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 a senior full time administrator at XXXXXXXXXX, eligible for the clergy residence deduction provided for in paragraph 8(1)(c) of the Income tax Act?
Position: May be.
Reasons: We do not have enough information to determine if the taxpayer satisfies the status and function tests to qualify for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.
XXXXXXXXXX 2012-043645
V.Srikanth
June 18, 2012
Dear XXXXXXXXXX:
Re: Clergy Residence Deduction
This is in response to your letter (the “Letter”), wherein you requested our views on whether you are entitled for the clergy residence deduction provided for in paragraph 8(1)(c) of the Income Tax Act (the “Act”). Specifically, you would like to know if working as a full time administrator at the XXXXXXXXXX (the “Entity”), you qualify for the clergy residence deduction as provided for in paragraph 8(1)(c) of the Act.
Our Comments
Written confirmation of the tax implications inherent in actual proposed transactions is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled ‘Advance Income Tax Rulings’, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. Your request was not submitted as an advance income tax ruling request, however, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries and we are prepared to provide you with the following comments.
Generally, to be eligible for the clergy residence deduction provided for in 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).
Further, in order to qualify for the clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act, the person must satisfy both the status and the function tests discussed below.
Status test
As noted above, you will have to satisfy one of the three conditions listed, to satisfy the status test for the purpose of claiming the clergy residence deduction under paragraph 8(1)(c). However, in your Letter, you have not indicated which of these three conditions you satisfy. Hence, based on the information you provided, we are unable to make a determination of whether you satisfy the status test.
Function test
In your Letter, you stated that you are employed full-time as a senior administrator with the Entity. While you have not specifically indicated how you satisfy the function test, based on the information you provided, it is our understanding that you may be of the view that you satisfy the function test by being ‘engaged exclusively in full-time administrative service by appointment of a religious order or a religious denomination’.
As explained in paragraph 18 of the Interpretation Bulletin- IT-141R (Consolidated), entitled ‘Clergy Residence Deduction’, although ‘administrative service’ is not limited to the senior level of management of an organization, performance of specific staff functions such as accounting, grounds keeping, information technology and clerical work do not qualify as administrative service. Paragraph 18 further explains that the words ‘exclusively and full-time’ imply that, the person does not have some other form of appointment, business or occupation that is in addition to, and impinges upon, the administrative work performed.
In your Letter, you indicated that, “[a]s the senior administrator, [your] responsibilities include the organization, planning, and execution of all ministry events.” However, based on the information you provided, it is not clear if your duties involve determination of organizational policies and coordination of various activities of the organization at the management level.
Further, paragraph 20 of IT-141R states that a person's administrative responsibilities must be by appointment of a religious order or a religious denomination. In this regard you have stated in your Letter that you were appointed to your current post by the board of directors of the Entity. Accordingly, it is to be determined if the Entity is a religious order or a religious denomination for the purposes of paragraph 8(1)(c) of the Act.
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 CRA has accepted these guidelines as indicated in paragraph 9 of IT-141R. These guidelines can be used to review the information provided to determine whether or not the Mission is a religious order. The six criteria are:
1. The purpose of the organization should be primarily religious.
2. The members must agree to adhere 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.
3. The commitment of the members should be full-time and of a long-term nature. In some cases it may be for life, but this is not essential. It is important that it not be short term, temporary or part-time.
4. The spiritual and moral discipline and regime under which the members live must be markedly stricter than that to which the lay church members are expected to adhere.
5. Admission to the order must be in accordance with strict standards of spiritual and personal suitability.
6. There should generally be a sense of communality.
In your letter you provided your views on only the first criterion, i.e., the purpose of the organization should be religious. However, it is CRA’s view that, 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. Accordingly, based on the information you provided, we are unable to make a determination of whether the Entity satisfies all the six criteria to be considered a religious order for the purpose of paragraph 8(1)(c).
Further, paragraph 12 of IT-141R states that:
“A "religious denomination" is a group of individuals that is called or identified by the same name and that has a particular system of religious faith or belief. The set of religious beliefs or ideology or practices of the members of a religious denomination will be sufficiently distinct to distinguish the members from society as a whole.”
You have provided us with the Entity’s Statement of Faith and its Lifestyle and Morality Standards. However, in our view, a Statement of Belief or a Statement of Faith does not, in itself, make an entity a religious denomination. We do not have sufficient information to determine if the Entity has a set of religious beliefs or ideology or practices that sets its members apart from the society as a whole.
Therefore, based on the above discussion, and the information you provided, we cannot comment on whether your position as a senior administrator of the Entity may be considered to be “engaged exclusively in full time administrative service by appointment of a religious order or religious denomination”, for the purposes of the clergy residence deduction provided for in paragraph 8(1)(c) of the Act.
As mentioned earlier, in order to claim the clergy residence deduction pursuant to paragraph 8(1)(c) of the Act, it is necessary for an individual to satisfy both the status and the function tests. However, based on the information you provided, as discussed above, we are unable to comment on whether you satisfy the status and the function tests. Consequently, we are unable to determine whether you are eligible for the clergy residence deduction provided for in paragraph 8(1)(c) of the Act.
We trust that our comments will be of assistance.
Yours truly,
Doug Watson
For Director
Financial Industries Division
Income Tax Rulings Directorate
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