23 February 2004 External T.I. 2003-0046121E5 - Religious Order- outside source of income

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: Can a member of a religious order earn income from outside sources without jeopardizing the status of the religious order?

Position: Yes within acceptable reasonable limits

Reasons: IT-141R par 11

								2003-004612
XXXXXXXXXX 							C. Tremblay, CMA
(613) 957-2139
February 23, 2004

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of October 24, 2003 and further to our letter of November 27, 2003 and your response of January 19, 2004, wherein you request an advance income tax ruling on behalf of the above-named organization with respect to the ability of a member of the religious order to earn income from outside sources to augment the income earned from the religious order.

As indicated to you in our telephone discussion of February 12, 2004 (XXXXXXXXXX/Tremblay) we are unable to provide an advance income tax ruling with respect to the transactions proposed in your letter. As discussed the issues involved in your request relate primarily to questions of fact. However, we can provide you with the following general comments.

A religious order is free to determine who its members are but only those members who have made a full-time and long-term commitment can be considered to have met the status test for the purposes of paragraph 8(1)(c) of the Income Tax Act (the "Act"). Thus, in our view, the individual members should have tenure of a permanent or of a long-term nature. Accordingly, those individual members who are either short term, temporary, part-time or under a specific term contract would not meet the status test.

Once a member of a religious order has met the status test, the individual must meet the function test, that is 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. A number of job functions, such as accounting specialists, grounds keepers, data analysts, clerical workers, property assistants, administrative assistants, research assistants and teachers do not qualify.

An individual who is employed as an administrator and who seeks the clergy residence deduction must meet the status test and be engaged full-time in the functions of determining organizational policies and coordinating various activities of the organization at the management level. Under normal circumstances, we would expect that an administrator generally spend the equivalent of a traditional workweek of 35 hours in fulfilling the administrative function in order to qualify for the deduction.

Further to paragraph 11 of Interpretation Bulletin IT-141R, a religious order will normally impose restrictions on the outside lifestyle and employment activities in which its members can engage. A religious order will regulate the amount of financial support its members may receive or enjoy from the order, the religious denomination or givings from the broader community. Whether a member can earn a reasonable limited amount of income from outside sources will depend on the religious order itself and the dedication and time required from the member to commit to the cause and objective of that particular order. Generally, provided a member of a religious order has reasonable restrictions imposed on him or her by the religious order as to both the income that can be earned from the outside source and the time he or she can devote to outside activities in a year, the status of the organization as a religious order will not, in and by itself, be jeopardized.

A member of a religious order who has met both the status and function test is entitled to claim a clergy residence deduction in respect of his or her residence but only to the extent of the income earned from that qualifying income from that employment or office. Further, the religious order would certify that the particular employee meets the conditions for claiming the deduction as set out in paragraph 8(1)(c) of the Act by issuing the T1223.

We trust our comments are of assistance. We will return your deposit under separate cover.

Yours truly,

Steve Tevlin
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch