21 November 1995 External T.I. 9523525 - VOW OF POVERTY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Vow of perpetual poverty and possible deduction from income under subsection 110(2) by a member of a religious order.

Position:

General discussion of issues raised which included what is the Department's position regarding what is considered a religious order, the taxabilitity of certain amounts received by members of a religious order, what consititutes earned income and superannuation and pension for the purposes of 110(2).

Reasons: N/A

            952352
XXXXXXXXXX  D. Zion

Attention: XXXXXXXXXX

November 21, 1995

Dear Sirs:

Re: Vow of Perpetual Poverty

We are writing in response to your letter of August 23, 1995 in which you request that we confirm your understanding of the tax treatment of certain clergy and members of religious orders who have taken the vow of perpetual poverty.

It is our understanding that your main concern lies with the application of subsection 110(2) of the Income Tax Act (the "Act") which permits an individual who is a member of a religious order and has taken a vow of perpetual poverty to deduct certain amounts paid by him or her to the order in computing taxable income for a taxation year. You have made reference to a specific religious denomination in your correspondence and we would like to point out at the outset of our reply that the following comments apply to members of religious orders of any religious denomination provided they meet the applicable provisions of the Act.

Whether or not an organization is a religious order is a question of fact which must be determined on a case by case basis. However, an essential prerequisite for an organization to be considered a religious order is the existence of vows or a specific religious discipline. The Tax Court of Canada case Small et al. v. MNR (89 DTC 663) contains a detailed discussion and interpretation of the term "religious order" (as well as other pertinent terms) in the context of the clergyman's residence deduction under paragraph 8(1)(c) of the Act. The appeal of this case, along with two related files, was recently heard in the Federal Court-Trial Division in the case of Zylstra Estate et al. v. The Queen (94 DTC 6687). The Court was required to consider, among other things, the meaning of the term "religious order". On the basis of expert testimony, the Court accepted that the phenomenon of "religious orders" is:

...marked by common characteristics, when a group of persons, distinct from within a larger religious community, live under a set of rules, bound by vows to observe not only the general precepts of their church, but also vows of chastity, poverty and obedience, including agreement to a communal life unless permitted to live otherwise.

The Court's comments in this more recent case are of assistance in determining if an organization can be considered a religious order as this same terminology is utilized in subsection 110(2) of the Act. These comments are in keeping with the term as defined in the dictionary references reviewed by the Court and utilized in the past by the Department.

Accordingly, in our view, the term "member of a religious order" is not synonymous with member of a church or member of a congregation or member of a particular religious following. To be a member of a religious order goes beyond merely claiming one's belief in the principles of a particular doctrine of faith. Usually, an individual becomes a member of a religious order after receiving specialized religious training and, once a member, is bound by a set of religious, moral and social rules and discipline as referred to above. In addition, the member is charged with carrying out the objectives of his religious organization and is thus entitled to officially perform the rites of faith such as preaching the gospel, officiating at formal services and ceremonies and so forth. Furthermore, we believe that a "vow of obedience" would require not only obedience to a specific set of rules such as outlined above but would go beyond this compliance requirement to inform members of the enforcement of rules and discipline.

Once it has been determined that an organization is a religious order, it must then be determined whether or not the individual in question is a member of the religious order and has taken the vow of perpetual poverty. When these conditions have been met, certain income included in income and paid by the individual in the year to the religious order will be deductible from income pursuant to subsection 110(2) of the Act. Interpretation Bulletin No. IT-86R, Vow of Perpetual Poverty, further expands on the conditions which an individual must satisfy before he or she would be entitled to the deduction. For the purposes of our discussion which follows we will refer to an individual who meets all the required criteria as "a religious".

A religious may deduct from his or her income, the aggregate of superannuation or pension benefits and earned income for the year as defined by section 63 of the Income Tax Act provided the requirements of subsection 110(2) of the Act are met. The definition of earned income contained in section 63 of the Act contains the phrase, "all salaries wages and other remuneration". The definition of earned income also includes all amounts included in computing income by virtue of sections 6 and 7, 56(1)(m), (n) or (o) as well as income from all businesses carried on either alone or as a partner actively engaged in the business.

In your letter you mention that the extended meaning of the term "superannuation or pension benefit" provided for in subparagraph 56(1)(a)(i) of the Act does not appear to apply when the term is used in subsection 110(2) of the Act. Accordingly, in your view it is possible that a member of a religious order who was in receipt of an Old Age Security Pension would not be entitled to a deduction under this subsection if the amount of the pension was contributed to the individual's religious order. As noted in Interpretation Bulletin IT-499R, Superannuation or Pension Benefits, superannuation or pension benefits are defined in subsection 248(1) of the Act to include the amount of any pension, guaranteed income supplement or spouse's allowance under the Old Age Security Act or a similar payment under a law of a province as well as the amount of any benefit under the Canada Pension Plan or the Quebec Pension Plan. These amounts are included in income under subparagraph 56(1)(a)(i) of the Act and assuming all the requirements of subsection 110(2) are met the amount could be deducted by the member of the religious order.

Although it would be a question of fact as to whether an employment relationship exists between the religious order and its members, where such a relationship exists, the value of the board, lodging and other incidentals would be included in the religious' income from an office or employment by virtue of paragraph 6(1)(a) of the Act while an allowance for personal or living expenses would be included in income by virtue of paragraph 6(1)(b). It is the Department's position that a deduction under subsection 110(2) of the Act will be allowed for both the employment income paid to the order plus the taxable benefits or allowance received.

Finally, whether or not a member of a religious order would be entitled to a clergyman's residence deduction pursuant to paragraph 8(1)(c) of the Act, would depend on that individual meeting the required conditions of the provision and would be a question of fact to be determined upon a review of all pertinent circumstances.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch