19 March 2009 Internal T.I. 2009-0305761I7 - 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: 1) Is XXXXXXXXXX a religious order for the purpose of claiming clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

2) Is an employee within that organization, eligible for clergy residence deduction, by virtue of being engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.

Position: 1) No
2) No

Reasons: 1) Does not satisfy all the six conditions necessary for the purpose of qualifying as a religious order.

2) Because the organization is not a religious order. The employee fails the status test.

								March 19, 2009

Small and Medium Enterprises Directorate		V. Srikanth
Compliance Programs Branch				Corporate Financing Section
Head Quarters						IT Ruling Directorate

      							2009-030576
Attention:  Aviva Diener

Clergy Residence Deduction

We are writing in response to your e-mail dated December 19, 2008, requesting an interpretation with respect to the clergy residence deduction and, specifically, a determination of whether the XXXXXXXXXX is a "religious order" for purposes of the deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").

Our Comments:

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 clergy residence deduction, provided for in paragraph 8(1)(c) of the Act, the 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.

Function test

In order to qualify for the deduction, a person who has the required status must also be employed in a qualifying function. A 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 .

With respect to the status test and the definition of a religious order, the following explanation is provided in paragraph 8 of 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."

Judge Bowman has established in McGorman et al v The Queen (99 DTC 699 TCC), with respect to the meaning of a "religious order", 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 XXXXXXXXXX is a "religious order".

We assume that in the given instance it is the organization (i.e., XXXXXXXXXX ) that is seeking religious order status rather than a collectivity within the organization.

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. A religious order may have objects that go beyond preaching the gospel and prayer and meditation, and extend to works beneficial to humanity such as running hospitals or helping the poor and homeless.

XXXXXXXXXX

Based on these documents, we agree that the primary purpose of the organization is religion, though it carries out other activities such as education, helping seniors, etc, through its ministries such as the XXXXXXXXXX .

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.

The Constitution and Bylaws of XXXXXXXXXX sets out requirements to become a member of the organization. We are, however, not given any evidence indicating that the personnel earn less than others who perform similar work in an organization of similar size in the public or private sector. Furthermore, we do not know if XXXXXXXXXX places any limitations on the earning of outside income.

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.

While the submission gives details of the specific duties and responsibilities of the members of various committees, we were not given any evidence indicating that the personnel in the organization dedicate their working time exclusively, and on a long-term basis, to the pursuit of the objectives of the organization.

Hence we are unable to comment if this criteria has been met by XXXXXXXXXX .

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 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

XXXXXXXXXX Such doctrines are a broad affirmation of faith which does not mark XXXXXXXXXX and its members as distinct from any church or denomination which it may serve. Furthermore, there is no indication that XXXXXXXXXX members are required to commit to any vows of chastity, to abandon a secular lifestyle or otherwise commit to life as members of a religious order. The XXXXXXXXXX does not indicate if the members of the organization are required to live a markedly stricter life than that to which the lay members of the church are expected to adhere. We are, therefore, of the view that this criteria is not met.

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. There also appears to be certain standard procedure for XXXXXXXXXX , as laid out in the XXXXXXXXXX . However, it is not clear if the same procedure is followed for general membership admission as well. This criterion appears to be met in the case of appointing pastors and ministers. However, it is not clear if a similar procedure is followed in case of other salaried employees in the organization.

Furthermore, we did not notice anything that would confirm that the personnel could be recognized from the broader community as members of a religious order either by their conduct, dress or public statements. We were not given any evidence indicating that there is a probationary period, a documented assessment methodology or training required to be a member of this organization.

The 6th Criteria - Sense of Communality

There should generally be a sense of communality. The churches under this organization are encouraged to help one another and the community. The XXXXXXXXXX stresses on "XXXXXXXXXX "

It is reasonable to assume that there is a sense of communality with in the organization.

Based on the submission, in our view, the XXXXXXXXXX is not a religious order for the purpose of clergy residence deduction provided for in paragraph 8(1)(c) of the Act, as it fails to satisfy all the six conditions laid out by Judge Bowman in determining a "religious order".

Although we are of the opinion that XXXXXXXXXX is not a religious order, we concede that this organization contains some of the criteria set out by Judge Bowman in determining a "religious order". It may be noted that although he did not intend the criteria to be inflexible, he did state the criteria would be indicative of a religious order as that expression is used in paragraph 8(1)(c) of the Act. In our view, to be a religious order for the purposes of 8(1)(c) of the Act, not most, but all of the relevant criteria set out by the court should be met.

As XXXXXXXXXX fails to qualify as a religious order, the specific employee in question cannot be considered to be a member of a religious order. Further, based on the submission, the employee is neither a member of clergy nor a regular minister. Accordingly, he fails the status test for purposes of the deduction pursuant to paragraph 8(1)(c). As a result, no further review needs to be done to determine if he is "engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination", for the purpose of function test.

For reasons explained above, in our view, the employee is not eligible for a clergy residence pursuant to paragraph 8(1)(c) of the Act.

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