Principal Issues: Are reductions in withholding in respect of the clergy residence deduction required to be approved by the CRA?
Position: Yes, except if the deduction is in relation to free accommodation provided by the employer.
Reasons: Form T1213 requirements and subsection 153(1.1) of the Income Tax Act.
June 4, 2009
Ottawa TSO V. Srikanth 750 Heron Road 2009-031623 Ottawa
Attention: Alykhan Virani
Withholding on Clergy Residence Deduction Allowance
We are writing in response to your e-mail dated April 2, 2009, wherein you requested our opinion on whether prior approval from the Canada Revenue Agency (the "CRA") is needed for the purpose of a reduction in withholding of income tax with respect to the clergy residence deduction claimed, pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").
Our Comments
Employment income is subject to withholding at source. This withholding is generally determined without reference to certain deductions and credits available when a T1 return is filed, unless the employee properly completes Form TD1 ("TD1"), Personal Tax Credits Return.
While paragraph 153(1)(a) of the Act provides for withholding of taxes at source, subsection 153(1.1) allows the Minister to reduce that amount to a lesser amount where the Minister is satisfied that the deducting or withholding of that amount would cause undue hardship. Hence, it is possible, with the consent of CRA, to adjust withholding tax on employment income, to take into account deductions and credits not mentioned on the TD1. To do this, an individual may either complete Form T1213, Request to Reduce Tax Deductions at Source, as indicated on the TD1 or submit a request in writing to his or her local tax services office. If CRA accepts the request, the individual will receive an approval letter that may be provided to the employer.
Paragraph 8(1)(c) of the Act allows certain members of the clergy or of religious orders, as well as certain regular ministers of religious denominations, to deduct an amount in respect of their living accommodation. The amount of the deduction depends upon whether the living accommodation they occupy is (a) supplied to them by virtue of their employment, (b) rented by them or (c) owned by them.
Thus, where a taxpayer is claiming a deduction pursuant to paragraph 8(1)(c) of the Act, and would like a withholding reduction, he or she can do so by filing the Form T1213 or requesting in writing, along with any supporting documents such as Form T1223 - Clergy Residence Deduction. However, as indicated in the rulings document that you referred to, E2002-0178045, where the employee is provided free accommodation by his employer and also qualifies for a deduction under paragraph 8(1)(c) of the Act, and advises his employer in writing that he or she will claim a deduction from income for the residence or other accommodation, there is no need to have CRA authorize the reduction in the income tax withholding. In all other circumstances, i.e., when the employee owns or rents the accommodation, the employee will have to obtain prior approval in writing from CRA before the employer can reduce the withholding tax in respect of a clergy residence deduction for that employee.
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Roberta Albert
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch