18 October 2013 External T.I. 2012-0451081E5 - 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: Whether an organization is a religious order for purposes of the clergy residence deduction provided by paragraph 8(1)(c) of the Act?

Position: See response.

Reasons: See response.

XXXXXXXXXX
2012-045108
T. Baltkois

October 18, 2013

Dear XXXXXXXXXX:

Re: Clergy Residence Deduction

We are writing in response to your letter dated June 5, 2012, wherein you requested a determination as to whether XXXXXXXXXX (the "Organization") is a religious order for purposes of paragraph 8(1)(c) of the Income Tax Act (the "Act").

Our Comments

The Income Tax Rulings Directorate does not provide determinations as to whether a particular organization is a religious order for purposes of paragraph 8(1)(c) of the Act. Such determinations would normally be conducted by the relevant tax services office during the course of an income tax audit or the resolution of a notice of objection, both of which would be carried out after the relevant income tax return has be filed for the year. In addition, a tax services office may also review the status of an organization following a request by a member to reduce income tax withholdings at source. However, since the Organization received a determination from the Appeals Branch in XXXXXXXXXX, we are prepared to provide the following comments that may be of assistance.

Paragraph 8(1)(c) of the Act provides a deduction in computing the income from employment of the clergy person in respect of the accommodation occupied by him or her. In order to qualify for this deduction, a person must meet both a status test and a function test.

To satisfy the status test, an individual must be a member of the clergy or of a religious order, or be a regular minister of a religious denomination. It is your view that the Organization is a religious order for purposes of the clergy residence deduction.

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.

Since the case law and the legislation governing the clergy residence deduction have not materially changed since IT-141R was issued, the determination as to whether a particular organization is a religious order continues to be based on these six characteristics. As you have noted, the Appeals Branch of the CRA determined in XXXXXXXXXX that the Organization was a religious order for purposes of paragraph 8(1)(c) of the Act. After reviewing current information submitted, it appears that there has been no fundamental or material change in the operation of the Organization since the review in XXXXXXXXXX.

Provided that the current information submitted constitutes a complete and accurate disclosure of all relevant facts and reflects the manner in which the Organization operates, we see no reason why the Organization would not continue to be a religious order for purposes of paragraph 8(1)(c) of the Act. That is, the Organization still appears to embody the six characteristics outlined in paragraph 9 of IT-141R.

Any member of the Organization seeking to claim the clergy residence deduction is required to satisfy the function test by demonstrating 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.

We trust these comments will be of assistance to you.

Yours truly,

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