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: To determine if a School is a religious order and if so, do certain members of the School qualify for clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act.
Position: No
Reasons: The School does not qualify as a religious order
XXXXXXXXXX 2008-030178
V. Srikanth
January 30, 2009
Dear XXXXXXXXXX :
Re: Clergy Residence Deduction
We are writing in response to your letter dated November 21, 2008, requesting an interpretation with respect to the clergy residence deduction for XXXXXXXXXX staff members of XXXXXXXXXX (the "School"). Further, you specifically asked for our views as to whether the School is a "religious order" for the purpose of the deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").
Our Comments
The facts in your letter relate to a factual situation involving specific taxpayers. 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 a manner set out in Information Circular 70-6R5, entitled, Advanced Income Tax Rulings. However, we do provide technical interpretations to general queries and we are prepared to provide the following comments which, as indicated in paragraph 22 of Information Circular 70-6R5, do not constitute an advance income tax ruling.
Paragraph 8(1)(c) of the Act allows certain members of the clergy or of religious orders, as well as certain regular ministers of religious denominations, to deduct an amount in respect of their living accommodation.
In order to qualify for the clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act, a person must satisfy both the status and function tests discussed below.
Status test
In order to qualify for the clergy residence deduction under paragraph 8(1)(c), a person must be one of the following:
- a member of the clergy;
- a member of a religious order; or
- a regular minister of a religious denomination.
With respect to the definition of a religious order, in the second bullet above, the following explanation is provided in paragraph 8 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction:
"The term "religious order" means a group of people bound by the same religious, moral and social regulations and discipline. A religious order may comprise all the members of an organization or only an identifiable group within that organization. Not every religious organization is a religious order. Whether or not an organization or a group of individuals within an organization is a religious order is a question of fact to be determined on a case-by-case basis. No factor predominates and each must be assigned its proper weight in the context of all the facts."
With respect to the meaning of a "religious order", Judge Bowman has established in McGorman et al v The Queen (99 DTC 699 TCC), six criteria to serve as guidelines in determining whether an organization (or a collectivity of persons therein) is a religious order, and the CRA has accepted these guidelines as indicated in paragraph 9 of IT-141R. These guidelines can be used to review the information provided to determine whether or not the School is a "religious order".
The 1st criteria - Purpose
The purpose of the organization should be primarily religious. It may have other objects within the overall context of that religious purpose such as education, the relief of poverty, or the alleviation of social ills and suffering.
In the given instance, the primary purpose of the School appears to be education and not religion. While it is stated that the school's overall educational philosophy is based on the writings and teachings of XXXXXXXXXX , there is nothing to indicate the primary religious purpose of service to God through worship, prayer and devotion.
In fact, the Mission statement of the School states:
"XXXXXXXXXX ."
The Courts have further found that education, while sometimes pursued by a religious order, in order to fulfill the primary goal of service to God through worship, prayer and devotion, is not a religious purpose of the type found in religious orders. Zylstra (94 DTC 6487 FCTD) and McRae (89 DTC 663 TCC) supports this position.
The 2nd Criteria - Strict Moral and Spiritual Regime
The members must agree to, and in fact adhere to, a strict moral and spiritual regime of self-sacrifice and dedication to the goals of the organization to the detriment of their own material well-being.
We were not given any evidence supporting this. Furthermore, the fact that the School does not appear to place any limitations on the earnings of outside income, is not conducive to the findings that there is a religious order.
The 3rd Criteria - Full-time and Long-term Service
The commitment of the members should be full-time and of a long-term nature. It is not essential that the commitment be for life but it is important that it not be short term, temporary or part-time.
It is stated in the letter that the staff and students are taught the XXXXXXXXXX philosophies as long-term approaches to life, rather than expedient short term measures taken only while associated with the School property. We were not given any evidence indicating that the staff members dedicate their working time exclusively, and on a long-term basis, to the pursuit of the objectives of the School.
The 4th Criteria - Spiritual and Moral Discipline
The spiritual and moral discipline and regime under which the members live must be markedly stricter than that to which the lay members of the church are expected to adhere.
In the submission, it is stated that the staff members agree and adhere to both the XXXXXXXXXX philosophies as well as the specific philosophies attributed to XXXXXXXXXX . It further states that staff members are expected, even when not physically present on School property, to make every effort, whenever possible, of ensuring that their behaviour is in accord with School stated moral and philosophical teachings.
However, in our view, subscribing to a statement of faith is not, in and of itself, indicative of living under a markedly stricter spiritual and moral discipline than that which the lay members of the organization are expected to adhere. We were not given any evidence indicating that there is a formalized code of conduct document for the staff members or that, such requirements are codified in their employment contracts.
The 5th Criteria - Strict Standards of Spiritual and Personal Suitability
The admission of members must be in accordance with strict standards of spiritual and personal suitability.
The request states that staff members are subjected to interviews and testing to ensure philosophical suitability of "fit" with the School prior to hiring. We were not given any evidence indicating that there is a probationary period, a documented assessment methodology or training required. Nothing in the submission indicates that any form of public worship or prayer is required. In our review of the submission, there was nothing that would confirm that the staff members could be recognized from the broader community as members of a religious order either by their conduct, dress or public statements.
The 6th Criteria - Sense of Communality
There should generally be a sense of communality.
The submission contained no evidence to support a finding of a sense of communality amongst the staff members or the School's members.
Based on our analysis of the situation, in our view, the School is not a religious order, such that a staff member of the School could not meet the status test by virtue of being a member of a religious order.
Paragraph 4 of IT-141R, states, "a 'member of the clergy', is a person set apart from the other members of the church or denomination as a spiritual leader." Priests, pastors, ministers, rabbis, imams, commended workers 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.
Given the fact that XXXXXXXXXX he is considered to be a member of the clergy and therefore meets the status test for the purpose of deduction pursuant to paragraph 8(1)(c). He will, however, have to meet the function test to be eligible for deduction under paragraph 8(1)(c).
As regards the other XXXXXXXXXX staff members of the School, nothing in the submission you have made, indicates that they are a member of the clergy or a regular minister of a religious denomination. Hence, to satisfy the status test, they must be a member of a religious order or religious denomination. However, as discussed above, in our view, the School is not a religious order or a religious denomination. It therefore follows that the remaining XXXXXXXXXX staff members do not satisfy the status test and do not qualify for the clergy residence deduction provided for in paragraph 8(1)(c) of the Act.
Function Test
The function test only needs to be considered in respect of the one employee who is a XXXXXXXXXX , since he has met the status test by virtue of being a member of a clergy. The other XXXXXXXXXX individuals did not meet the status test and no further analysis has been done to determine if they meet the function test.
In order to qualify for the deduction, a person who has the required status must also be employed in a qualifying function. The person's function must be one 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.
There was no evidence in the submission to indicate that the XXXXXXXXXX was in charge of, or ministering to, a diocese, parish or congregation.
The XXXXXXXXXX was appointed by the Board of Directors of the School. Based on our above analysis, the School is not a religious order or a religious denomination. Hence, the XXXXXXXXXX does not qualify under the criteria of being engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.
Based on our analysis of the situation, the XXXXXXXXXX does not satisfy the function test and, consequently, he does not qualify for the clergy residence deduction provided for in 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
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