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:
Whether a clergyperson who rents out a few rooms to individuals should reduce his 8(1)(c) claim?
Position TAKEN:
YES, if a business. Fair market value of residence is probably reduced as well if the clergyperson has set aside one or more rooms, as he does not ordinarily occupy that portion of his home as a residence.
Reasons FOR POSITION TAKEN:
8(1)(c)(iv)(B)(II) and position on employee benefits.
XXXXXXXXXX 2002-014078
C. Tremblay, CMA
(613) 957-2139
July 16, 2002
Dear XXXXXXXXXX:
Re: Clergy Housing Deduction
This is in reply to your memorandum of May 6, 2002, wherein you seek our opinion on whether the deduction under paragraph 8(1)(c) of the Income Tax Act (the "Act") is reduced in a situation where a clergyperson owns and lives in a house and deducts certain expenses associated with a rental of part of the house to another person. It appears the situation described involves a room set aside for a lodger where the lodger is permitted to have some shared use of other rooms in the house.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Should you wish to request such a ruling, please refer to Information Circular 70-6R5 for the procedure to be followed. However, we have set out some general comments, which may of some assistance.
It is a question of fact whether a rental operation carried on by an individual is a source of business income or of property income. Interpretation Bulletin IT-434R discusses this issue in detail. Generally, the renting of real property will be regarded as a business operation when the landlord supplies or makes available to tenants services of one kind or another, to such an extent that the rental operation has gone beyond the mere rental of real property. Accordingly, where the nature of a particular rental operation must be determined, it is the number and kinds of services supplied that will have to be ascertained. In this respect, the operator of a rooming or lodging house, hotel or motel would normally be considered to be carrying on a business where, in addition to the basic services that relate to the operation and maintenance of the property, extra services such as the supply of cleaning and maid services, linens, washroom supplies, dining facilities, etc. are provided for the convenience and comfort of the guests.
Accordingly, if the clergyperson supplies or makes available services of one kind or another, such as towels, linen, cleaning, maid service, etc. it will be considered a business operation, and accordingly the deduction allowed under paragraph 8(1)(c) of the Act is affected because of the words "from a business" in subclause 8(1)(c)(iv)(B)(II) of the Act. If the rental operation is considered a business, the clergy deduction is reduced by the amounts deducted in connection with the same accommodation or residence in computing an individual's income for the year from a business.
However, where no services are provided and the operation is not considered a business, in our view, the fair rental value of the residence should be reduced by the value of the room set aside for the lodger. In such a situation where the clergyperson's accommodation is larger than what is required for his or her living quarters it seems appropriate to reduce the fair rental value of the residence to reflect only the portion of the residence that he or she ordinarily occupied during the year. The fair rental value of the property is generally tied, to a large extent, to its size (i.e., square-footage, number of rooms, etc.) but, if the size of the accommodation exceeds the clergyperson's normal requirements, and excess space is rented out, a reduction in the fair rental value would, in our opinion, be a reasonable approach.
We trust our comments are of assistance.
Yours truly,
Steve Tevlin
For Director,
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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