FAQ’s for Church Financial Management
These are some of the most commonly asked questions about relevant to Churches.
If you can’t see an answer to your question, please feel free to contact us and we’ll be happy to help.
- Can we change the layout of report?
- Where can I find a Tax File Declaration form?
- Where do we allocate a deposit paid for purchase of property?
- How do we process gifts and donations and received for specified purposes, called “Restricted Funds”?
- Do we charge GST on Hall Hire?
- Is processing superannuation through Xero SuperStream compliant?
- Can the balance of the Ministry Expense Account be paid out to the minister when leaving position?
- Why are leave balances displayed differently in Xero in the employee’s profile, the Leave Balance report and on the payslip?
- What is the procedure to pay Itinerant Preachers?
- How do I work out if a worker is a contractor (and not an employee) for tax and super purposes?
- What information is required on a tax sales invoice?
- Who is authorised to sign the IAS/BAS Activity Statement?
- When an employee is made redundant or terminated – what SGC superannuation is payable?
Xero has released its new layout editor which allows you to customize nearly any aspect of a financial report, as well as a new report center experience. This brings unparalleled reporting power to Xero with the flexibility to suit any user.
Some examples of things we can do now are:
- Balance Sheet – choose the columns we want to see and create another column to calculate the change
- Profit & Loss report – as the Balance Sheet above + change the words Profit & Loss to Surplus (Deficit)
Please watch the videos on this blog:
Tax File Declaration forms are now downloadable.
The form can be completed online or printed.
Click on this link for more information and access to the form: https://www.ato.gov.au/Newsroom/smallbusiness/Employers/Tax-file-number-declaration-forms/
I suggest the parish should just show the deposit under Other non-current assets 1-4000.
On settlement you should reverse the deposit and take up the full cost of the new property, probably all under Land 1-31xx (at cost) as an interim arrangement. In due course the parish will then need to reverse this single ‘cost’ entry and replace it with the UCV (in 1-31xx) and the insurance replacement valuation (in 1-32xx) when this information becomes available, plus a revaluation adjustment which impacts 3-3100.”
Please also be careful about the GST:
If you are planning to rent the property for more than 75% of the GST-inclusive market value of the accommodation, then the income & expenses relating to that property are Input Taxed. This means you do not charge GST and you cannot claim the GST that you pay.
If you are planning to rent the property for less than 75% of the GST-inclusive market value of the accommodation, then the income & expenses relating to that property are GST Free. This means you do not charge GST and you can claim the GST that you pay.
See this link for more information: https://www.ato.gov.au/non-profit/your-organisation/gst/gst-concessions/#noncommercialactivities
There are accounting standards to be followed to ensure the that current accounts reflect the actual receiving and appropriation of monies in the current period, as well as utilising funds specified in prior periods.
1. When money is received for a restricted purpose
Allocate the Gift/Donation to the appropriate Income account, with a note/memo that it is for the Restricted Fund.
Accounts to 4-1310, 4-1320 or 4-1330. This is just the normal entry when money is received.
2. Transfer the Gift Amounts to Restricted Funds Allocation
The transfer identifies that there are Gifts received in the General Income that are “restricted” and not available for general budget expenses. This is a new entry that can be done as each amount is received into Gifts Income 4-1310, 4-1320 or 4-1330, or it could be done monthly, or annually. The $ amount must match the credit to Gifts in the previous entry. Recommended “at the time” or monthly, not annually
3. When money is spent for a restricted purpose
Allocate the spending to the expense or asset as per the “restriction” on the Fund, ie the designated or intended use of the gift/donation
This is just the normal entry when money is spent.
4. Appropriation of the restricted fund
Appropriate Funds to the spending that has happened for the “restricted purpose”, such as build or a new staff person
This entry can be done as each spending is entered and allocated, or it could be done monthly, or annually. The $ amount must match the debit in the previous entry. Recommended “at the time” or monthly, not annually.
Recommended “at the time” or monthly, rather than annually because any interim P&L and Balance Sheet reports will be distorted by the movements in the Gifts and/or the Restricted Funds
Note about GST
GST is taken-up at the time of the spending transactions, and does not affect the Funds accounts
Hire of a hall is subject to GST unless the amount charged is less than 50% of market rent.
GST is not charged for transactions between entities eg Uniting Churches & Uniting Church Organisations, Anglican Churches & Anglican Organisations.
Yes Xero is superstream compliant if you have a premium plan. First make sure that you are SuperStream ready. (All superannuation funds must have a USI number, an employees must have gender, phone number, email address, and superannuation member number recorded in their employee details.
Set up the Xero Automatic Superannuation function in Xero.
Then if you have not done this already, set up the Xero Automatic Superannuation function in Xero. If your subscription is the new Premium 5 or above, the Xero Automatic Superannuation function is included in your subscription for free. If you are using the Xero Standard plan, the extra $10 per month is worth every cent!
The process to set up the Automatic Super payment function in Xero is very simple:
- Register for Xero Automatic Superannuation Payroll>Superannuation
- Process Superannuation payments.
For detailed instructions on how to do this see these 2 Xero links:
The minister can produce invoices & receipts to make claims against the MEA account to clear the balance.
If a cash payment is made it becomes taxable income. Anglican Churches can transfer the balance to a MEA account at the new church.
Uniting Churches require you to draw on the balance and close the account.
- The leave balance on individual employee profile is immediately adjusted for all ‘approved’ leave requests, regardless of the leave date (past or future).
- The leave balance on online payslips reflects all ‘approved’ leave requests for that month, regardless of when the leave requests are processed.
- The leave balance report only reflects ‘completed’ leave ie; leave which has been processed through a pay run.
You do not charge GST as the churches are part of a a member of a GST Religious Group and all supplies that are made between members of the group are excluded from GST.Please see page 179 of the attached document UCA Treasurers & Bookkeepers manual FYI.
Generally if the payment is made to the individual these people should be treated as employees (which requires the person to provide their TFN and the parish to withhold tax, produce an annual payment summary and include this payment in its annual reporting). Certainly if the person is an ordained minister then the presumption must be that the payment (even if it was called an honorarium) is in connection with the individual’s income-producing activities. That view would be reinforced if the individual’s circumstances showed they were an itinerant preacher, ie they regularly preach at different churches.
There are 3 circumstances where this may not apply –
If the recipient provides such services for not more than 2 days in a quarter there is no requirement to withhold tax (but the parish would still need to prepare an annual payment summary).
If the recipient’s circumstances demonstrated they provided voluntary services that were unrelated to their income producing activities. This may be the case if they were a lay person, had another source of income related to their professional training/skills, and the preaching was a very occasional activity.
If the payment was made to an organisation (such as the parish to which the person was licensed) rather than to the individual.
- must be engaged and paid to produce a result
- quotes for a job for the service provided
- decides what hours to work and what expertise is needed
- must provide their own tolls and equipment
- is responsible for their own work and must fix erros
- has their own insurance cover (Public Liability,, Income Protection, Professional Indemnity)
- uses a business name and ABN
- has a business premises
- advertises to the public at large (“word of mount” is not enough)
- has a range of clients and provides services to the general public
- is free to accept or refuse work
- is in a position to make a profit or suffer a loss
- is free to delegate work to other entities.
For Tax Sales Invoices (less than $1,000) they must
- that the documents is intended to be a tax invoice eg Tax Invoice
- the seller’s identity
- the seller’s Australian Business Number (ABN)
- the date the invoice was issued
- a brief description of the items sold, including quantity (if applicable) and the price
- the GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement such as ‘total price includes GST.
- the extent to which each sale on the invoice is a taxable sale (that is, the extent to which each sale includes GST)
a) Includes the words ‘total price including GST’
b) hows the GST included in each line item (column with a GST amount) and the sale is clearly identified as being fully taxable by the words “the total price includes GST”.
For Tax Sales Invoices over $1,000 – you also need the buyer’s identity or ABN
Technically the signing of the BAS is stating the following:
“I, (name of business client) authorise (name of agent) to give the (specify the period) activity statement to the Commissioner of Taxation for (entity name).
I declare that the information provided for the preparation of this activity statement is true and correct.
I am authorised to make this declaration.
[Insert for emailed declaration] Type full name and date
[Insert for paper declaration] Signed: Date:”
Please see this ATO link for more details if you want: https://www.ato.gov.au/tax-professionaluts/prepare-and-lodge/managing-your-lodgment-program/client-declarations-and-lodgment-online/
Therefore the main issues are:
1. Authorised Person
The BAS Circular on the diocese website states: “Your BAS may be signed by the treasurer, a churchwarden or any parish councillor” http://www.sds.asn.au/site/103081.asp?ph=cpThe Appointment Duties & Responsibilities webpage states: “Although the wardens are responsible for various functions, they can arrange for other persons to perform some of these functions on their behalf. In particular, if one of the wardens is not prepared to act as treasurer, they may appoint another person to act as treasurer with the approval of the minister. The wardens’ ability to delegate the performance of some of their responsibilities to others is important, particularly in larger churches.” see http://www.sds.asn.au/Site/103125.asp?ph=cpTherefore another person can be delegated, and would generally be a trained person where they are not an “officer” (warden or parish councillor). We would recommend that this decision be documented.2. True & Correct
The statement that the activity report should be True and Correct – usually refers to taking reasonable and responsible steps to ensure that it is accurate.The reasonable steps are:
i. Implemented an ATO and Sydney Diocese recommended and accurate Accounting System
Xero Accounting Software that accurately and reliably:
– calculates the GST & PAYG
– Calculates PAYG
– Calculates and reports the BAS
– includes default tax codes which increases the accuracy and consistency
– enables individual transactions to be edited to ensure the correct tax code for a particular transaction.ii. Contracted a bookkeeping company that is suitably qualified and experienced to perform the payroll transactions, produce reports & lodge reports with the ATO.
Performing the following actions on a regular basis to ensure reasonable accuracy of the accounts:
– Ensures that all bank accounts reconcile to the bank statements
– Reconciles the Wages Payable account – ie net wages paid = the net wages processed through the payroll system
– 2 x Annual Payroll Reconciliations – ie Payroll Reports = General Ledger + Total of IAS/BASs reported to the the ATO during the year.
The auditors also require and check this
– Monthly reviews the Balance Sheet & Profit & Loss reports against budget for obvious errors
– Quarterly reviews the GST Transactions for obvious errors
– Provides support & training for the St Mark’s Administrator
– Performs annual GST recalculations and also compares to the totals reported to the ATO during the year – to take up any adjustments made after BAS has been submitted
– Performs superannuation reconciliations quarterly
– Performs other Balance Sheet reconciliations at least annually
– All Balance Sheet and Payroll reconciliations are also checked by the Auditor
iii. Contracted an accounting firm that is suitably qualified and experienced to perform an annual audit of the church accounts
You understand that, whilst the audit is not exhaustive, the audit will review processes, reconciliations, larger variances and transactions. This will check that the control processes are sufficient. By this, we would expect that the auditors do not find anything that would lead them to question that the accounts do not represent a true and fair view of the church’s finances.
iv. Monthly Reports
Monthly reports are conducted
– the Profit & Loss Report is reviewed monthly. Variances to budget are investigated
– the Balance Sheet is reviewed monthly
Therefore, given the above, we would say that the IAS/BAS should be:
Signed by one of the treasurer, a churchwarden or any parish councillor. This can be delegated if the person being delegated has some training and accepts the task.
True & Correct
Given the above, we believe reasonable steps have been taken to ensure that the reports submitted to the the ATO are accurate. One simple additional step that an authoriser could perform is to compare the PAYG & GST being authorised to the previous PAYG & GST as paid to the ATO.
1. Superannuation IS payable on
- Payments in Lieu of Notice
- Wages to Termination
2. Superannuation NOT payable on
- Unused annual leave
- Unused LSL
- Unused LSL leave and annual leave loading.
- Genuine Redundancy Payment
Refer to the ATO website for full list of Ordinary Time Earning categories that attract superannuation