Principal Issues: [TaxInterpretations translation] What is the tax treatment associated with housing that is provided free of charge to a pastor of a congregation? Will the value of such housing be included in the pastor's insurable earnings and pensionable earnings?
Position: Question of fact. Generally, the value of the housing will be included either in computing income from an office or employment or from carrying on a business. The value of housing provided free of charge to a pastor who has not taken a vow of poverty, but who holds an office or employment, will not be included in the pastor's insurable earnings and pensionable earnings.
Reasons: Income Tax Act.
XXXXXXXXXX 2009-035082
March 26, 2010
Dear Sir,
Subject: Free housing for a pastor
This is in response to your letter of December 7, 2009, in which you requested our opinion regarding the tax treatment of the value of a dwelling unit that is provided free of charge to a pastor of your church.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
More specifically, you described a situation where you offer a pastor of your church a free housing unit with a monthly market value of $750, including electricity. You indicated that this pastor has never declared the value of this dwelling in computing his income for tax purposes and that he currently benefits from the clergy deduction. We understand that this pastor does not receive a fixed and weekly remuneration but that he is rather remunerated from the voluntary contributions of the members of your church and that he includes these contributions in computing his income from a business. You have also confirmed that your pastor has not taken a vow of poverty.
Firstly, you wish to know the tax treatment associated with the value of the housing that is provided free of charge to your pastor. Secondly, you wish to know if the value of the housing constitutes insurable and pensionable earnings for the purposes of the Employment Insurance Act ("EIA") and the Canada Pension Plan Act ("CPPA").
Our Comments
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its opinion. However, we can offer the following general comments that may be helpful.
Tax Treatment of Housing provided Free of Charge
In order to determine the tax treatment of a dwelling that is provided free of charge to a pastor, it is necessary to determine whether the pastor holds an office or employment or is self-employed. Although your letter seems to indicate that the pastor is working in your church as a self-employed worker, we confirm that this determination is a factual one that must be made in light of the following elements:
- The level of control the church has over the pastor's activities;
- Whether the pastor provides his own equipment;
- Whether the pastor can subcontract work or hire helpers;
- The level of financial risk assumed by the pastor;
- The level of responsibility assumed by the pastor for investment and management;
- The opportunity for the pastor to make a profit in carrying out his or her duties;
- Any other relevant factors.
Given the lack of information to this effect, you will understand that we cannot give an opinion concerning the employment status of the pastor with your church. Nevertheless, in Interpretation E2007-0221471I7, the CRA determined that a member of the clergy should include in his income from carrying on a business the voluntary contributions he had received from members of a congregation.
If your pastor earns income from self-employment, any voluntary payments, or other benefits or transfers received as a result of that self-employment are taxable income. Please refer to Interpretation Bulletin IT-334R2, Miscellaneous Receipts, on the CRA website at http://www.cra-arc.gc.ca/F/pub/tp/it334r2/READ-ME.html.
On the other hand, if the pastor of your church holds an office or employment, he or she will be required to include in computing income from the office or employment the value of board, lodging, and other benefits of any kind received or enjoyed in a taxation year under paragraph 6(1)(a). However, the pastor may be eligible for the clergy residence deduction by virtue of paragraph 8(1)(c) if he or she satisfies both of the following conditions:
(1) The person is one of the following:
- a member of the clergy;
- a member of a religious order;
- a regular minister of a religious denomination.
(2) He or she shall perform one of the following functions:
- is in charge of, or ministering to, a diocese, parish or congregation
- is engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.
For more information on the clergy deduction, please refer to Interpretation Bulletin IT-141R on the Canada Revenue Agency Web site at http://www.cra-arc.gc.ca/E/pub/tp/it141r-consolid/it141r-consolid-e.html. We would like to clarify that a member of the clergy who does not hold an office or employment but, instead, derives income from carrying on a business, cannot claim the clergy deduction.
Treatment of free Housing for CPP and EI purposes
A member of the clergy who is self-employed will not be in insurable or pensionable employment. Therefore, the value of any housing that is provided free of charge to that clergy member will not be insurable or pensionable.
Similarly, the employment of a member of the clergy who has not taken a vow of poverty will not be insurable or pensionable. In such a case, the value of a dwelling offered free of charge to the clergy member will not be included in the amount of his or her insurable earnings for the purposes of the Employment Insurance Act or in the amount of his or her pensionable earnings for the purposes of the Canada Pension Plan.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.