Principal Issues: Is the amount paid to the member leaving the order, a non taxable donation? Is the religious order required to make withholdings and prepare information slips?
Position: The amount is considered to be a donation not to be included in the member's income. No withholdings or information slip are required.
Reasons: See below.
2021-089462 XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX
Subject: Request for advance tax rulings
XXXXXXXXXX,
This is in response to your letter of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-named taxpayers. In addition, we acknowledge receipt of additional information provided by email (XXXXXXXXXX).
DESIGNATIONS OF PARTIES AND EXPRESSIONS
(i) Community: means the XXXXXXXXXX Corporation.
(ii) Member: means a Member of the Community, i.e. XXXXXXXXXX.
(iii) XXXXXXXXXX: means the XXXXXXXXXX, Member of the Community, XXXXXXXXXX.
(iv) Assistance: Financial and medical assistance.
DEFINITIONS OF TERMS AND ABBREVIATIONS
(v) Act: means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supplement), as amended.
All terms and expressions herein defined in the Act shall have the meaning given to them in the Act.
FACTS
1. The Community has been a registered charity since XXXXXXXXXX and its date of incorporation was XXXXXXXXXX. Its financial year end is XXXXXXXXXX.
2. The purpose of the Community is to organize, administer and maintain XXXXXXXXXX.
3. All Members of the Community took a vow of perpetual poverty when they joined the Community and for the duration of their life in the Community. Therefore, when a Member of the Community receives any sum of money, e.g. salary, tax refund or refundable tax credit, retirement income, etc., this sum is given in full to the Community. Thus, Members do not have any personal savings, except for so-called "patrimonial" property.
4. Patrimonial property, which is of a personal nature (i.e. more often than not family heirlooms), XXXXXXXXXX, throughout the period the Member works in the Community. If a Member leaves the Community, the Member’s patrimonial property is handed over to the individual.
5. On the departure of a Member who wishes to rejoin society, in addition to leaving with that individual’s "patrimonial property", if any, the Community, in order to provide basic support and assistance, has put in place an internal policy to pay a Departure Amount which is broken down as follows:
- The tax refund from the last return filed by the Member before the Member left the Community representing the share to which the Member is entitled, if any, whether or not that amount was received from the tax authorities at the time of the Member’s departure from the Community. A Member who has taken a vow of perpetual poverty will generally be entitled to a tax refund since the Member benefits from the deduction for gifts provided pursuant to subsection 110(2) of the Act, for income the Member receives but which the Member pays over to the Community.
- Assistance to compensate for the lack of financial resources of the Member who has taken a vow of perpetual poverty for the duration of the Member’s life in the Community and to enable the Member to meet basic needs. In its decision to pay (or not) this Assistance to the Member, the Community will indirectly take into account, inter alia: the Member’s age, education and likelihood (or not) of obtaining employment following a return to society. In fact, the Assistance is paid on the basis of the Community's past experience with the Member's resources, basic needs and, in part and indirectly, the Member's income.
This Assistance is determined according to the following formulas, where applicable:
- a basic amount ($XXXXXXXXXX) + an additional amount ($XXXXXXXXXX) for each year spent in the Community; and
- an amount ($XXXXXXXXXX) for each year the Member did not contribute to a pension or retirement plan, if applicable, except for study or healing years.
Any Member leaving the Community should be paid this Assistance, unless XXXXXXXXXX decides otherwise.
6. The Departure Amount will not be paid under any pension or annuity contract.
7. The Departure Amount will not be paid by reason of any employment relationship between the Member and the Community or any work performed by the Member for the benefit of the Community.
8. XXXXXXXXXX: "Members who legally leave a religious institute or who have been legally dismissed from it may not claim anything for any work done in the institute".
9. The Community has no legal obligation towards the Member to pay the Member any amount upon the Member’s departure. However, XXXXXXXXXX of the Community provide as follows: "When a member leaves, he cannot claim anything. He shall, however, be given a suitable sum to meet his basic needs (...)", which is in line with XXXXXXXXXX.
10. The payment of the Departure Amount is a purely altruistic gesture on the part of the Community.
11. Once paid, the Member may use the Departure Amount as the Member sees fit.
12. XXXXXXXXXX has requested a return to the secular world. XXXXXXXXXX was part of the Community and of course took a vow of perpetual poverty to the Community, handing over all income from his XXXXXXXXXX activities. XXXXXXXXXX not in the Community, but in a XXXXXXXXXX that pays him a fee. There is no employer-employee relationship between XXXXXXXXXX and the Community.
PROPOSED TRANSACTION
13. XXXXXXXXXX will leave, XXXXXXXXXX, the Community in order to rejoin society. Upon his departure, the Community will pay him a Departure Amount based on his particular circumstances and in accordance with the policy described above. Thus, at the time of departure, XXXXXXXXXX, who does not own any assets, will receive as a Departure Amount approximately $XXXXXXXXXX, of which approximately $XXXXXXXXXX will be an income tax refund. This will be a one-time lump sum payment.
PURPOSE OF THE PROPOSED TRANSACTION
14. The purpose of the proposed transaction is, on the one hand, to return to XXXXXXXXXX who is leaving the Community any amount belonging to him, i.e. the tax refund due to him and, on the other hand, to offer him Assistance to enable him to meet his basic needs following his reintegration into society.
ADDITIONAL INFORMATION
15. The Community's federal business number is XXXXXXXXXX. Its address is XXXXXXXXXX.
16. The Community is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.
17. The social insurance number of XXXXXXXXXX is XXXXXXXXXX. His address is XXXXXXXXXX.
18. XXXXXXXXXX is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.
19. You have confirmed to us that, to the best of your knowledge and that of the taxpayers concerned, none of the issues involved in this request for advance rulings is the same, or substantially the same, as an issue that:
(i) relates to a tax return previously filed by the Community, XXXXXXXXXX or a person related to them;
(ii) is under examination by a Tax Services Office or a Tax Centre in connection with a tax return previously filed by the Community, XXXXXXXXXX or a person related to them;
(iii) is the subject of a Notice of Objection by the Community, XXXXXXXXXX or a person related to them;
(iv) is the subject of a pending or completed legal proceeding involving the Community, XXXXXXXXXX or a person related to them; or
(v) is the subject of a request for a decision that our Directorate has previously reviewed.
RULINGS
Provided that the foregoing statements constitute full and accurate disclosure of all relevant facts, proposed transactions and the purpose of such transactions, and provided that the proposed transactions are carried out in the manner described above, our determinations are as follows:
A) The tax refund, except for the interest portion, is not a source of income and should not be included in computing the income of XXXXXXXXXX.
B) The one-off lump sum payment of the XXXXXXXXXX Assistance, at the time of the departure, is a gift and shall not be included in computing his income.
C) Upon payment of the Departure Amount, the Community will not be required to withhold any amount of income tax at source from that amount, will not be required to file an information slip and will not be required to report any amount on an information slip.
These rulings are subject to the conditions and limitations set out in Information Circular 70-6R11, Advance Income Tax Rulings and Technical Interpretations, dated April 1, 2021, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
SCOPE OF RULINGS AND OTHER COMMENTS
For the purposes of this document, only the facts, proposed transactions and purpose of the transactions described herein have been considered. Any other relevant information affecting the decisions herein is considered to have been withheld for the purposes of the decisions. This includes information contained in the documentation provided in support of your request.
Furthermore, nothing in this advance income tax ruling should be taken to mean that:
a) We have considered the implications of the payment of the Departure Amount on the Community's registered charity status. If you require further details on this matter, please contact the Canada Revenue Agency Charities Directorate Client Service at 1-888-892-5667.
b) We have considered the other tax consequences that may result from the proposed transactions or transactions already completed as set out herein.
A statement of our fees for the time spent reviewing your file will be sent to you under separate cover.
Best regards,
XXXXXXXXXX
Section Manager
for the Director of the Division
Business and Employment Income Division
Income Tax rulings Directorate
Legislative Policy and Regulatory Affairs Branch