26 February 2010 Internal T.I. 2009-0339731I7 - 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 XXXXXXXXXX a religious organization for the purpose of paragraph 8(1)(c) deduction

Position: No.

Reasons: It does not meet all the six conditions in determining whether an organization is a religious order

								February 26, 2010

Office Audit Section V. Srikanth
St. John's Tax Centre Income Tax Rulings Directorate
St. John's NL A1B 3Z1
2009-033973
Attention: Debbie Thorne

Clergy Residence Deduction

We are writing in response to your letter dated September 2, 2009, wherein you requested that we reconsider our views expressed in our document 2009-030576, in response to the additional information provided by the taxpayer (the "Taxpayer") via his letter dated August 13, 2009 (the "Letter").

In document 2009-030576, dated March 19, 2009, we had indicated that it was our view that the XXXXXXXXXX is not a "religious order" for purposes of the deduction provided in paragraph 8(1)(c) of the Income Tax Act (the "Act"), as it failed to satisfy all six conditions set out by Judge Bowman in McGorman et al v The Queen, 99 DTC 699, in determining if an organization is a "religious order". Specifically, in our view, XXXXXXXXXX did not satisfy the following four of the six criteria:

• 2nd Criterion - Strict Moral and Spiritual Regime,
• 3rd Criterion - Full-time and Long-term Service,
• 4th Criterion - Spiritual and Moral Discipline, and
• 5th Criterion - Strict Standards of Spiritual and Personal Suitability.

The following are our comments with respect to the additional information provided by the Taxpayer in support of XXXXXXXXXX satisfying the remaining four criteria.

Criterion # 2: Strict Moral and Spiritual Regime:

The members must agree 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.

Our comments in 2009-030576:

"...We are, however, not given any evidence indicating that the personnel earn less than others who perform similar work in an organization of similar size in the public or private sector. Furthermore, we do not know if XXXXXXXXXX places any limitations on the earning of outside income."

In response, the Taxpayer has provided us with a comparative statement of the salary range of the employees working in XXXXXXXXXX and those of members of the XXXXXXXXXX . According to the Taxpayer, the salary level of the officers in XXXXXXXXXX is "well below salary levels for similar positions of peer organizations".

As an example, the Letter states that for the years XXXXXXXXXX , the Executive Director of XXXXXXXXXX is in the salary range of $XXXXXXXXXX . In comparison, the salaries of officers in other similar organization, averages between $XXXXXXXXXX . Further, the Letter states that their situation is comparable to the one discussed in Alemu et al v The Queen ("Alemu"), 99 DTC 714.

It may be noted that in Alemu, Judge Bowman, when analyzing the salary paid to the employees of the Christian Horizons made the following remarks:

"...One difference is the structured pay scale for the employees of Christian Horizons. Their remuneration, particularly in the case of the senior administrators, is appreciably less than that paid to senior employees of non-religious institutions taking care of mentally handicapped persons. In the case of religious orders such as CBOMB and SIM no such differentiation in salary levels exists. The employees are, regardless of qualification, responsibility or seniority, paid only enough to satisfy their basic needs."

Further, in Koop et al v The Queen, 99 DTC 707, Bowman J. made the following comments when comparing the Navigators with other organizations like Youth For Christ, Christian Horizons, etc and reasons for dismissing Navigators as not being a religious order:

"Their devotion, their acceptance of straitened material circumstances as a way of life, their humility, and their selfless dedication to the social and spiritual goals of their order exemplify the highest standards of a Christian religious order. The difficulty with The Navigators is to determine whether the members of that organization exemplify the same qualities.

...The Navigators have no restriction on what outside activities they can engage in, or what other sources of income besides fundraising for themselves may be developed by them... Although they meet some of the criteria set out above in which I endeavored to enumerate the qualities that were characteristic of a religious order, it cannot be said that they meet them all. Unlike the members of the other organizations, the members of The Navigators earn comfortable incomes, can set their own level of targeted income, devote a significant part of their time to raising funds for their own support, and are free to earn income from other sources. This is a significant distinction. It is not merely a difference in degree. It is a fundamental and qualitative difference."

As can be seen, the salary range of the officers in XXXXXXXXXX may be relatively less than some of the officers holding similar positions in a peer organization, however, it does not necessarily mean that the members of XXXXXXXXXX are not earning comfortable incomes, i.e., the amount cannot be considered to be "only enough to satisfy their basic needs", nor are there any limitations on the earning of outside income.

Accordingly, in our view, the additional information does not provide any evidence that the second condition has been fulfilled.

Criterion # 3 - Full time and Long-term Service

The commitment of the members should be full-time and of a long-term nature. It is not essential that the commitment be for life but it is important that it not be short-term, temporary or part-time.

Our comments in 2009-030576:

"While the submission gives details of the specific duties and responsibilities of the members of various committees, we were not given any evidence indicating that the personnel in the organization dedicate their working time exclusively, and on a long-term basis, to the pursuit of the objectives of the organization. Hence we are unable to comment if this criteria has been met by XXXXXXXXXX ."

In his Letter, the Taxpayer explained that one of the employees (the "Employee") of XXXXXXXXXX who wishes to claim the clergy residence deduction, has a XXXXXXXXXX -year employment history working for XXXXXXXXXX on a full-time basis, of which XXXXXXXXXX years has been in an administrative capacity and in pursuit of the objectives of XXXXXXXXXX . The Officer was initially the Administrator and later became the Executive Director of the XXXXXXXXXX .

While it is reasonable to conclude that the Employee's contribution is on a long-term basis, the Letter does not provide any information indicating that all the members of the organization are expected to commit to a long-term relationship with the organization.

Hence, based on the additional information, we cannot determine if this criterion has been satisfied.

The 4th Criterion - Spiritual and Moral Discipline

The spiritual and moral discipline and regime, under which the members live, must be markedly stricter than that to which the lay members of the church are expected to adhere.

Our comments in 2009-030576:

"In our view, subscribing to a statement of faith is not, in and of itself, indicative of living under a markedly stricter spiritual and moral discipline, than that which the lay members of the organization are expected to adhere.

... Furthermore, there is no indication that XXXXXXXXXX members are required to commit to any vows of chastity, to abandon a secular lifestyle or otherwise commit to life as members of a religious order. The XXXXXXXXXX does not indicate if the members of the organization are required to live a markedly stricter life than that to which the lay members of the church are expected to adhere. We are, therefore, of the view that this criterion is not met."

In response, the Taxpayer states in his Letter that membership into XXXXXXXXXX requires one to be baptized by immersion upon confession of faith. Prior to baptism, a baptismal candidate must attend baptism classes, conducted by the pastor of the church. At the time of baptism, candidates must present publically to other members their personal testimony of conversion and take a vow and enter into "XXXXXXXXXX ". Furthermore, confession and baptism into the XXXXXXXXXX church signifies that the individual commits themselves to following Christ in obedience as a member of a local church.

It is our understanding that several other religious organizations require that the lay members of their organization follow the procedures of baptism and confession of faith, i.e., the above-noted procedures are not specific to only members of XXXXXXXXXX . Further, we do not have enough information to determine how the above procedure is different from what the lay members of XXXXXXXXXX are required to follow. In our view, these procedures are not sufficient for XXXXXXXXXX to fulfill the requirements to be a religious order.

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

"...in order to form a religious order, persons must submit to particular rules uniting them, rules that are normally more compelling, usually vows, than those generally uniting the adherents to a religion or particular denomination."

Dussault J. further stated that:

"From the definitions of the common dictionaries and the decisions cited above, the conditions that appear essential for an organization to be considered as a religious order are, in my view, first that the members adhere to the particular rules uniting them in a formal way and that those particular rules governing them be more compelling than those that consist simply in ratifying the beliefs established by the religion or the denomination to which they already belong. A simple inter-denominational organization such as CSB offering a statement of faith to which the members of a number of religious denominations adhere and rules of conduct stated in very general terms does not meet this condition."

Accordingly, in our view, the explanation provided in the Letter, does not, in anyway, indicate that XXXXXXXXXX has any specific rules or norms that unite all its members. The process of baptizing is more a ratification of the Christian faith. Such a requirement does not set the members apart from the broader community as a unique group.

Hence based on the above discussion, it is concluded that the 4th criterion has not been fulfilled.

The 5th Criterion - Strict Standards of Spiritual and Personal Suitability

The admission of members must be in accordance with strict standards of spiritual and personal suitability.

Our comments in 2009-030576:

"The admission of members must be in accordance with strict standards of spiritual and personal suitability. There also appears to be certain standard procedure for XXXXXXXXXX , as laid out in the XXXXXXXXXX . However, it is not clear if the same procedure is followed for general membership admission as well. This criterion appears to be met in the case of appointing pastors and ministers. However, it is not clear if a similar procedure is followed in case of other salaried employees in the organization.

Furthermore, we did not notice anything that would confirm that the personnel could be recognized from the broader community as members of a religious order either by their conduct, dress or public statements. We were not given any evidence indicating that there is a probationary period, a documented assessment methodology or training required to be a member of this organization."

XXXXXXXXXX This, the Taxpayer points out, is an indication that the members of XXXXXXXXXX are being recognized as distinct from the broader community, for the purpose of determining XXXXXXXXXX as a religious order.

However, in our view, the above-mentioned special concession does not set apart the members of XXXXXXXXXX from the rest of the community. Based on this additional information, we are unable to conclude that the personnel belonging to XXXXXXXXXX could be recognized from the broader community as a unique group.

Hence, the 5th criterion is not considered to be satisfied.

Based on the review of the additional information provided, we are unable to conclude that XXXXXXXXXX satisfies all six criteria to be considered a religious order. Hence, in our view, XXXXXXXXXX is not a religious order for the purposes of claiming a clergy residence deduction provided for in paragraph 8(1)(c) of the Act.

If the Employee was a regular minister and if it was determined that XXXXXXXXXX is a religious denomination, he may be eligible to claim a clergy residence deduction by virtue of being a regular minister of a religious denomination, and provided he is engaged exclusively in full-time administrative service by appointment of a religious denomination. However, in your situation, the Employee is not a regular minister. Hence, no further determination is being made whether XXXXXXXXXX is a religious denomination.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roberta Albert
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch