18 July 2000 External T.I. 2000-0016385 - INCOME OF A PASTOR

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: We have been asked about whether the salary and other amounts paid to a pastor affects the status of a "registered charity" (a church) as defined in subsection 248(1) of the Income Tax Act (the "Act").

Position: General comments were provided

Reasons: The specific facts and documentation were not available.

XXXXXXXXXX 2000-001638
M. Eisner
July 18, 2000

Dear XXXXXXXXXX:

Re: Income of a Pastor

Your letter concerning the above-noted subject has been referred to us for reply by the Toronto North Tax Services Office.

Your concern relates to the salary and other amounts paid to a church pastor and what impact this may have on the church's status for income tax purposes.

You made reference to the rules in the Income Tax Act (the "Act") for a non-profit organization, that are found in paragraph 149(1)(l) of the Act. You focused on the requirement that no part of the income of these organizations can be payable to, or otherwise be available for the personal benefit of any proprietor, member, or shareholder.

You have asked for our comments on the payment of the salary to the pastor and what impact this may have on the church's tax exemption, along with the implications of paying the pastor's expenses incurred to carry out the church's responsibilities. You also enquired about any possible tax exemption or deduction for the pastor.

Our Comments

In order to consider the income consequences of the above situation, it is necessary to review all the relevant facts and documentation. Such a review falls within the responsibilities of local tax services offices. However, we are providing you with the following general comments.

Generally, the conditions concerning non-profit organizations that are set out in paragraph 149(1)(l) of the Act, do not apply to a church because it is likely a registered charity. A registered charity is exempt under another provision of the Act (paragraph 149(1)(f )).

It is also our general view that a registered charity, such as a church, can hire an employee (i.e., the pastor), pay him or her a salary and provide other employment benefits (e.g., amounts are paid in respect of life insurance, vehicle expenses, or living accommodation). Such amounts paid by a registered charity are normally considered to be proper expenses of the church. The pastor's salary and benefits are taxed in accordance with specific rules in the Act for employees.

When a clergy person receives payments in respect of the fair rental value of his or her residence or rent paid for living accommodation, there is special tax relief in paragraph 8(1)(c) of the Act for a member of the clergy, who ministers to a congregation. Such an individual may deduct the fair rental value of his or her residence, or if the individual is renting the accommodation, the individual can normally deduct the rent paid. Enclosed is a final draft of Interpretation Bulletin IT-141R, Clergy Residence Deduction, which explains how this provision of the Act works.

Finally, where a member of the clergy, who ministers to a congregation, receives reasonable allowances, computed by reference to the number of kilometres driven for employment purposes, they are considered to be non-taxable pursuant to subparagraph 6(1)(b)(vii) of the Act.

We trust that our comments are of assistance to you.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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