30 January 2009 External T.I. 2008-0299791E5 - Clergy Residence Deduction

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: Is Director of XXXXXXXXXX eligible for Clergy residence deduction pursuant to paragraph 8(1)(c) of the Act ?

Position: No

Reasons: Does not meet the function test for the purpose of deduction under 8(1)(c)

XXXXXXXXXX 							2008-029979
V. Srikanth
January 30, 2009

Dear XXXXXXXXXX :

Re: Clergy Residence Deduction

This is in reply to your letter dated October 31, 2008, in which you requested an advance income tax ruling as to whether XXXXXXXXXX (the "Reverend"), if appointed to the position of Director of XXXXXXXXXX , would qualify for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").

Our Comments

Written confirmation of the tax implications inherent in an actual proposed transaction is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled Advanced Income Tax Rulings. Your request was not submitted in this format. However, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries which are not advance income tax rulings and, we are prepared to provide you with the following comments.

Generally, to be eligible for the clergy residence deduction, an individual must be a member of the clergy, a member of a religious order, or a regular minister of a religious denomination (the status test). When one of these conditions is met, the individual must be in charge of, or ministering to, a diocese, parish or congregation, or engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination (the function test).

Your submission indicated that the Reverend was granted ordination with the XXXXXXXXXX in XXXXXXXXXX and later, when he worked at the XXXXXXXXXX , he was granted ordination by XXXXXXXXXX in XXXXXXXXXX in XXXXXXXXXX . In our view, and pursuant to paragraph 4 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, inter alia, pastors and other persons who have been commended, licensed, commissioned or otherwise formally or legitimately recognized for religious leadership within their religious organization may be members of the clergy. Accordingly, in our view, the status test appears to be met.

As noted above, if an employee meets the status test, in order to qualify for the residence deduction, the person must then qualify under what is known as the "function test". Paragraph 4 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, states that the person's function must be such that he or she is:

• in charge of, or ministering to, a diocese, parish or congregation; or
• engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.

In your submission you have indicated that the Reverend will be applying his experience as a pastor to nurture and grow a congregation which you refer as "XXXXXXXXXX ". You then state that the XXXXXXXXXX consists of people associated with XXXXXXXXXX , past and present, who could be alumni, parents, guardians, teachers, students, etc.

Paragraph 15 of IT-141R provides our views of a congregation. According to it, a "congregation" is not defined by any particular church structure, by territorial boundaries nor by the number of people gathered in one place. It is an assemblage or gathering of persons to whom a minister provides spiritual counseling, advice, illumination and inspiration. A group of students assembled for academic instruction is not a congregation. Persons who meet the status test do not need to be in charge of a single, fixed congregation. They can serve multiple congregations. Congregations can be of a diverse and fluid makeup and require neither voluntary attendance nor homogeneity of religious belief. Chaplains in hospitals, jails, the armed forces and other such organizations are generally considered to minister to congregations.

The observations of Justice MacKay of the Federal Court, Trial Division in the case of Zylstra Estate et al. v. The Queen, 94 DTC 6687 at page 6696 are worth noting:

"It is my opinion that in this broader context of the words used to describe the qualifications for a deduction, the words "diocese, parish or congregation" are intended to describe different organizational or institutional structures determined by religious denominations for the ongoing organized activities of their members on a regular basis. Thus, a gathering of persons may well be a congregation for some purposes, but unless it is a gathering for shared religious purposes recognized by a religious denomination for its regular organizational religious activities, it does not qualify as a "congregation" within the meaning of that word in paragraph 8(1)(c) of the Act."

He further goes on to explain why he does not consider Ontario Bible College ("OBC"), its faculty, staff etc to be a congregation:

"OBC, its faculty, staff and students, and its alumni, could not be considered to constitute a congregation as I interpret the word, that is a body recognized by a religious denomination for its regular organizational religious activities since on the evidence the institution was seen as representative of, and serving several denominations through its educational programs, not through its religious services and worship activities. Moreover, faculty, staff and students, and clearly alumni, were encouraged or would rely upon their own denominational church congregations for their primary spiritual life.

If I am correct in my interpretation, OBC, its faculty, staff and students, and its alumni, do not qualify as a congregation within the statutory provision. In their responsibilities in serving at OBC, neither Dr. McRae nor Mr. Small was "in charge of or ministering to a congregation", within the meaning of those words as used in paragraph 8(1)(c)."

XXXXXXXXXX is basically an educational institution. The following is stated to be the mission of the XXXXXXXXXX :

XXXXXXXXXX

The philosophy of education of XXXXXXXXXX is stated to be:

XXXXXXXXXX

In our view, the focus of XXXXXXXXXX is education, though it is imparted through religious teachings and faith, and the XXXXXXXXXX cannot therefore, be considered to be "a gathering for shared religious purposes recognized by a religious denomination for its regular organizational religious activities". Religion is one of the vehicles considered by XXXXXXXXXX to impart education. XXXXXXXXXX community may be a congregation in general terms, since it consists of a group of people, however, it does not qualify as a "congregation" within the meaning of that word in paragraph 8(1)(c) of the Act.

Your submission does not indicate that the Reverend is in charge of or ministering a diocese or parish. Neither is there any indication that he is engaged in full time administrative services. Based on the above discussions, in our view, the Reverend does not satisfy the "function test".

You have made reference to two cases: Alemu et al. v. The Queen and Koop et al. v. The Queen, to explain that XXXXXXXXXX qualifies as a primary religious organization. However, for the purpose of our discussion it is not necessary to determine whether or not XXXXXXXXXX qualifies as a primary religious organization and further analysis on that issue will not be made. Based on the above, in our view, the Reverend has met the status but not the function test. He, therefore, does not qualify for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch