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What is the tax treatment of the expenses which a church pays on behalf of a pastor?

22 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client who is a pastor of a local church. He does not receive an income, but the church pays for all his travelling expenses, him and his wife's pension fund, UIF contribution and PAYE. He also lives in the church house for free and the church also pays for his water and electricity expenses. How should he be taxed on all these items?

A: We assume there is an employer employee relationship between the pastor and the church. In such instance all the taxable benefits such as accommodation and travel should be taxed under the provisions of the Seventh Schedule ITA. If the travel is payment of petrol and maintenance of a private vehicle this will be a travel allowance for tax purposes. The payment of the pastors PAYE & employee UIF will be a taxable benefit (para 7 if a car is provided and para 9 for the accommodation) unless the remuneration of the pastor is grossed up so that the PAYE reflects the amount that would have been withheld. Where only benefits and no cash flows as per the current facts the gross up would have to be done so that sufficient cash to pay the PAYE results, essentially a cash payment would have to be disclosed as accruing. The pension fund for the employee would be treated under the normal rules.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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