10 June 1996 External T.I. 9611865 - CLERGYMAN'S RESIDENCE - FAIR RENTAL VALUE

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:

Clarification of what is considered the "value of a residence or other accomodation" for the purposes of 8(1)(c)(i).

Position TAKEN:

	Subject to income limits and individuals meeting the 	status and function tests:

The value of the residence or living accommodation, in this context, is the fair rental value of the residence or the living accommodation.

Reasons FOR POSITION TAKEN:

Generally, utilities are not included in the rental value of a residence or other living accommodation provided by an owner or landlord, unless the cost of the utilities can not identified for each of the units. The usual commercial practice demands that the tenant bear the cost of utilities, which is not considered part of the value of the residence. Will also ensure equal treatment under subparagraphs 8(1)(c)(i) and (ii).

		961186
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

June 10, 1996

Dear Sirs:

Re: Paragraph 8(1)(c) - Clergyman's Residence

This is in response to your letter of March 26, 1996, in which you request that we review two situations and provide our interpretation of the tax consequences which will arise concerning the residence deduction pursuant to paragraph 8(1)(c) of the Income Tax Act.

In the two situations you describe, the individuals are members of a religious order in charge of a parish of a religious order. In the first scenario, an individual occupies a residence, owned by the religious order, in the course of his employment of ministering to the parish. The value of this residence is $12,000, which includes a portion related to the utilities cost of $3,000 paid by the religious order. In contrast, the individual in the second scenario owns and occupies his own home. The fair rental value of the residence is $9,000 which does not include the additional $3,000 cost of utilities. You are of the view that the individual in the first situation will be entitled to a deduction of $12,000, while the second individual will be entitled to a deduction of $9,000, under subparagraphs 8(1)(c)(i) and (ii) of the Act respectively.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only when the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.

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 the 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 have assumed, for the purposes of this discussion, that both individuals meet the required conditions of the provision.

Subparagraph 8(1)(c)(i) of the Act provides for a deduction equal to "the value of the residence or other living accommodation occupied by the taxpayer in the course of or by virtue of the taxpayer's office or employment .... to the extent that the value is included in computing the taxpayer's income for the year by virtue of section 6." It is our view that the value of the residence or living accommodation, in this context, is the fair rental value of the residence or the living accommodation. Generally, utilities are not included in the rental value of a residence or other living accommodation provided by an owner or landlord, unless the cost of the utilities cannot separately be identified for each of the units. The usual commercial practice demands that the tenant bear the cost of utilities, which is not considered part of the value of the residence. Accordingly, in our view, under these circumstances, an individual would normally be entitled to a deduction for the value of the residence, excluding the cost of utilities paid by the religious order.

Subparagraph 8(1)(c)(ii) of the Act provides for a deduction of either the amount paid as rent for the accommodation or the fair rental value of a residence or other living accommodation which is personally owned and occupied by the qualifying individual. The deduction is limited to the taxpayer's remuneration from that particular office or employment source. Thus, in the case of an individual who qualifies for a deduction for his residence and who also owns and occupies his own home, his deduction is limited to the fair rental value of the unfurnished premises which would not include the cost of utilities. Paragraph 9 of Interpretation Bulletin IT-141, Clergymen's Residence, outlines our position in this situation.

In summary, in both scenarios which you have provided to us, the individuals would be entitled to a deduction of $9,000 assuming all other requirements of the provision have been otherwise met and subject to the income limitations. This amount represents the value of the residence, without regard to the cost of the utilities.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch