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 .considered a religious order for the purpose of claiming a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act ?
Position: No.
Reasons: The organization does not satisfy all the six conditions necessary for the purpose of qualifying as a religious order.
April 20, 2010
Office Audit Section, IR and Compliance Div. HEADQUARTERS
St. John's Tax Centre V. Srikanth
P.O.Box 12071, Stn A
St. John's NL A1B 3Z1
2010-035523
Attention: Loretta Healey
Clergy Residence Deduction
We are writing in response to your memo dated January 20, 2010, wherein you requested our views on the clergy residence deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").
Specifically, you have a T1 adjustment request from a taxpayer (the "Taxpayer"), for the taxation years 2001 to 2006, wherein the Taxpayer has requested that you reconsider your audit decision not to allow a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act for the above-mentioned years, based on the additional information that the Taxpayer provided.
On form T1223, entitled Clergy Residence Deduction, that the Taxpayer filed along with the T1 adjustment, the Taxpayer claims to be a member of a religious order, XXXXXXXXXX (the "Entity"), for the purpose of the "status test", and to be 'ministering to, a diocese, parish or congregation', for the purpose of the "function test". The Taxpayer has also provided the description of their duties as Director of the Entity. In an earlier submission, prior to the audit, the Taxpayer claimed to be a regular minister of a religious denomination for the purpose of status test.
You now want our views on whether the Taxpayer qualifies for a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act, based on the additional information that the Taxpayer provided.
Generally, to be eligible for the clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act, 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).
In the given instance, the Taxpayer has claimed to be a member of a religious order for the purpose of the status test. In order for the Taxpayer to satisfy the status test, i.e., be considered a member of a religious order, we have to determine if the Entity is a 'religious order'.
With respect to the definition of a religious order, the following explanation is provided in paragraph 8 of the Interpretation Bulletin IT-141R (Consolidated), entitled Clergy Residence Deduction:
"The term "religious order" means a group of people bound by the same religious, moral and social regulations and discipline. A religious order may comprise all the members of an organization or only an identifiable group within that organization. ... Not every religious organization is a religious order. Whether or not an organization or a group of individuals within an organization is a religious order is a question of fact to be determined on a case-by-case basis. No factor predominates and each must be assigned its proper weight in the context of all the facts."
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. We have attempted to use these guidelines in our review of the information you supplied.
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, however, the primary purpose must be religion.
Based on the information available to us, it is our understanding that the Entity is a faith based non-profit social service community which operates a variety of programs. The Entity's work involves "XXXXXXXXXX ". Its mandate is "to bring hope to the hungry, hurting and homeless through showing the love of God through word and deed". In our view, religion does not appear to be the primary purpose of this organization. We do not have any information which indicates that religion is the primary purpose of the organization.
Hence, the first criterion is not satisfied.
The 2nd Criterion - 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.
We do not have any information to determine if this criterion has been satisfied.
The 3rd Criterion - 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.
We were not given any evidence indicating that the members dedicate their working time exclusively, and on a long-term basis, to the pursuit of the objectives of the organization.
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.
We do not have any information to determine 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. Further, we were not given any evidence indicating that there is a formalized code of conduct document for the members or that such requirements are codified in their employment contracts. There was no evidence given that the members may be dismissed if their work, lifestyle or behaviour is unsuitable. Therefore, it is not possible to comment if this criterion has been met.
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.
The only information available in this regard is the following statement on form T1223, about the Taxpayer's appointment to the Entity:
"XXXXXXXXXX ."
The above statement on form T1223, in and of itself, does not establish that the Entity follows 'Strict Standards of Spiritual and Personal Suitability', when appointing members to the organization. We were not given any evidence indicating that there is a probationary period, a documented assessment methodology or training required. Nothing in the Taxpayer's submission indicates that any form of public worship or prayer is required. In our review of the Taxpayer's submission, we did not notice anything that would confirm that the individual could be recognized from the broader community as members of a religious order either by their conduct, dress or public statements.
The 6th Criterion - Sense of Communality
There should generally be a sense of communality.
The Entity provides outreach and poverty relief services. It is possible that it fosters a sense of communality by reaching out to the community through its programs. However, there is no specific information available to us to comment on whether the Entity satisfies this criterion.
As can be seen from the above discussion, based on the information available to us, we are able to comment only on the first criterion, i.e., whether or not religion is the primary purpose of the organization. In our view, religion is not the primary purpose of the Entity. We do not have enough information to comment on whether the Entity satisfies the remaining 5 conditions.
Further, in our view, 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 Entity has not met at least one condition, in our view, the Entity is not a religious order for the purpose of paragraph 8(1)(c) of the Act. Accordingly, the Taxpayer is not considered to be a member of a religious order. Consequently, the Taxpayer does not meet the status test and, therefore, is not eligible to claim a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.
As the status test was not met, we did not undertake a detailed analysis of whether the Taxpayer is 'ministering to, a diocese, parish or congregation' for the purpose of the function test. However, from a quick review of the information provided, the duties described in the submission, do not appear to satisfy the function test.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA'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.
R.A. Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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