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.
Principal Issues: whether amounts received by volunteers working as missionaries are taxable
Position: amounts would be taxable either as income from employment or as an independant contractor
Reasons: amounts paid are not nominal and are compensation for services provided by the volunteer
2005-013580
XXXXXXXXXX T. Harris
(613) 957-2114
November 25, 2005
Dear XXXXXXXXXX:
We are replying to your facsimile of June 10, 2005, in which you requested our interpretation on the taxability of amounts received by certain missionaries ("Missionaries") serving in XXXXXXXXXX.
Our understanding of the situation outlined in your letter is as follows:
The parties in question are volunteers for a church-based organization (the Organization") and are responsible for raising the costs of their mission. The donors remit funds to the Organization, which is a registered Canadian charity, and the Organization provides donation receipts for these donations.
The Organization then channels all donations raised by the Missionaries, other than premiums to pay international health insurance, to an organization resident in each of the various host countries, with which it has a partnership relationship (each such organization is referred to herein as a "Partner").
The Partner provides a monthly stipend sufficient to cover basic living expenses to the particular Missionary and his or her family serving in the particular Partner's host country. The budget for each family is approximately $XXXXXXXXXX, which includes the monthly health insurance premium.
The service period of each Missionary is open ended. Consequently, the Missionaries will generally own homes in Canada that are rented out during their period of absence. Such Missionaries also return to Canada each year for a one-month furlough. Each Missionary also maintains one or more Canadian bank accounts. Consequently, the Missionary and other family members are generally considered to be continuing residents of Canada for income tax purposes.
In your opinion the Missionaries are volunteers and not employees of the Organization.
The term "volunteer" is not defined for purposes of the Income Tax Act (the "Act"); consequently, one must rely on the ordinary meaning of the term. Furthermore, other than subsection 81(4) of the Act (which provides an income tax exemption for the first $1,000 received by an individual from a government, municipality or other public authority for duties performed as a volunteer in certain emergency situations), there is currently no provision in the Act that would provide an exemption from income tax for amounts received for services rendered by a "volunteer". Consequently, in our view, where compensation (in excess of a nominal amount) is paid to an individual for services rendered on behalf of another party, the amount of such compensation would constitute income for purposes of the Act; either as income from an office or employment, or as an independent contractor.
For purposes of the Act, the determination of whether the relationship between parties is that of employer/employee or an independent contractor is a question of fact. The Canada Revenue Agency (the "CRA") relies on the basic tests developed by the courts in deciding whether a particular contract is a contract of services (employer/employee relationship) or a contract for services (client and independent contractor relationship). These tests generally consist of the control test, the integration test, the economic reality test and the specified results test. Consequently, a review of any contract between the parties, which sets out the rights and obligations of each of the parties, would be necessary to reach a conclusion in determining the type of relationship that exists. However, in our view, a more important consideration is the actual circumstances surrounding the performance of services and whether the actual relationship is consistent with what is stated in the contracts.
Although we have not been provided with a copy of the agreement between the Organization and the Missionaries, the fact that the Organization is paying the monthly health insurance premiums and, indirectly through its partners in the host country, providing a monthly living allowance to the Missionaries suggests that the Missionaries are likely receiving employment benefits. As such, it is our view generally that, unless the exemption for a special work site in subparagraph 6(6)(a)(i) of the Act applies, the amounts received by the Missionaries are either taxable benefits or taxable allowances under paragraphs 6(1)(a) or (b) of the Act. However, to the extent that the health insurance premiums are in respect of a private health services plan, the premiums paid would not constitute a taxable benefit by virtue of subparagraph 6(1)(a)(i) of the Act.
The exclusion for employment at a special work site is discussed in paragraphs 4 through 11 of IT-91R4, Employment at Special Work Sites or Remote Work Locations. In particular, we draw your attention to paragraph 4(b) which indicates that the employee is required to maintain a self-contained domestic establishment at another location as the employee's principal place of residence and that this establishment must remain, throughout the period, available for the employee's occupancy and not be rented by the employee to any other person.
In the event that the Missionaries are required to pay an income tax to the host country, they may be entitled to a non-business foreign tax credit under subsection 126(1) for any such taxes.
We trust that these comments will be of assistance.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
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