Changes have been introduced that will require religious institutions providing exempt benefits to eligible employees to report the value of these benefits to the ATO.
Single Touch Payroll (STP) is an employer obligation, that requires employee payroll information to be reported at the time of payment through STP-enabled software. The information reported under STP is then provided to government agencies such as Centrelink, and is intended to assist employers with reducing their reporting obligations.
Initial STP requirements were introduced on 1 July 2018. Subsequent requirements, known as STP Phase 2, commenced on 1 January 2022, although certain employers have deferral exemptions depending on the software they use.
Although STP Phase 2 requirements affect all employees, they particularly impact remuneration received by ministers of religion due to their utilisation of exempt benefits, commonly referred to as a salary sacrifice arrangement.
What has changed?
There are two main changes under STP Phase 2. The first one change is the requirement for additional information to be reported in relation to allowances provided to employees. Secondly, the most significant change affecting ministers of religion is the reporting of exempt benefits due to the requirement for salary sacrificed amounts to now be disclosed. This is different to what was required initially under STP when only an employee’s reduced salary was disclosed. For example, if an employee had a salary sacrifice arrangement so that their normal salary of $50,000 was reduced by the provision of a benefit value at $20,000, only their reduced salary of $30,000 would be disclosed. Under STP Phase 2, the gross salary of $50,000 is reported as well as the $20,000 salary sacrificed amount. Employers are now required to disclose the employee’s full remuneration of $50,000, even though only $30,000 is the employee’s salary.
A salary sacrificed amount is required to be reported under STP using either of the following codes:
- “S” for salary sacrificed superannuation
- “O” for other employee benefits
How will this affect ministers of religion?
It is common for ministers of religion to receive part of their remuneration in the form of exempt benefits. This is often facilitated by their employer allocating an amount to a separate church bank account so that the funds can be used to pay for expenses directly.
The allocation of funds in this way is a salary sacrifice arrangement, so at the time the minister is paid the amount transferred will need to be reported in STP using code “O”. This information will be reported to Centrelink and may affect the minister’s eligibility for Centrelink entitlements.
Please note that although the provision of information to Centrelink at the time of payment via STP is new, the requirement for ministers of religion to disclose information in relation to exempt benefits they receive has previously existed.
What has not changed?
Although exempt benefits provided to ministers of religion will now be reported via STP, they will still not give rise to a “reportable fringe benefit amount” that certain employers are required to determine at the end of the financial year.
This means that a minister of religion does not need to disclose a reportable fringe benefit amount in their income tax return as other employees of not-for-profit organisations must, even though the exempt benefits they receive are reported via STP.
Action required
Employers need to undertake the following actions:
- Identify benefits paid and determine the value of exempt benefits to be disclosed
- Inform employees of the requirement for employers to report the value of salary sacrificed amounts
- Inform the governance body members of the new requirement
- Consider if changes are required to systems, policies or employment agreements
- Consider whether your organisation should use this as an opportunity to have your packaging arrangements reviewed by an external specialist, as this is an area of risk where misunderstandings arise
Murray Nicholls is a remuneration specialist and assists many churches and denominations with their obligations.
Please contact Murray if you have any queries regarding the above:
murray.nicholls@sawarddawson.com.au | 03 9894 2500
