5 May 2010 External T.I. 2010-0363501E5 - 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: Is an Executive Director of a charitable organization eligible for a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

Position: No.

Reasons: Does not meet the conditions for 'status' test and we did not consider the 'function' test.

XXXXXXXXXX                                            2010-036350
                                                      V. Srikanth
May 5, 2010

Dear XXXXXXXXXX :

Re: Clergy Residence Deduction

This is in response to your letter dated April 15, 2010, wherein you requested our comments on the clergy residence deduction provided for in paragraph 8(1)(c) of the Income Tax Act (the "Act"). Specifically, you would like our opinion on whether, as an Executive Director of XXXXXXXXXX (the "Mission"), you are eligible to claim a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

Our Comments

Written confirmation of the tax implications inherent in actual proposed transactions is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled Advance Income Tax Rulings. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. If, however, the particular transactions are completed or partially completed, the enquiry should be addressed to the relevant Tax Services Office. Your request was not submitted as an advance income tax ruling request, however, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries which are not advance income tax rulings and we are prepared to provide you with the following comments.

Generally, to be eligible for the clergy residence 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).

Further, in order to qualify for the clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act, the person must satisfy both the status and the function tests discussed below.

Status test

In order to qualify for the clergy residence deduction under paragraph 8(1)(c), the person must be one of the following:

• a member of the clergy;
• a member of a religious order; or
• a regular minister of a religious denomination.

Paragraph 4 of Interpretation Bulletin IT-141R, entitled Clergy Residence Deduction (Consolidated), states a "member of the clergy" is a person set apart from the other members of the church or religious denomination as a spiritual leader. Priests, pastors, ministers, rabbis, imams, commended workers and other persons who have been commended, licensed, commissioned or otherwise formally or legitimately recognized for religious leadership within their religious organization may be members of the clergy.

You have indicated in your letter that you are not currently affiliated with any specific denomination as an ordained minister. We have no further information which indicates that you are a member of the clergy. Hence, in our view, you are not considered to be a member of the clergy for the purpose of the status test.

In order to satisfy the 'status' test, we will now have to determine if you are a member of a religious order or a regular minister of a religious denomination, i.e., if the Mission is a religious order or a religious denomination

Judge Bowman has established in McGorman et al v The Queen (99 DTC 699 TCC), with respect to the meaning of a "religious order", six criteria to serve as guidelines in determining whether an organization (or a collectivity of persons therein) is a religious order, and the Canada Revenue Agency (the "CRA") has accepted these guidelines as indicated in paragraph 9 of IT-141R. These guidelines can be used to review the information provided to determine whether or not the Mission is a religious order. The six criteria are:

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.

The 1st Criterion - Purpose

The purpose of the organization should be primarily religious. It may have other objects within the overall context of that religious purpose such as education, the relief of poverty, or the alleviation of social ills and suffering. A religious order may have objects that go beyond preaching the gospel and prayer and meditation, and extend to works beneficial to humanity such as running hospitals or helping the poor and homeless.

Your submission describes the Mission as a non-denominational organization focussed mainly on spiritual development of youth, evangelism and short term missions. The 'Constitution' of the Mission states the following:

"XXXXXXXXXX ."

In Oligny v The Queen 96 DTC 1744, Dussault. J made the following remarks when determining whether Christian Service Brigade of Canada ("CSB") was a religious order:

"It also appears that the purposes and principal activities of a religious order must be exclusively, or at the very least mostly, religious. When the principal purpose of an organization is education, assistance to needy persons or personal development through the conduct of sports, recreational or outdoor activities, as in the instant case, it cannot be characterized as a religious order, even if the religious or spiritual aspect of the activities is present and may be of fairly great importance."

In Small et al v MNR 89 DTC 663 ("Small"), Goetz. J made the following comments when concluding why the Ontario Bible College and Ontario Theological Seminary (the "College") was not considered to be a religious denomination nor a religious order for the purpose of paragraph 8(1)(c) deduction:

"...[I]n order to have a denomination you must also have some coherent ideology which binds the members of the denomination and distinguishes them from other members of the society. The appellants argue that this is found in the College's doctrinal statement. But, even ignoring the fact that this does not seem to have been strictly enforced, the elements found in the statement are not sufficient to constitute a religious ideology. To begin with, the principles, found within the Statement are nothing more than a broad affirmation of basic Judea-Christian beliefs that are shared by most members of society (in one form or another). More importantly, while the aims of the College may be to further these principles in one manner or another, there is no element of worship to the College's activities and they cannot be said to be united by a common faith, that is, the doctrinal statement represents only a small part of the religious beliefs of the signatories thereto."

In our view, it appears as though the above comments made by Goetz. J in Small apply in your situation as well, and while the aim of the Mission may be to further the principles set out in the doctrinal statements in one way or the other, there is no element of worship involved. In our view, the Mission's 'Constitution' and the 'Statement of Faith' are "not sufficient to constitute a religious ideology". Based on your submission, the Mission's primary purpose appears to be the uplifting of youth through their spiritual development. Hence, in our view, religion is not the primary purpose of the Mission. Accordingly, the Mission has not met the first of the six criteria set by the court.

It is CRA's view that, to be a religious order for the purpose of paragraph 8(1)(c) of the Act, not most, but all the relevant criteria set out by the court should be met. Since the Mission has not met at least one condition, in our view, it is not considered a religious order for the purpose of paragraph 8(1)(c) of the Act. Further analysis of whether the Mission satisfies the remaining 5 criteria is, therefore, not necessary.

Finally, you have indicated in your submission that the mission is a non-denominational organization. Hence, in our view, you cannot be considered to be a regular minister of a religious denomination.

Since you have not satisfied at least one of the conditions of status test, in our view, you do not satisfy the status test.

As indicated earlier, in order to claim a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act, it is necessary for an individual to satisfy both the status and function tests. As noted above, in our view, you do not satisfy the status test; therefore, you are not eligible to claim the clergy residence deduction provided for in paragraph 8(1)(c). No further analysis has been done to determine if you satisfy the function test.

We trust our comments will be of assistance to you.

Yours truly,

R.A. Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch