5 November 2013 Internal T.I. 2013-0494611I7 - Religious order

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 a particular organization a religious order for purposes of paragraph 8(1)(c) of the Act?

Position: Likely no.

Reasons: Question of fact. The information provided does not demonstrate that the organization embodies all six characteristics (outlined in paragraph 9 of IT-141R) indicative of a religious order.

November 5, 2013

Taxpayer Services and Debt Income Tax Rulings Directorate
Management Branch P. Waugh
Taxpayer Services Directorate 905-721-5221
Policy Procedures and Field
Support Section

Attn: Kurt Stephens 2013-049461

Religious Orders

We are writing in response to your email dated June 25, 2013, concerning the clergy residence deduction. More specifically, you have asked for guidance in determining whether XXXXXXXXXX (Organization) would be considered a religious order for purposes of paragraph 8(1)(c) of the Income Tax Act (Act). Our understanding is that XXXXXXXXXX members of the Organization were denied a request to reduce income tax withholding at source for the clergy residence deduction because the Taxpayer Services Directorate was unable to determine whether the Organization is a religious order.

OUR COMMENTS

As you are aware, the term "religious order" is not defined in the Act; however, six characteristics that indicate whether an organization (or a collectivity of persons therein) is a religious order have been identified through Canadian case law. These characteristics have been accepted by the Canada Revenue Agency (CRA) and are reproduced in paragraph 9 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, dated May 4, 2000.

The six characteristics are as follows:

1. The purpose of the organization should be primarily religious.
2. The members must agree to adhere 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.
3. The commitment of the members should be full-time and of a long-term nature. In some cases it may be for life, but this is not essential. It is important that it not be short term, temporary or part-time.
4. The spiritual and moral discipline and regime under which the members live must be markedly stricter than that to which the lay church members are expected to adhere.
5. Admission to the order must be in accordance with strict standards of spiritual and personal suitability.
6. There should generally be a sense of communality.

Since you appear satisfied that the Organization has the 1st and 3rd characteristics, our comments will focus on the remaining 4 characteristics for which you need guidance.

The 2nd Characteristic – Strict Moral and Spiritual Regime

The members must agree to adhere 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 courts (footnote 1) have confirmed that members must exhibit some form of self-sacrifice or denial of material comfort or financial advancement beyond that which was expected of other lay members of an organization. While the examination of adhering to a regime of self-sacrifice is not necessarily restricted to a financial application, both the courts and the Income Tax Rulings Directorate have adopted such an approach when examining whether an organization has this characteristic.

Generally, financial self-sacrifice or denial of material comfort is considered to exist where a member's pay scale is substantially less than that of an employee performing similar duties in a non-religious organization. An example of non-financial self-sacrifice would be where a member is required to work under more rigorous conditions than what is expected of a similar position in a non-religious organization.

The documentation and analysis provided by the Organization does not demonstrate that members exhibit some form of self-sacrifice or denial of material comfort or financial advancement.

The 4th Characteristic - 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.

Evidence that may indicate that members are required to live markedly stricter lifestyles than lay members, include:

• A formalized code of conduct document for the members and such requirements are codified in their employment contract;
• Specific rules or norms that unite all members;
• Policy that members may be dismissed if their work, lifestyle, or behaviour is unsuitable; and
• Requirement that the member abandon a secular lifestyle or otherwise commit to life as a member of a religious order.

While the Organization has a Standard of Conduct policy and Certificate of Admission statement to which members must adhere, it is unclear whether employees or lay members are subject to the same policies. The Organization makes a statement that "XXXXXXXXXX." This does not demonstrate that members must live markedly stricter lifestyles than other employees or lay members.

The 5th Characteristic - Strict Standards of Spiritual and Personal Suitability

The admission of members must be in accordance with strict standards of spiritual and personal suitability.

An organization must demonstrate that the admission of members is based on strict standards of spiritual and personal suitability. Factors that should be considered include:

• Evidence that there is a documented assessment of methodology;
• Evidence indicating there is a probationary period;
• Evidence that there is a religious training period; and
• Evidence of public worship or prayer.

The Organization notes the experience and qualifications of the XXXXXXXXXX members in question. However, the Organization has not supplied any information to indicate what screening standards are used to ensure members have spiritual and personal suitability.

The 6th Characteristic – A Sense of Communality

There should generally be a sense of communality.

There is very little guidance in terms of case law or CRA policy that specifically addresses what is contemplated by this characteristic. Where the legislation and courts do not define a term, we rely on the plain meaning (e.g. dictionary definition). Therefore, the following should be considered:

• The Concise Canadian Oxford Dictionary defines communality as the state of "relating or belonging to a community; . . . of or relating to ethnic or religious groups within a larger community". It further defines community as "a body of people having a religion, a profession etc., in common."
• The Merriam-Webster dictionary (footnote 2) provides a definition of communality and states that the term refers to a "communal state or character; a feeling of group solidarity". It further defines solidarity as "a feeling of unity between people who have the same interests, goals, etc."

While Canadian case law indicates that no characteristic predominates in determining whether an organization is a religious order, it does state that each characteristic should be given its proper weight. Based on our review of the case law, it appears that the 6th characteristic holds minimal weight. It is our view that the 6th characteristic needs to be considered, but would not be the deciding factor in determining whether an organization is a religious order.

It appears that the Organization may have a sense of communality.

Summary

As you are aware, to be a religious order for purposes of paragraph 8(1)(c) of the Act, an organization must embody all six characteristics. The information and analysis provided by the Organization does not demonstrate that the Organization embodies all six characteristics. Therefore the Organization would not be considered to be a religious order.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Alemu et al v The Queen, 99 DTC 714 (TCC)
2 Merriam-webster.com