Religious Practitioners (Pastors/Ministers) can receive special tax exemptions provided the rules around the special Fringe Benefits Tax exemptions are complied with.
Please see this ATO for more details: https://www.ato.gov.au/Non-profit/Your-workers/Your-obligations-to-workers-and-independent-contractors/Fringe-benefits-tax/FBT-concessions/FBT-concessions-for-religious-institutions/
Once you have all the correct documentation and arrangements in place, the correct payroll set up is essential!
If this is not set up properly in your payroll system you could:
- calculate the incorrect tax,
- calculate and report the incorrect amounts on your BAS, and/or
- create incorrect Annual Payment Summaries
I have done all these things and learnt from painful experience.
So please follow the exact set up below to avoid making these painful mistakes yourself.
1. these steps assume that you already:
- know how to set up pay items and process payruns in Xero. (Please see this link to the Xero Help if you do not know: https://central.xero.com/s/topic/0TO1N0000017kmIWAQ/payroll-employees#business
- have an understanding of how ministers’ payroll operates including the special FBT exemptions for Religious Practitioners. Please see this link to the ATO webpage on this: https://www.ato.gov.au/Non-profit/Your-workers/Your-obligations-to-workers-and-independent-contractors/Fringe-benefits-tax/FBT-concessions/FBT-concessions-for-religious-institutions/
2. We have tried many different ways to set up pay items and find the following works best.
1. Set up the correct accounts in the Chart of Accounts.
The following Accounts are required: (Rename as desired)
- Taxable Ministry Salaries/Stipend
- Ministers Allowances/Benefits
- Ministers Allowances Owing – a separate liability account is required for each minister/pastor
2. Set up thePay Items for Ministers/Pastors – as follows
Earnings Pay Items x 2
Deductions – one per minister
Employee Pay Item
Please contact us if you would like to discuss this article further or you need any help with your church’s financial management processes at [email protected] or 1300 138 627
© Benkorp Management Services Pty Ltd 2018