12 December 1997 External T.I. 9721225 - CLERGYMAN'S RESIDENCE

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.

5-972122
XXXXXXXXXX M. Azzi

Attention: XXXXXXXXXX

December 12, 1997

Dear XXXXXXXXXX:

Re: Paragraph 8(1)(c) of the Income Tax Act

This is in reply to your letter of August 7, 1997, wherein you requested a technical interpretation and clarification of our views regarding certain terms found in paragraph 8(1)(c) of the Income Tax Act (the "Act"). Your letter and related reference materials have been of assistance in understanding your overall position on the clergyman's residence deduction.

As you are aware, generally, to be eligible for the paragraph 8(1)(c) deduction, an individual must be a member of the clergy, a member of a religious order, or a regular minister of a religious denomination (the "status test"). When one of these conditions is met, the individual must be 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 (the "function test").

The terms on which you mainly focus in your letter are "religious order," "congregation" and "regular minister." You also requested clarification of the Department's views as to when teaching will qualify under the "function test."

At the outset, we wish to note that our views regarding the paragraph 8(1)(c) deduction, as supported by jurisprudence, are more restrictive than those submitted in your letter. In our view, the more liberalized, or expanded, approach which you suggest would require legislative clarification which, as you know, is the responsibility of the Department of Finance.

Religious Order

Your Views

In your view, in interpreting the term "religious order," the Department has inappropriately adopted a restrictive interpretation of the decision of the Federal Court-Trial Division in Zylstra Estate et al. v. The Queen 94 DTC 6687 ("Zylstra"). In particular, you feel that the Department has not distinguished between the judge's summary of evidence and his reasons, such that you do not agree that in Zylstra the Court "accepted" the expert evidence presented regarding the phenomenon of "religious orders." It is also your view that the Federal Court of Appeal, in McRae v. The Queen 97 DTC 5124 ("McRae"), has confirmed that this restrictive interpretation is inappropriate.

Our views

Whether an organization is a religious order is a question of fact which must ultimately be determined on a case-by-case basis. The term "religious order" is not defined in the Act; however, we agree with the statement on page 6693 in Zylstra 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."

It is also our view that, in Zylstra, the Court accepted this description/definition of a religious order. While we agree that the previously quoted statement is part of the summary of evidence (i.e., of expert testimony), in our view, the Court accepted this evidence in reaching its conclusion that the organizations at issue were not religious orders (i.e., the Court based its conclusion on this definition of a "religious order"). In this regard, we also note that paragraph 9 of the Memorandum of Fact and Law which was filed by the Intervenors with the Court in McRae clearly stated, as a "fact," that "The learned trial judge adopted the Roman Catholic 'template' for the meaning of the term 'religious order', being a 'phenomenon...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."

In our view, in Zylstra, the Court's acceptance of the expert testimony regarding religious orders is clear when, for instance, in considering the Doctrinal Statement of OBC and the Educational Creed of ICS, the Court stated "Yet, in reliance upon the expert testimony of Father Morrisey and Professor Wiebe I conclude that these declarations are not in substance similar to vows made by members of a traditional religious order." The Court then went on to conclude that neither OBC nor ICS is a "religious order," based on two principal considerations.

The first consideration was that there is no expression of faith or of religious purpose of either institution (apart from the educational purpose of each) that would mark the institution, and its members as distinct from the churches or denominations that each serves. This conclusion is clearly based on the above-noted expert testimony. In fact, in reaching this conclusion, the Court stated: "That would appear to me, from the dictionary definitions and from the testimony particularly of Professor Wiebe, to be a necessary quality of a 'religious order'."

The second consideration was that OBC and ICS have their primary purposes in education. The Court found that these are not religious purposes in the sense pursued by a religious order, "though some religious orders may also pursue educational purposes as subordinate to their primarily religious purpose of service to their God through worship, prayer and devotion." In our view, this conclusion is consistent with the expert evidence provided. That is, the type of organization which would qualify as a religious order as described above would generally have a primary religious purpose of service to its God through worship, prayer and devotion.

While we recognized that, in McRae, the Federal Court of Appeal agreed with the conclusion in Zylstra based "on the facts of this case," we note that the Federal Court of Appeal also stated that it was "in substantial agreement with" the Trial Judge's reasons in Zylstra. As explained above, the Trial Judge's reasons were based on the above definition of a "religious order." Thus, we do not agree that the decision in McRae results in a different interpretation of the term "religious order."

It is also our view that the above interpretation of "religious order" is consistent with the ordinary meaning of this term. In this regard, we feel that an appropriate reference was made to the dictionary definitions of this term on page 6692 of Zylstra. These definitions essentially refer to "A body or society of persons living by common consent under the same religious, moral, or social regulations and discipline; especially a. A monastic society or fraternity: as an order of monks or friars," and "Of persons: Bound by monastic vows."

Furthermore, in our view, the above interpretation of the term "religious order" is also consistent with the approach adopted by the Tax Court in Oligny v. The Queen, 96 DTC 1744, when it states: "It is my view that the teleological approach recommended by the Supreme Court of Canada leads in the instant case (upon examination of the parliamentary debates, of the historical context in which paragraph 8(1)(c) was initially passed then amended and, lastly, of its exceptional nature relative to the general rule) to the conclusion that it must be interpreted narrowly rather than liberally. This was the approach recommended by counsel for the respondent and that moreover adopted by the Federal Court, Trial Division, in Zylstra Estate, supra...Furthermore, in my view, paragraph 8(1)(c) of the Act, as drafted, neither favours nor disfavours any religion or denomination in particular through the use of the expression 'member of a religious order'...while it may be observed that it is in the Roman Catholic tradition that religious orders are most numerous, it is nevertheless common knowledge that such orders, though less numerous, exist in the tradition of certain Protestant denominations, in particular the Anglican Church as well as in the Christian Orthodox tradition. I will add that certain oriental religions could probably lay claim to their existence as well."

We recognize that the above interpretation of "religious order" provides more detail than is provided in Interpretation Bulletin IT-141, Clergymen's Residences, in regard to this term. While more detailed, in our view, the above definition is nonetheless consistent with that in the bulletin which provides, as an example, an order of monks. As you are aware, we will be revising the bulletin to clarify our positions and to reflect relevant jurisprudence.

Finally, we also recognize that certain views expressed in our correspondence prior to Zylstra and McRae may no longer be relevant in light of these cases. That is, our past comments regarding the paragraph 8(1)(c) deduction, in relation to certain organizations, may no longer apply. Our headquarters functions and field personnel have been advised accordingly. We will therefore examine any claim that an organization is a "religious order," even if the organization may have been recognized as such prior to Zylstra.

Congregation

Your views

You express concern with the Court's comments in Zylstra regarding the term "congregation." In your view, hospital chaplaincies, military and penitentiary chaplaincies, and school chaplaincies should be recognized as congregations even if the congregants comprise numerous denominations, change regularly or may not all assemble together. You believe that a congregation should include any size group of individuals who are together for common religious purpose, including worship and prayer, teaching and studying, ministry and fellowship. You also ask whether Christianity is a religious denomination.

Our views

As indicated in paragraph 5 of IT-141, a congregation is not defined by territorial boundaries nor by the number of people gathered together in one place. Furthermore, in our view, in accordance with Zylstra, the phrase "diocese, parish or congregation" is generally intended to describe different organizational or institutional structures determined by religious denominations for the ongoing organized activities of their members on a regular basis. Although a gathering of persons may be a congregation for some purpose, it will not qualify as a congregation for the purposes of paragraph 8(1)(c), unless it is a gathering for shared religious purposes recognized by a religious denomination for its regular organizational religious activities. These views on the term "congregation", as expressed in Zylstra, were also adopted by the Tax Court in McNeil v. The Queen, 95 DTC 702, and in Oligny.

Based on the above, in our view, a congregation may comprise members who participate as members in other congregations. It is also our general view, (as supported by Zylstra and the above-noted jurisprudence) that a particular congregation must be recognized by (i.e., be a subunit of) a denomination. However, due to the exceptional nature of chaplaincies, our view, as indicated in paragraph 5 of IT-141, is that serving as a chaplain in the armed forces or with an institution is generally considered to be ministering to a congregation, even if the chaplaincy may not serve a denomination. We would also note that, in our view, Christianity is not itself a religious denomination.

As regards individuals who are gathered to teach and study, our position is that teaching to a gathering does not constitute ministering to a congregation within paragraph 8(1)(c). Both Zylstra and McRae clearly support this position.

Regular Minister

Your views

You believe that the term "regular minister" should be interpreted so as to include persons fulfilling the functional equivalent of clergy ordained by sacrament. In your view, that interpretation should include persons within religious denominations which do not have a formal sacrament or ceremony of ordination of clergy whose ministry skills are recognized, whether formally or de facto, by a denomination or congregation as having a combination of sufficient training, skills and calling to hold a significant leadership or other ministerial role within the denomination or congregation.

Our views

It is our view that a regular minister of a religious denomination refers to an individual whose appointment to his or her position as a minister has been made in conformity with orderly or prescribed rules established by the particular religious denomination for the making of such appointments. In addition, in our view, the minister must be in a position of acknowledged leadership in the spiritual affairs of the religious denomination, and must have a formal or official status distinct from that of the members of the congregation. As a general rule, the individual must perform, or be authorized to perform, the full range of normal pastoral services such as baptising, giving communion and conducting marriage and burial ceremonies.

The above views are also consistent with the approach adopted in Bloom v. MNR 64 DTC 39, wherein the Tax Appeal Board indicated: "It seems that the regular interpretation to be put upon the words 'a regular minister', according to the decisions of the Courts to which I have referred, is that it is to be interpreted in a religious vein, so as to represent an elevation in rank to some special and recognizable religious status. Applying this interpretation to Mr. Bloom's case I am of the opinion that he has not been elevated to any special religious status in the Jewish faith which would be of universal significance in any Hebrew congregation. Although he has been employed by his Jewish congregation to perform particular duties for which he qualified himself in his youth by special religious education, nevertheless it appears from the evidence that he has never been ordained, and that his duties could be performed by any other layman who had taken sufficient religious instruction to be able to read from the Torah in the Hebrew language. Furthermore, unlike an ordained minister of any religious organization, including a rabbi of the Jewish faith, if the appellant ceased to occupy the position of Ritual Director with his present congregation and reverted to earning his living as an ordinary businessman, he would carry with him no title or designation which would give him any special recognition as the possessor of any special religious qualifications."

Teaching

Your views

You indicate that there is continuing uncertainty about the availability of a paragraph 8(1)(c) deduction for persons who satisfy the status test but who carry out their functions, whether ministerial or administrative, at an educational institution. It appears that, in your view, teaching could qualify as "ministering to a...congregation" or as an "administrative service" for purposes of the paragraph 8(1)(c) deduction.

Our views

In our view, teaching does not qualify as "ministering to a...congregation." Both Zylstra and McRae clearly support this position.

Furthermore, as indicated in paragraph 6 of IT-141, it is also our view that teaching does not qualify as an "administrative service." However, as indicated in the bulletin, occasional lecturing on request or teaching after hours will not, in itself, disqualify an otherwise qualifying individual from being considered to be "engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination" for purposes of paragraph 8(1)(c). In this regard, we would also stress that the "appointment" must be by a religious order or denomination. In accordance with our above comments on religious order, and with Zylstra and McRae, it should also be noted that, in our view, an educational institution is not a religious order or religious denomination.

Conclusion

In summary, there remains significant differences in our views on various terms used in paragraph 8(1)(c). In our view, our above positions reflect relevant jurisprudence and the ordinary meaning of the terms used in paragraph 8(1)(c), as well as the intent of this provision. IT-141 will be updated to reflect our above position.

Our response provides you with the interpretation and clarification that you requested as well as a basis for further discussions. I would be pleased to meet with you again or receive a further submission.

		Yours truly,

		Roy C. Shultis
		Acting Director General
		Income Tax Rulings and
		Interpretations Directorate
		Policy and Legislation Branch
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