On 11 July 2018, the ATO released Draft Taxation Ruling TR 2018/D2 (Draft Ruling), which outlines the circumstances in which benefits provided to religious practitioners by registered religious institutions are exempt from Fringe Benefits Tax (FBT). The Draft Ruling is open for comment until 24 August 2018 and is intended to replace the ATO’s previous ruling on this topic, TR 92/17.

The Draft Ruling:

  • confirms that an institution can be a provider of exempt fringe benefits to religious practitioners if it is registered with the Australian Charities and Not-for-profits Commission (ACNC) with the subtype ‘advancing religion’
  • takes into account the changes in the nature of contemporary religious practice which have taken place since the previous ruling TR 92/17 was issued and
  • provides several examples to assist taxpayers in understanding the situations in which fringe benefits provided will be exempt from FBT.

Broadly, under section 57 of the Fringe Benefits Tax Assessment Act 1986 (Cth), such a benefit will be exempt from FBT where it is provided by a religious institution that is registered with the ACNC to an employee, who is a religious practitioner, or to that employee’s spouse or child, where that benefit is provided in respect of the practitioner’s pastoral duties or directly related religious activities.

‘Pastoral duties’ are broadly those associated with the spiritual care of people, for instance, the communication of religious beliefs through an in-service seminar or meeting with adherents or those in need of spiritual support or providing supervision to those engaged in pastoral duties.

Similarly, ‘directly related’ religious activities indicate that there must be a close nexus between the activities and the practice, study, teaching or propagation of religious beliefs, including secular activities such as leadership training.

However, it is somewhat of a fine line, as the Draft Ruling indicates that commercial activities that have a mere causative relationship to the practice of religious activities, for instance, the conduct of market research to discover an adherent’s preferred style of worship, will not be ‘directly connected’ religious activities for the purposes of the FBT exemption.

Religious institutions who provide benefits to an employee religious practitioner should take care to consider the nature of the benefit provided and why it is being provided, to determine whether or not the benefits are truly provided in connection with the carrying out of pastoral duties or directly related religious activities, to ensure that the exemption is correctly applied.