Principal Issues: Is an XXXXXXXXXX entitled to the clergy residence deduction under paragraph 8(1)(c)?
Position: It is a question of fact whether an XXXXXXXXXX is "engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination".
Reasons: Status test appears to be met but not enough information to conclude that the function test is met.
XXXXXXXXXX 2008-026417 L. Carruthers, CA February 12, 2008
Dear XXXXXXXXXX :
Re: Clergy Residence Deduction
This is in reply to your email of December 24, 2007, in which you requested our technical interpretation as to whether the new position of XXXXXXXXXX qualifies for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").
Our Comments
The particular circumstances in your email, on which you have asked for our views, appear to represent a specific factual situation. As mentioned in paragraph 22 of Information Circular IC 70-6R5, Advance Income Tax Rulings, dated May 17, 2002, it is not this Directorate's practice to comment on specific proposed transactions other than in the form of an advance income tax ruling. However, we have considered your enquiry and provide the following comments, which are of a general nature only.
Generally, to be eligible for the clergy residence deduction, 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).
Your submission indicated that an ordained Pastor, affiliated with the XXXXXXXXXX, would fill the XXXXXXXXXX position. In our view, and pursuant to paragraph four of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, inter alia, pastors and other persons who have been commended, licensed, commissioned or otherwise formally or legitimately recognized for religious leadership within their religious organization may be members of the clergy. Accordingly, in our view, the status test appears to be met.
If the employee meets the status test and the employee is engaged exclusively in full-time administrative service by appointment of a religious order or a religious denomination, he or she would meet the function test. There are several elements to the function test and we provide our concerns regarding satisfaction of these elements by the position as described below.
The Canada Revenue Agency (the "CRA") has interpreted the phrase "administrative service" in paragraph 18 of IT-141R. Although it 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. It is a question of fact whether a member of the clergy, employed as an XXXXXXXXXX, determines organizational policies and coordinates various activities of the organization at the management level such that he or she meets the function test. From the job description included in your submission (representing the school at a number of denominational association meetings, churches, and other church related groups; fundraising for the school through affiliated churches; and general liaison role with other churches), it appears that the XXXXXXXXXX will not determine organizational policies and coordinate various activities of the organization at the management level. Accordingly, in our view, the position is not one of full-time administrative service and, therefore, the function test is not met.
Further, with respect to the function test, the appointment by the religious order or denomination need not be to employment with the religious order or denomination, but rather it can be to a position with an entity that is controlled by, and that is an integral part of the order or denomination. As noted in paragraph 20 of IT-141R, a recommendation or commendation does not constitute an appointment. It is a question of fact whether XXXXXXXXXX is a religious order or denomination or whether it is an integral part of a religious order or denomination which controls it.
The CRA's interpretation of the characteristics common to religious orders and to religious denominations is contained in paragraphs 8 to 12 of IT-141R. Religious education and promoting the gospel, while worthy causes, are not, in our view, in and by themselves indicative of a religious order. From the description included in your submission it appears that the XXXXXXXXXX will be appointed by XXXXXXXXXX and there is no evidence to support that the college is a religious order or denomination. Accordingly, in our view, the XXXXXXXXXX would not be appointed by a religious order or denomination and the function test would again not be met.
Based on the above, in our view, the position of XXXXXXXXXX would not be eligible for the clergy residence deduction.
We trust that our comments will be of assistance.
Yours truly,
R.A. Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate