29 July 2009 External T.I. 2009-0314611E5 F - Résidence pour membres du clergé à la retraite
Principal Issues: [TaxInterpretations translation] What are the tax consequences when a church acquires a residence for its retired pastors and missionaries?
Position: (1) We referred the recipient of the letter to guide RC4108 available on the CRA Web site.
(2) The residence made available to retired pastors and missionaries will not give rise to a taxable benefit. Since pastors and missionaries will not have remuneration from eligible employment and will not meet the criterion of office, they will not have access to the clergy residence deduction.
Reasons: (1) and (2) Income Tax Act.
XXXXXXXXXX 2009-031461
July 29, 2009
Dear Sir,
Subject: Residence for retired pastors and missionaries
This is further to your letter of March 15, 2009, requesting the opinion of the Income Tax Rulings Directorate of the Canada Revenue Agency ("CRA") on the tax consequences arising from the purchase by XXXXXXXXXX (the "Church") of a residence for its retired pastors and missionaries.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you indicated that the Church is a registered charity under the Act and has been so since XXXXXXXXXXXX. You stated that the work of the pastors and missionaries of the Church is their only livelihood and that their living conditions are similar to those of Catholic priests in charge of a parish.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is the practice of the Canada Revenue Agency not to issue written opinions on proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, in certain circumstances, not apply to your particular situation.
Implications for the Church
To begin with, it should be noted that the purchase for the Church of a residence for its retired pastors and missionaries represents the acquisition of a capital property whose adjusted cost base is equal to the cost of the residence to the Church plus the expenses incurred to acquire it (for example, commissions and legal fees). The cost also includes capital expenditures such as the cost of additions and improvements. When the Church sells the home, it is possible that the Church may realize a capital gain or loss, depending on whether the proceeds of disposition are more or less than the adjusted cost base. Since the Church is a charity, the capital gain on the disposition of the residence will not be subject to tax under Part I of the Act.
For a discussion of what a charity is, its tax treatment, and the requirements under the Act that it must satisfy, please refer to RC4108, Registered Charities and the Income Tax Act, available at http://www.cra-arc.gc.ca/E/pub/tg/rc4108/READ-ME.html.
Implications for Retired Pastors and Missionaries
A person who is employed, or has an office, as a member of the clergy or a religious order or a regular minister of a religious denomination may be entitled to the clergy residence deduction under paragraph 8(1)(c) for the individuals’ residence in computing income from that employment or office. This deduction must not exceed the remuneration, including any benefit related to the residence or other living accommodation occupied in the course of the individual’s office or employment as a member of the clergy or a religious order or a regular minister of a religious denomination.
However, to qualify for this deduction, the individual must meet the status and function criteria discussed below.
The status test states that in order to qualify for the clergy residence deduction under paragraph 8(1)(c), the person must be one of the following persons:
- a member of the clergy;
- a member of a religious order;
- a regular minister of a religious denomination.
In addition to the status criterion, the person must meet the function criterion. Under this test, the person must perform one of the following functions to be eligible for the deduction under paragraph 8(1)(c):
- 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
In your situation, the provision of housing to retired pastors and/or missionaries who no longer earn income from church office or employment will generally not result in a taxable benefit to be included in computing their income. Therefore, since these pastors and missionaries will not meet the function test described above, the CRA is of the view that they will not be eligible for the paragraph 8(1)(c) deduction.
We hope that the above comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate