CCCC Makes Representation to CRA on Clergy Deduction: CRA Responds Positively

Members of the clergy who meet the status and function tests as outlined by Canada Revenue Agency (CRA) in the [:link href=”http://www.cra-arc.gc.ca/E/pub/tp/it141r-consolid/it141r-consolid-e.pdf” txt=”Interpretation Bulletin IT-141R”:][1] are eligible for the “Clergy Residence Deduction” (CRD). A clergy does not have to wait until the end of the year to take advantage of this benefit. Clergy may wish to have their taxes reduced at source at the beginning of the year to have more disposable income at each pay day. In order to do this, clergy must file a [:link href=”http://www.cra-arc.gc.ca/E/pbg/tf/t1213/” txt=”T1213 Request to Reduce Tax Deductions at Source”:][2] and receive a “Letter of Authority” from CRA permitting the employer to reduce the taxes taken off at payroll.

Generally speaking, each time these requests are made, the Letters of Authority are issued as a matter of course, once it has been determined that the taxpayer complies with IT-141R. However, in recent years, CCCC has received a number of complaints from clergy who were denied the privilege of having a reduction of their taxes deducted at source. Among the reasons given by their CRA office for the refusal was that “only one person per church could claim the CRD (e.g., the Senior Pastor).” At other times, the CRA officials interpreted their job descriptions as carrying out the function of “lay ministers” or “teachers” and not clergy. This would occur even to those clergy who had consistently received the CRD for decades.

When CCCC investigated further, we discovered that the CRA refusal of clergy to deduct at source was not consistent across Canada. In some parts of the country, clergy holding similar positions as their colleagues
elsewhere were having no problem with their request for a reduction of deductions at source. This inconsistency was so pronounced that we decided to broach the matter with CRA officials in Ottawa.

We were informed that in 2010 a new CRA policy was implemented that required each at source request to be reviewed in-depth to determine whether the taxpayer was eligible for the CRD. The resulting confusion of
this policy change is the source of the problem our members were having.

We are pleased to report that CRA officials took our representation seriously and began their own investigation to determine what was going on. That survey convinced them of the need to contact the CRA Tax Service Offices (TSOs) and Tax Centres around the country to remind them of the necessity that CRA policies are to be administered consistently. “Our objective is to ensure that taxpayers are treated in a fair and consistent manner,”
CRA officials confirmed to CCCC, “irrespective of which TSO receives their Request to reduce tax deductions at source…”

It must be recognized that approval for CRD one year is no guarantee that it will be approved the following year, because taxpayers eligibility may not continue from one year to the next. That was the impetus in 2010 for CRA to change policy to requiring each request be looked into at depth on a yearly basis to ensure compliance with the Income Tax Act and Interpretation Bulletin IT141R.

Certainly, we can appreciate that the yearly review of each request means that there may be some confusion as to who meets the function test based on job descriptions. Many churches have several clergy using different titles. As a result, CRA notes that “as our agents were unfamiliar with the terminology used in the job descriptions, they could not determine if the individual met the status or function test. Agents were never advised to only allow one claim per church.”

As CRA offices have been in transition with the new yearly review procedure, which came into effect in 2010, there was confusion and inconsistency. CRA was gracious in their response:

TSD regrets that during this period of transition, as the CRA works with the TSOs to address this issue of fair and consistent administration of the CRD for all taxpayers, irregularities have occurred. Please accept our apologies in this regard and rest assured that the CRA is working toward rectifying this matter as quickly as possible.

This then has become a good news story for all of us here at CCCC. Gil Langerak, our in-house specialist on Clergy Residence Deduction, states, “I am most pleased with the response of CRA. We hope to have fewer calls on this issue in the coming weeks as a result.”

For more information on the Clergy Residence Deduction, please visit CRA’s Charities Newsletter No. 23, Guest Piece: Clergy Residence Deduction (available at [:link href=”http://www.cra-arc.gc.ca/E/pub/tg/charitiesnews-23/charitiesnews-23-e.html#P131_18836″:]) or visit CCCC’s CRD topic area at [:link href=”https://www.cccc.org/members_topic_show/clergy_residence_deduction”:].

 

Barry Bussey, V-P Legal Affairs

September 18th, 2012

 

[1] [:link href=”http://www.cra-arc.gc.ca/E/pub/tp/it141r-consolid/it141r-consolid-e.pdf”:]

[2] http://www.cra-arc.gc.ca/E/pbg/tf/t1213/