000 for each employee will be eligible for this rebate. Any amount above this threshold will be subject to normal FBT treatment and fully taxed.

The calculation of FBT for a rebatable employer is illustrated as follows:

Fringe benefit provided * $5,500
Gross-up factor 2.0802
Grossed-up taxable amount $11,441
FBT at 47% $5,377
Less rebate at 48% -$2,580
Net FBT $2,797
Plus fringe benefit $5,500
Less GST input tax credit -$500
Total salary sacrifice amount $7,797
* Includes $500 GST

This reduces the effective rate on this arrangement to 29.46%, calculated as follows:

Net FBT as above $2,797
Less GST input tax credit -$500
Net cost to employer $2,297
Total salary sacrifice $7,797
Tax rate (ie. $2,297/$7,797) 29.46%

FBT implications of benefits

To reduce the amount of FBT payable, it is important to consider whether the taxable value of a benefit can be reduced or eliminated in some way. This generally occurs where the fringe benefits have no taxable value (exempt benefits) or are concessionally valued.

Exempt benefits

The following benefits are exempt from FBT:

  • Relocation expenses incurred when an employee changes their job location
  • Compassionate travel and emergency assistance.
  • Long service awards for employees who have completed at least 15 years’ service provided the value of the award does not exceed $1,000 (the maximum value increases by $100 for each additional year of service in excess of the 15 years).
  • The following eligible work related items only if it is used primarily in the employee’s employment such as:
    • Portable electronic devices (laptop computers, mobile phone, PDAs, calculators, GPS, etc;
    • Protective clothing;
    • Briefcases;
    • Tools of trade; and
    • An item of computer software.
  • The provision of housing in a remote area can be eligible for an exemption. There are a number of conditions that must be satisfied to access the exemption. If your church is providing remote housing to someone who is not a religious practitioner, we recommend investigating whether the benefit meets the conditions.
  • Membership fees and subscriptions provided to an employee (not exempt if provided to an associates) such as
    • Subscriptions to trade & professional journals; and
    • Airport lounge and corporate credit card memberships.
  • Minor benefits of less than $300 that are provided infrequently or are difficult to value (note that this exemption does not apply to entertainment).

The Taxation Office has defined portable electronic devices to essentially be devices that are:

  • Easily portable and designed for use away from an office environment;
  • Small and light and can operate without an external power supply; and
  • Designed as a complete unit.

Concessionally valued fringe benefits

The most common example of a concessionally valued fringe benefit is an employer provided motor vehicle. The taxable value of this type of fringe benefit can be calculated by multiplying essentially the cost of the motor vehicle by a fraction. This fraction is determined by the number of kilometres traveled during the year, regardless of whether these are private or business.

The concessional valuation arises as quite often this deemed value is a significantly less than the actual expenses and running costs of the motor vehicle.

Ordinary fringe benefits

If a desired fringe benefit is not tax-exempt or concessionally valued it may still be possible to provide it in a tax-effective manner. The FBT rebate available to non-profit organisations reduces the effective rate of tax associated with an ordinary fringe benefit to 47% with a capping threshold of $30,000. However, an employee’s marginal tax rate may be higher than this, as outlined on the following table (which includes the medicare levy):

Taxable Income Range
Tax Rate for year ended 30 June 2020 *
0 – 18,200 0%
18,201 – 37,000 19%
37,001 – 80,000 32.5%
80,001 – 180,000 37%
> 180,000 47%
* Including Medicare Levy

Accordingly, it would be tax-effective for an employee whose taxable income is more than $80,000 to salary sacrifice to receive fringe benefits instead of salary for income above this level.

Ordinary benefits to package

If a fringe benefit is not exempt or concessionally valued, it must have some other feature to make it worth packaging. Otherwise, salary sacrifice arrangements will become complex.

We generally recommend that only ordinary benefits which are easy to administer be packaged. This occurs when the benefit is GST free or can be set up as a regular payment without the need for monitoring. Examples of these benefits are mortgage payments, payments towards an employee’s credit card and health insurance premiums.

For example, assume that instead of salary an employee wants to receive mortgage payments up to the rebatable threshold. As the benefit is not subject to GST, the lower gross up factor applies. The employee would arrange for their employer to provide monthly payments of $1,324.98 as a fringe benefit ($30,000 / 1.8868 / 12).

Credit card issues

The Taxation Office has issued a ruling which details the criteria that need to be satisfied when reimbursing fringe benefits on an employee’s credit card to enable the employer to claim the GST as an input tax credit.

The ruling advises that if an employee credit card (as distinct from a corporate credit card) is used, the reimbursement needs to be made for a particular expense. It states that “employers and employees need to agree or have some understanding or arrangement as to which types of expense are being reimbursed so that a particular acquisition is involved. Payment of the outstanding balance of the employee’s credit card at the end of each month, irrespective of the types of acquisitions made during the period, will not, without more, satisfy this requirement”.

Accordingly, it is important when reimbursing an employee’s credit card that the payment be for specific transactions (such as fuel costs for an employer-provided motor vehicle) if the GST is to be claimed back. Tax invoices should also be held for all transactions with a GST-inclusive value of more than $82.50.

The implications of this ruling make it possible to structure credit card payments so that there is no entitlement to claim any GST as an input tax credit. To do this, an employer and employee can simply agree that any reimbursement will not be for a specific transaction, or will be a regular payment towards the outstanding balance.

This will keep salary packaging arrangements administratively simple by ensuring that the GST on the underlying expenses does not need to be monitored and claimed back. It will also result in a lower gross-up factor used in FBT calculation, resulting in a reduced FBT liability.

However, should a church want to claim back the GST as an input tax credit then we recommend that a corporate credit card be used. Although, tax invoices will generally be required for this, the Taxation Office has confirmed that statements issued by certain corporate credit card providers can be used instead, avoiding the requirement for tax invoices to be obtained for every transaction.

Other FBT issues – Reimbursements

It is important that any fringe benefits provided to employees be paid directly by an employer, or be paid by the employee and then reimbursed by the employer. Employees should not have amounts paid to them, which they may or may not expend, as these will be deemed to be allowances and not fringe benefits. If the payment is deemed to be an allowance then the employee will be personally assessable on it. This may not have an outcome as favourable as if the payment was a fringe benefit.

The simplest way to overcome this is to ensure employees use a credit card, which is subsequently reimbursed by the employer as discussed earlier. There must be a policy of no cash advances on the credit card.

Alternatively, many churches set up specific working accounts and corporate credit cards for a minister to use, and deposit regular amounts into these for the minister to expend. As the account and card is in the church’s name, this ensures that any remaining funds cannot be assessable to the minister. The church should be able to reconcile the account and provide documentation if required by the Taxation Office.

Loan Redraws

To ensure that a loan payment cannot be construed to be a salary or an allowance, many employers have historically not allowed employees to have payments made towards mortgages that had re-draw facilities. If this happened and an employee then accessed any surplus payments as cash, it was thought that the employee would be assessable on the re-drawn amount.

The Taxation Office has considered this issue in an interpretative decision and concluded that payments to mortgages with re-draw facilities will still be legitimate. The Taxation Office believes that any payment towards the loan principal amount is an expense payment fringe benefit, notwithstanding that the payment may be more than what is required or might be re-drawn at a later date.

However, in a related interpretative decision, the Taxation Office reiterates that payments to a mortgage offset account (as distinct from a mortgage loan) are not expense payment fringe benefits. This is due to the fact that no obligation on behalf of the employee has been paid and the employer has simply transferred salary funds to an account of the employee for their use.

Therefore if a church is paying amounts to a minister’s home loan account as part of their salary package, it is important to determine exactly what type of account the minister has. The payment will still qualify as a fringe benefit if the mortgage has a re-draw facility. However, a mortgage offset account is not acceptable.

Package Guidelines

As discussed above, an exemption from FBT is available to many churches in relation to benefits provided by religious practitioners. Although the exemption is unrestricted, most church denominations have drawn up their own guidelines in relation to the maximum percentage of each religious practitioner’s remuneration that can be taken as fringe benefits and the types of expenses that are appropriate to be provided as tax-free fringe benefits.

Some denominations have stated that a certain percentage of the package must be taken as salary. Some denominations allow private expenses to be included in the package while others have limited the types of expenses to those that have some work related component (e.g. car expenses, telephone, etc). All of these arrangements meet the legal requirements for salary packaging and the FBT exemption.

However, to ensure that this exemption remains, it may be preferable for a church to adopt remuneration arrangements that are not seen as being aggressive. For example, it may be inappropriate to provide a minister with only a nominal salary to utilise their tax-free threshold, and then provide a substantial amount of remuneration as tax-free fringe benefits.

Disclosure of fringe benefit values

Payment summaries

Employers are required to disclose the grossed-up taxable value of most fringe benefits on employees’ PAYG payment summaries when the total value of fringe benefits provided to an employee in a FBT year exceeds $2,000. The gross-up factor is always 1.8868. The grossed up taxable value is reported in the employee’s PAYG Payment Summary to ensure the value of the benefit is consistent with other forms of income in the payment summary. The total value of fringe benefits provided to an employee includes benefits provided to the associates of the employee.

There should be no reportable fringe benefit amount showing on a PAYG Payment Summary if the amount is $3,774 ($2,000 x 1.8868) or less.

Benefits provided by religious institutions to religious practitioner undertaking principally religious duties do not need to be disclosed on payment summaries.

A reportable fringe benefit amount showing on the PAYG Payment Summary is not subject to income tax but is used to ascertain an employee’s liability for the Medicare Levy Surcharge, HELP repayments, entitlement to claim super co-contribution or employee superannuation contribution deduction, and entitlements to certain tax offsets and income-tested government benefits such as family tax benefits, child care benefits and youth allowances.

For certain entitlements, such as the pensioner or senior Australian tax offsets and income-tested government benefits, the concept of adjusted fringe benefit is used to calculate these entitlements. An adjusted fringe benefit is the reportable fringe benefit grossed down by 0.53 (i.e. 1 – 0.47).


As mentioned in the Workcover section of this guide, benefits provided to religious practitioners do not need to be disclosed for Workcover purposes. However, all taxable fringe benefits provided to employees need to be disclosed even if they are eligible for the rebate. The gross up factors to be used for Workcover are as follows:

Year Ended Gross Up Factor
31 March 2011 1.17384
31 March 2012 1.34768
31 March 2013 1.52152
31 March 2014 1.69536
31 March 2015 1.8868
31 March 2016 1.9068
31 March 2017 1.9068
31 March 2018 onwards 1.8868

More information about FBT rates can be found on the ATO website: