Is a rabbi at a Jewish school entitled to the clergy residence exemption? Although he may be a member of the “clergy” he is not in charge of, or ministering to, a diocese, parish or congregation, according to this CRA income tax ruling.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Is a rabbi, who is employed in XXXXXXXXXX , a Jewish school, considered to minister a congregation for the purpose of the deduction pursuant to paragraph 8(1)(c) of the Income tax Act ( the “Act”)
REASONS: Giving lectures on religion and providing counselling service to a group of students is not considered to be “in charge of ” or “ministering a congregation” for the purpose of deduction provided in paragraph 8(1)(c) of the Act
April 8, 2009
XXXXXXXXXX TSO HEADQUARTERS
Office Audit Section V. Srikanth
Verification and Enforcement Division
Clergy Residence Deduction
We are writing in response to your facsimile dated January 12, 2009, requesting an interpretation with respect to the clergy residence deduction and, specifically, a determination of whether XXXXXXXXXX (the “taxpayer”), who is employed at XXXXXXXXXX (the “School”), a Jewish school, is qualified to claim a clergy residence deduction, pursuant to paragraph 8(1)(c) of the Income Tax Act (the “Act”).
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).
In order to qualify for the clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act, the person must satisfy both the status and function tests discussed below.
In order to qualify for the clergy residence deduction under paragraph 8(1)(c), the person must be one of the following:
* a member of the clergy;
* a member of a religious order; or
* a regular minister of a religious denomination.
Paragraph 4 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, states a “member of the clergy” is a person set apart from the other members of the church or religious denomination as a spiritual leader. Priests, pastors, ministers, rabbis, imams, commended workers 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.
In the given submission, the taxpayer is a rabbi. He is, therefore, considered to have satisfied the status test.
In order to qualify for the deduction, a person who has the required status must also be employed in a qualifying function. The person’s function must be one that he or she is:
* 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.
In the given submission, the taxpayer is of the opinion that he satisfies the function test by virtue of ministering to a congregation.
According to paragraph 13 of IT-141R, “Ministering” is a very broad concept of serving or attending to the needs of a congregation, diocese or parish, or its individual members. This should be looked at within the context of the religious organization’s practices and expectations. If a person who meets the status test is employed within a congregation, he or she is considered to be ministering to a congregation if he or she is fulfilling a pastoral or ministerial role in the manner requested by that congregation.
Paragraph 15 of IT-141R provides an explanation of a congregation. According to it, “a “congregation” is not defined by any particular church structure, by territorial boundaries nor by the number of people gathered in one place. It is an assemblage or gathering of persons to whom a minister provides spiritual counselling, advice, illumination and inspiration. A group of students assembled for academic instruction is not a congregation. Persons who meet the status test do not need to be in charge of a single, fixed congregation. They can serve multiple congregations. Congregations can be of a diverse and fluid makeup and require neither voluntary attendance nor homogeneity of religious belief. Chaplains in hospitals, jails, the armed forces and other such organizations are generally considered to minister to congregations.”
The observations of Justice MacKay of the Federal Court, Trial Division in the case of Zylstra Estate et al. v. The Queen, 94 DTC 6687 at page 6696 are worth noting:
“It is my opinion that in this broader context of the words used to describe the qualifications for a deduction, the words ‘diocese, parish or congregation’, are intended to describe different organizational or institutional structures determined by religious denominations for the ongoing organized activities of their members on a regular basis. Thus, a gathering of persons may well be a congregation for some purposes, but unless it is a gathering for shared religious purposes recognized by a religious denomination for its regular organizational religious activities, it does not qualify as a ‘congregation’ within the meaning of that word in paragraph 8(1)(c) of the Act.” Paragraph 17 of IT-141R explains that “teaching at an educational institution, whether or not it is a denominational school, college or seminary, is not by itself recognized as ministering to a congregation. However, a person who meets the status test who is otherwise engaged in a recognized and permitted ministry, may also be engaged in teaching without being disqualified for this deduction. For example, a school chaplain may also have some teaching responsibilities or a congregational minister may also take on teaching responsibilities for his or her religious denomination.”
In Shepherd v The Queen (TCC), 2002 DTC 3855, Teskey, J, while analyzing whether or not the appellant was ministering to a congregation, made the following comments:
“Congregation” is also defined as: “a body of people assembled for religious worship or to hear a preacher.”; or “the body of people regularly attending a particular church.”
I believe it is in this context that the words “parish” and “congregation” are used in paragraph 8(1)(c) of the Act .
The College is just not a parish or a church and the students are not assembled for religious worship but to gain religious knowledge and they are not a congregation for the purposes of paragraph 8(1)(c) of the Act.”
In Bissell v. The Queen, 99 DTC 721, the issue was whether the appellant, Bissell, an ordained minister, teaching students in a divinity class, in what was clearly a denominational college, was considered “ministering to a parish or congregation?”, as required by paragraph 8(1)(c) of the Act. Judge Bowman made the following comments in this regard:
“It cannot be denied that ministering to a congregation involves in many instances teaching. It is an important part of the role of a minister. Among the many appellations given to Jesus Christ is “The Great Teacher”. Nonetheless, although ministering may include teaching, the converse is not true.
It is important to put Reverend Bissell’s activities in their proper perspective. He taught religion to persons intending to become ministers. No doubt, he also counselled them, and probably prayed with them. He also preached from time to time to local congregations. Counsel for the appellants referred me to a number of cases in which the courts have recognized that ministering can include specialized ministries. I agree with this as a broad proposition, as far as it goes, but it does not in my view go far enough to assist Reverend Bissell. I do not think that teaching classes of students in a Bible college can be said to be ministering to a congregation in the sense in which I have used the expression in other cases, such as Miller and McGorman or Baker.
As noted above, teaching may well - and frequently does - form a component of ministering, but teaching in itself is not ministering in any ordinarily accepted connotation of that term of which I am aware. Nor do I think that a group of students can be said to be a congregation in the sense of an assemblage or gathering of persons to whom a minister provides spiritual counselling, advice, illumination and inspiration. While for the reasons given in Kraft et al. I do not subscribe to the view of the word congregation expressed in McRae, I do not think that it encompasses a group of college students assembled for academic instruction.”
It is our understanding that the School is an Orthodox Jewish day school for boys. The taxpayer, in his submission explains that, a “Yeshiva” is an institution where, in addition to the usual community activities, like communal prayer, celebration of life-cycle events, it also functions as a study hall where the principles of the Jewish religion and faith are taught and studied by the male members of the community. A typical day in this Yeshiva begins with intense communal prayer followed by a “powerful” sermon. This is then followed by a study of the Jewish faith, which continues for almost five hours after which they attend class, where they are taught English, math, science etc.
Based on the information provided, it is our further understanding that, for the purpose of the paragraph 8(1)(c) deduction, according to the taxpayer, the congregation consists of the group of boys/men who are enrolled in this Yeshiva to acquire both spiritual and secular knowledge.
The taxpayer goes on to explain in his submission that, he has been employed to impart the religious aspect of the education and is not involved in the secular studies, which are provided by another group of people. His job is to ‘nurture spiritual growth and dispense religious counsel and advice to the boys affiliated with his Yeshiva’. It is for this reason, he considers himself a “preacher” rather than a “teacher”. He is expected to be a leader and role model for the boys and the community during the hours of prayer. There is, however, no information in the submission to indicate whether the taxpayer serves any congregation other than the students or performs other functions similar to that carried out by a rabbi in a synagogue or a minister in a church.
Based on the information provided, there is no doubt that religion is the main purpose, for which the group of boys/men gather in the School. However, religious study is a part of the curriculum for these individuals when they attend the School. The taxpayer’s role is to impart spiritual knowledge to the students, who include both young boys and married men. The taxpayer’s role is, therefore, in our view, more of a “teacher” than a “preacher”, even though he may consider it the other way round. Further, the School is an educational institution, where boys are trained to acquire spiritual knowledge in the Jewish religion. However, in our view, for the purpose of deduction provided in paragraph 8(1)(c) of the Act, addressing such a group cannot be considered to be in “charge of” or “ministering to a congregation”.
For reasons explained above, in our view, the taxpayer is not considered to have satisfied the function test. Since he has satisfied the status test but not the function test, he is not eligible for the clergy residence deduction that is provided for in paragraph 8(1)(c) of the Act.
R.A. Albert, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
For more information on the Clergy Residence Deduction see Registered Charities Newsletter No. 23 - June 2005 which is located at http://www.cra-arc.gc.ca/E/pub/tg/charitiesnews-23/charitiesnews-23-e.html and which states as follows:
“Clergy residence deduction
Although the clergy residence deduction does not fall under the jurisdiction of the Charities Directorate, we recognize that it is of interest to many charities, and are pleased to be able to include information on the deduction. You can get more information in Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction.
If you have questions on the clergy residence deduction, please contact the Individual income tax enquiries area of the CRA at:
1-800-959-8281 (for service in English)
1-800-959-7383 (for service in French)
Q. 8. What is the clergy residence deduction?
A. 8. Under the provisions of paragraph 8(1)(c) of the Income Tax Act, a person who is employed, or has an office, as a member of the clergy or a religious order or as a regular minister of a religious denomination may be entitled to claim a clergy residence deduction for his or her residence, when calculating the income from that employment or office. To qualify for the deduction, the person must satisfy both a status test and a function test.
Q. 9. What is the status test for the clergy residence deduction?
A. 9. To qualify for the clergy residence deduction, the person must be one of the following:
•a member of the clergy;
•a member of a religious order; or
•a regular minister of a religious denomination.
Whether or not a person is a “member of the clergy” or a “regular minister” depends on the structure and practices of the particular church or religious denomination. A member of the clergy is a person set apart from the other members of the church or religious denomination as a spiritual leader. It is not necessary that the process of appointment be referred to as ordination or that the appointment be by someone higher up in the ecclesiastical hierarchy; it may be done by the congregation itself. Priests, pastors, ministers, rabbis, imams, or other persons who have been commended, licensed, commissioned, or otherwise formally or legitimately recognized for religious leadership within their religious organizations can be members of the clergy.
Q. 10. What is the function test for the clergy residence deduction?
A. 10. To qualify for the deduction, a person who has the required status must also be employed in a qualifying function. The person’s function must be that he or she is:
•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.
Q. 11. Can the word “appointment” in the function test be interpreted to allow a recommendation or commendation of an individual to another organization?
A. 11. No. A recommendation or commendation of a person for administrative responsibilities with another organization does not constitute appointment by the order or denomination that makes the recommendation or commendation. Furthermore, for an appointment, it should either be to a position within the same entity or with an entity that is controlled by and that is an integral part of the religious order or denomination. See paragraph 20 of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction.
Q. 12. Does an employee who is appointed by a religious order or a religious denomination to work as a full-time administrator in a bible college qualify for the clergy residence deduction if he or she has additional teaching duties?
A. 12. Yes. This can be considered full-time administrative service under the function test. Therefore, if the employee meets the status test and his or her full-time qualifying function requires at least 35 hours, the employee would qualify for the clergy residence deduction, even if he or she had additional responsibilities for teaching. A part-time administrator in an otherwise similar position does not qualify. A full-time professor or teacher would likewise not qualify.
Q. 13. Is a person who is not a member of the clergy but works with the youth of our congregation eligible for the deduction?
A. 13. No, if such a person is also not a regular minister
of a religious denomination, he or she is not eligible
(see paragraph 5 of IT-141R (Consolidated)).
Q. 14. Is a minister who is no longer required to be in full active service entitled to the clergy residence deduction?
A. 14. Yes. Part-time employment qualifies for the clergy residence deduction in this case. The minister would be entitled to the deduction on the employment income that meets the function test. This is in contrast to administrative functions, which must be full-time to qualify.
Q. 15. Can a clergyperson of a foreign church that has no status in Canada within its religious denomination claim the clergy housing deduction?
A. 15. No. To claim the deduction, the clergyperson must have authority and be recognized as a minister under his or her own denomination.
Q. 16. What is Form T1223?
A. 16. Form T1223, Clergy Residence Deduction, is the form required to claim the clergy residence deduction. Form T1223 has to be completed by both the individual claiming the deduction and the employer representative to certify that the status and function tests are met for a particular year.
Q. 17. What is Form T1213?
A. 17. Form T1213, Request to reduce tax deductions at source, is the form an individual can use to request that an employer deduct less tax at source.
Q. 18. Are members of the clergy who qualify for the clergy residence deduction and who request a reduction of the income tax deducted at source, required to file a T1213 with the CRA or can this amount simply be reduced by the treasurer?
A. 18. There has been some confusion concerning the filing of a T1213 so we will answer this based on two distinct scenarios. In both scenarios, the employee must inform the employer, in writing, of the employee’s intent to claim the clergy residence deduction (this could include Form T1223).
Scenario 1) When the clergy member lives in their own house or rents a property and claims a clergy residence deduction based on the fair market value of the house or the rent paid, respectively, they will need to file a T1213 with the local tax service office. When the T1213 is approved, the employer will reduce the employee’s taxable income by the amount of the clergy residence deduction and withhold income tax at source on the difference. See A.19 scenario 1 for CPP information.
Scenario 2) When the clergy member lives in employer provided accommodations and claims the clergy residence deduction, the deduction will generally be offset by the income inclusion relating to the taxable benefit of employer provided accommodations. In this scenario, there is no change in income for withholding tax purposes, and a T1213 is not required to be filed. When determining the amount of income subject to withholding tax, the employer should include the taxable benefit relating to employer provided accommodations in the employee’s income. The employee’s taxable income should then be reduced by the clergy residence deduction which the employee will be claiming. See A. 19 scenario 2 for CPP information.
Q. 19. How does this affect Canada Pension Plan (CPP) amounts?
A. 19. Scenarios 1) and 2) from A.18 will be discussed separately.
Scenario 1) When calculating pensionable earnings and the amount of CPP to withhold, the employer should reduce the employee’s earnings by the amount of the clergy residence deduction and withhold CPP contributions on the net amount. In this situation, the amount of pensionable earnings to be reported in box 26 (pensionable earnings) of the employee’s T4 slip is the result when the earnings in Box 14 are reduced by the clergy residence deduction. Such employees must inform their employer, in writing, of their intent to claim the clergy residence deduction (this could include Form T1223). If the employee also wants a reduction of income tax at source, as noted above, they must request a waiver by completing and filing Form T1213 with the local tax service office.
Scenario 2) When calculating pensionable earnings, the clergy residence deduction will generally be offset by the income inclusion relating to the taxable benefit of employer provided accommodations. As the deduction and income inclusion generally net out, there are no changes required to the clergy member’s income for the purpose of withholding CPP at source. In this situation, although box 14 (employment income) of the employee’s T4 slip will include the amount of the housing benefit, due to the offset noted above, the amount of the benefit will not be included in box 26 (pensionable earnings) of the T4 slip. Such employees must inform their employer, in writing, of their intent to claim the clergy residence deduction (this could include Form T1223). However, as noted above, they need not file a T1213.
For more information about eligibility for the clergy residence deduction, please see Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, available at: http://www.cra.gc.ca/E/pub/tp/it141r-consolid/it141r-consolid-e.html
To get more information on the Canada Pension Plan, call your nearest tax services office. The telephone numbers and addresses are listed in the government section of your phone book and on the CRA Web site at: http://www.cra.gc.ca/tso
Q. 20. What is the role of employers in ensuring that the amount deducted for CPP is correct?
A. 20. Employers that are charities have the same responsibility as all employers for ensuring that CPP is correctly deducted. If an employee is seeking a reduction in CPP through Form T1223, the employer is responsible for completing Part B of the form and signing it to make sure the employee has met the required conditions.
For more information about employers’ obligations for withholding CPP, please see Chapter 2 of guide T4001, Employers’ Guide Payroll Deductions – Basic Information, available at: http://www.cra.gc.ca/E/pub/tg/t4001/t4001-03-e.html#P400_34608 “
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.