Specific church transactions

Honorarium

An honorarium is a payment made on a voluntary basis. It is usually given for professional services rendered without payment. The Taxation Offices states that it is not motivated by commercial considerations and generally has little or no relevance to the income producing activities of the recipient.

Churches often make payments to “volunteers” and to visiting speakers. Where such a payment is made, the church needs to determine whether the payment is to a religious practitioner. If it is, then the PAYG withholding rules for Religious Practitioners should be considered.  For GST purposes, the activities of a religious practitioner in the pursuit of a vocation is considered to be the activities of the religious institution of which the religious practitioner is a member.  Therefore, the payment to a religious practitioner may be subject to GST if the religious institution is registered for GST.  However, a genuine honorarium will not be subject to GST as the payment is voluntary and not for a supply.       

If the payment is to someone who is not a religious practitioner, then the church should determine whether the payment is assessable income to the payee or whether it is a genuine honorarium. Important considerations are the size of the payment and the regularity. Note that payments made to ministers, missionaries and other church workers are likely to be assessable income.

If the payment is assessable income, the church should then consider whether the recipient is an employee. If they are, the church should deduct any PAYG withholding required. The Taxation Office can impose penalties for failure to withhold.

Alternatively if the payment is assessable income but the recipient is not an employee or a religious practitioner, the ABN rules need to be considered. Where a church makes a payment in excess of $75 that is assessable income, the recipient needs to either provide an ABN or the church needs to withhold tax at 46.5%.  If the recipient is registered for GST, they should provide the church with a tax invoice.

If the church concludes that the recipient is not an employee or a religious practitioner but is unsure whether the payment is assessable income, it may be possible to leave the decision to the recipient. If the recipient believes the payment is not assessable, they can complete the form “Statement by a supplier (Reason for not quoting an ABN to an enterprise)”. There is no need to withhold tax where ABN is not provided and the payment was made to a tax exempt entity.  However, the church will need to obtain the above mentioned form from the recipient as a prove to why tax was not withheld when no ABN was quoted.   

In order to avoid the need to consider whether to deduct tax, it may be possible to pay the honorarium directly to the visiting speaker’s home church or governing body. GST will need to be considered if the home church (i.e. the recipient of the payment) is registered for GST. If the two churches are part of the same GST religious group, no GST liability arises. If the visiting speaker is participating in the service and the payment is to the speaker's home church, the payment is likely to be a GST-free religious service.

If no GST exemption applies, you will need to obtain a tax invoice from the visiting speaker's home church in order to claim back the GST input tax credit.