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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Whether payments to retired or incapacitated ministers are employment income, pension income, social assistance or a tax-free receipt.

2. Whether payments to the widow or other dependants of a deceased minister are pension income, social assistance or a tax-free receipt.

3. Whether payments to the spouse or other dependants of an incapacitated minister are social assistance or a tax-free receipt.

Position: 1. 2. and 3. are a question of fact, but in this case, the better view is that they are a tax free receipt.

Reasons: Amounts received are not pension income, not a social assistance payment and are not from a "source", therefore received as a "gift".

XXXXXXXXXX 2002-015130
A. Seidel
(613) 957-2058
October 29, 2002

Dear XXXXXXXXXX:

We are writing in response to your letter dated July 9, 2002, concerning the taxability of certain financial assistance payments made by XXXXXXXXXX (the "Organization").

Background

The Organization makes financial assistance payments to retired or incapacitated ministers, their spouses, widows and/or other dependants. A committee determines, on a case-by-case basis, the amount of assistance an individual/family will receive. The assistance is usually paid on a monthly basis. Retired status for a minister is initiated by the local congregation and approved by a higher church body. Widows automatically qualify for assistance upon the death of a minister. Other dependants automatically qualify for assistance upon death, incapacitation or retirement of a minister.

The particular circumstances in your letter, on which you have asked for our views, relate to a factual situation involving specific taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on completed transactions involving specific taxpayers other than in the form of an advance income tax ruling. The specific taxpayers should submit all relevant facts and documentation to the appropriate tax services office for their review. However, we are prepared to offer the following general comments which may be of assistance.

Paragraph 56(1)(a) of the Income Tax Act (the "Act") includes in a taxpayer's income for a taxation year, any amount received in the year "as, on account or in lieu of payment of, or in satisfaction of, a superannuation or pension benefit".

The definition of "superannuation or pension benefit" in subsection 248(1) of the Act includes "any amount received out of or under a superannuation fund or plan...." but does not limit pension benefits to such amounts. In its ordinary meaning, a pension is a payment to be made to a person by the person's former employer or by a government authority in consideration of past services. In this particular case, the payment from the Organization is not "out of or under a superannuation fund or plan", is not in consideration of past services and is not being made by the former employer. Accordingly, it is our view that it would be difficult to conclude that the payment from the Organization is a "superannuation or pension benefit" within the meaning thereof in subsection 248(1) of the Act.

Paragraph 56(1)(u) of the Act includes in a taxpayer's income for a taxation year, "a social assistance payment made on the basis of a means, needs or income test and received in the year ... except to the extent that the payment is otherwise required to be included in computing the income for a taxation year of the taxpayer or the taxpayer's spouse or common-law partner". Paragraph 110(1)(f) of the Act provides, amongst other things, a deduction, in computing taxable income for a taxation year, for the amount of any social assistance that was received that was "made on the basis of a means, needs or income test and included because of ... paragraph 56(1)(u) in computing the taxpayer's income for the year".

Any financial assistance provided by the Organization to an incapacitated minister, the spouse of a retired or an incapacitated minister, the widow of a minister or an other dependant of an incapacitated or deceased minister is not made on the basis of a "means, needs or income test". Accordingly, it is our view that the amount paid by the Organization would not be included in computing income of the recipient under paragraph 56(1)(u) of the Act.

Although other income of the minister is taken into account in determining the amount of any financial assistance that will be paid to a retired minister, it is our view that the financial assistance paid to a retired minister is not made on the basis of a "means, needs or income test". Before a retired minister is entitled to any payment from the Organization, the former employer of the minister has to make a recommendation to a special committee to consider whether or not it would be appropriate to provide any financial assistance. The special committee then goes through a process, which includes a review of the retired minister's other sources of income, to decide whether any assistance will be provided to the retired minister. It is our view that, in this particular case, reviewing a minister's other sources of income does not result in the assistance being made on the basis of a "means, needs or income test". Accordingly, any amount received by a retired minister would not be a social assistance payment within the meaning thereof in paragraph 56(1)(u) of the Act.

Paragraph 3 of Interpretation Bulletin IT-334R2 discusses the factors that would be considered in determining whether a taxpayer is in receipt of a "windfall" that is not subject to tax. These factors are based on the Federal Court of Appeals decision in Her Majesty the Queen v. J. E. Cranswick (82 DTC 6073) and include the following:

(a) the taxpayer had no enforceable claim to the payment;

(b) the taxpayer made no organized effort to receive the payment;

(c) the taxpayer neither sought after nor solicited the payment;

(d) the taxpayer had no customary or specific expectation to receive the payment;

(e) the taxpayer had no reason to expect the payment would recur;

(f) the payment was from a source that is not a customary source of income for the taxpayer;

(g) the payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the taxpayer; and

(h) the payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.

The payments from the Organization are payments that satisfy each of these criteria. It is therefore our view that any assistance paid by the Organization would be considered to be a gift or a "windfall" and therefore not included in computing income of the recipient for tax purposes.

A copy of IT-334R2 is available at any tax services office or may be obtained from our Internet web site (www.ccra-adrc.gc.ca).

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch