Clergy and Lay Minister Remuneration Packaging – FAQs

Why was Policy 10.2 – Remuneration Packaging changed?

• The clergy remuneration packaging policy has long been discussed as needing to be amended to include more opportunities for clergy to utilise the benefit provided. It was discussed at two Clergy Schools (2019 and 2021), and clergy have been invited to participate in a survey in March 2020 and Diocesan Council has considered this matter several times over the past few years.
• The existing policy was amended at the request of Diocesan Council, as it was considered to be overly restrictive on the range of benefits that could be offered to clergy through the salary sacrifice programme. The new policy, as approved by Diocesan Council which came into effect 1 February 2021, provides for a significantly improved scope of benefits:
• The following additional permitted expenses have been added:
  • payments for the purchase of a house (saving a deposit on a house),
  • out of pocket medical expenses,
  • membership of cultural and sporting associations (including gym membership),
  • holiday travel and accommodation costs, and
  • hospitality costs (excluding alcohol).
• The review of the policy highlighted several operational and legal issues which needed to be addressed to ensure the policy met Australian Tax Office requirements.

What are the issues?

• ACF salary sacrifice accounts are currently non-compliant with ATO laws which stipulate that, for the salary sacrifice arrangement to be effective at law, the clergy person must not have access or be able to control the amounts withheld by the ‘employer’ as a salary sacrificed amount. The ability of the clergy to directly access and control funds in the salary sacrifice bank account therefore breaches this requirement.
• It was identified that clergy have the ability to make payments from ACF salary sacrifice accounts, which is not in accordance with the FBT laws. This exposes the Diocese and clergy to a liability to Fringe Benefits Tax and PAYG Withholding.
• Diocesan Office is not adequately resourced to process the volume of transactions of the current or expanded programme. Currently there is no funding for Diocesan Office to undertake this process.
• Inaccurate recording of expense claims including manual processing errors (e.g. completeness of tax invoices, addition of claims totals and the calculation of GST).
• A cumbersome process that is manually based, including photocopying invoices, and often the need to resolve issues in person with visits to the ACF office. The new process will streamline and modernise the procedures reducing confusion and manual processing errors.
• It is not the responsibility of the ACF to advise on what is able to be salary sacrificed under the policy. Salary sacrificing and FBT management is a specialised area and requires expertise to ensure compliance with policy and ATO requirements, which is not within their ambit of operations.

What does the change involve?

• Diocesan Office will continue to administer the salary sacrifice contributions into the salary sacrifice accounts held with the ACF.
• The new service provider will provide support to clergy in setting up or adjusting their salary sacrifice contributions and processing claims. This is anticipated to help clergy maximise the usage of their salary sacrifice entitlements under the policy.
• During the implementation the compliance issues identified with the ACF Salary Sacrifice accounts will be resolved.

Why is there a fee being charged and what is it?

• The fee charged by NSP for the service being provided is $214 per annum (less than $18 per calendar month).
• Diocesan Office will not financially benefit from the arrangements with NSP.
• The NSP service will allow the electronic integration of processing transactions into the payroll and clergy salary sacrifice accounts.

What is Fringe Benefit Tax (FBT)?

• FBT is a tax that is levied upon a benefit provided to an ‘employee’ (in the diocesan case, clergy or lay ministers), or their associate (such as a spouse) because that person is an ‘employee’. An example of a fringe benefit is where the ‘employer’ provides benefits such as a car or a residence to an ‘employee’ (in our situation clergy and lay ministers).
• For the purpose of the FBT Act, clergy are considered to be ‘employees’.
• For clarity, when funds are expended through the salary sacrifice arrangement, the benefit is provided by the Diocese to the recipient. For example, if a meal is bought by a religious practitioner for someone other than themselves then the benefit is provided to that person not the religious practitioner and therefore not covered by the religious practitioners exemption.
• The FBT tax is calculated at a rate of 47% of the grossed-up benefit amount (normally about twice the GST exclusive cost of the benefit. However, the rules on valuing benefits are very complex and it does not always follow that the amount of an expense is the amount upon which FBT is calculated.
• Failure to correctly declare and pay the correct FBT can result in significant penalties and interest charges on incorrect data and payments. While most uses of the salary sacrifice benefit for clergy will not attract FBT liabilities, the incorrect use of the scheme can result in a direct FBT liability.

Why isn’t the Diocese offering clergy the use of a Credit Card to access their benefits?

• The credit card must be used only for the benefit of clergy covered under the policy; any use of the card outside of the policy would render the ‘employer’, and in-turn clergy, liable for FBT for its incorrect usage. The Diocese as the legal ‘employer’ must be able to demonstrate strict compliance with the FBT exemption. A credit card by its nature cannot be restricted to the parameters of the policy.
• If the card was used for expenditure relating to someone not covered under the policy the ‘employer’, and in-turn clergy, would then become liable for FBT. As noted even if this is unintentional, significant penalties will be incurred.
• The provision of a credit card will involve a monthly acquittal and reconciliation process for each clergy person which would need to be done on a non-negotiable fixed periodic cycle.
• There is the risk that the amount due on the credit card is greater than the available balance on the clergy person’s benefit account. If the card cannot be paid in full and on-time there will be interest costs to the clergy person.
• The new arrangements are designed to mitigate the risks, unintentional or otherwise, of breaching the FBT laws.

Who is NSP and what services will they provide?

• NSP is a business with over 35 years of industry experience, specialising in salary packaging.
• Australian Securities and Investments Commission (ASIC) accredited and specialise in the not-for-profit space.
• NSP role is to maximise the remuneration packaging benefit available to clergy.

Key highlights from the services that are to be offered by the NSP as follows:

• Full administration – payroll and software services are provided with a comprehensive reporting function for payroll, FBT and GST.
• Facilitation of all clergy communication including transaction statements, management of enquiries etc.
• One to one salary sacrifice set up with individual clergy.
• Easy to use app and login portal page.
• Ongoing technical support to individual clergy.
• Affordable for individual clergy person ($214 pa payable in pre-tax dollars)
• Integration of PDT Salary Sacrifice Policy and NSP solution (including clergy acknowledgement and sign off).
• GST processing and claiming including processing refunds to clergy.

Why consult and who can benefit?

Diocesan Office has performed a review of the current salary sacrifice accounts and notes there is a general underutilisation of the salary sacrifice benefits available to clergy, therefore there are additional tax savings that could potentially be accessed.

It is strongly encouraged that every clergy person at least has a discussion with NSP as they may not be maximising their salary sacrificing opportunities.

Even where a clergy person is sacrificing the maximum permitted amount under the policy, there may be some advantages to restructuring the way the accounts are currently being used:

• For example, if a clergy person is paying off more on a mortgage from their salary sacrifice account but paying for a holiday from after tax income, then GST claimable (at 10%) is being lost. Swapping around what clergy use their salary sacrifice to pay for things would be an advantage in these circumstances.

Must clergy use NSP?

For a periodic mortgage payment or saving for a deposit, and there are no other salary sacrifice claims, then there would be no need to transition to NSP and the fee would then not be applicable. However, if there is a plan to use the account to claim reimbursements for any other expenses, such as home improvements and repairs and maintenance costs etc then the NSP service would be needed.

NSP will ensure that there is rigorous process in place to assure clergy that the FBT is exempt on claims made and to mitigate the risks that any FBT would ever be recoverable from the clergy. Note FBT is not paid at usual rates of income tax (refer above to What is Fringe Benefit Tax?).

Why do other dioceses provide greater flexibility and benefits than Perth?

• The benefit arrangements under the revised policy are in line with the ATO Fringe Benefit Exemption for Religious Practitioners and the NARU (National Anglican Resources Unit) agreement with the ATO.
• The design of the Diocesan policy is based upon external advice from PwC and “ATO Ruling 2019/003 Fringe benefits tax– benefits provided to religious practitioner”
• It is acknowledged other dioceses around Australia appear to have taken a different approach to Perth. The Diocese of Perth’s application of the NARU Agreement, contemporary guidance from the ATO, and external specialists have set the parameters of the revised policy.
• It is acknowledged that credit cards are provided to employees who work for a Public Benevolent Institution (PBI), such as not for profit aged care services, as part of a salary packaging arrangement. The Anglican Church is a religious organisation, not a PBI and therefore unable to utilise this arrangement.
• Arrangements which provide a credit card do not ensure the benefit is provided in the manner required by the ATO Fringe Benefit Exemption for Religious Practitioners and may render the Diocese and clergy liable to Fringe Benefits Tax.
• It is important to understand that the Religious Practitioners’ exemption extends to benefits provided by the Diocese to the religious practitioner, their spouse and their dependent children. A benefit that is not provided in accordance with the exemption renders the religious practitioner and the Diocese liable to Fringe Benefits Tax.
• It should be noted that there is a significant risk that the benefits could be curtailed if they are perceived to be unreasonable or excessive. That is the backdrop against which the NARU agreement was negotiated with the ATO.