Though most organisations pay tax on their taxable income, religious institutions are exempt from this liability. In addition, certain fringe benefits paid to religious institution employees may also be exempt and non-taxable (TR 92/17). The most common examples of religious institutions include churches, mosques and temples.
Having said that it does not need to be limited to the more commonly known religions. TR 92/17 describes the requirement that “A body is an institution for the purposes of both the ITAA and the FBTAA if it is an establishment, organisation or association, instituted for the promotion of some object that is religious, charitable, educational, etc.” Under this ruling there is no reason a cult or any other organisation for that matter which promotes these objectives would not meet the definition of a religious organisation. An important factor in meeting these criteria is that there is a belief in a “supernatural being, thing or principle and acceptance of canons which give effect to that belief, but which do not offend against the ordinary laws”. Nowhere in the legislation is there a mention of the number of members that are needed to meet this qualification.
There are many tax effective structures that can be applied to benefit their members. As a result, income earned by these organisations can be both tax exempt while at the same time be able to provide its employees benefits which are exempt from fringe benefits tax.
Let’s take the example of a Pasteur who is a client in my practice. Part of his earnings are in the form of a salary, which was taxable and is actually half of the amount he actually earned in that financial year. The other half was provided to him as a fringe benefit. This benefit gets treated as an exempt benefit and he is able to get a re imbursement for most of his daily expenses. This even applies to food and travel which can be a re imbursement to him. An extremely practical area of legislation as he is even in a position to claim his house repayments under this strategy.
A religious institution as well as employees and its members can derive many benefits in the form of such exemptions. Effective tax and business advice is the key to the maximisation of the said benefits.
By Nishan Senaratne from Success Tax Professionals Kewdale