The clergy residence deduction is a deduction made on an individual's tax return, in order to provide relief to individuals working in certain occupations that are generally lower paid than most.

There are two tests that both need to be satisfied in order for a person to claim this deduction:

1. The status test, which requires that the person be one of:

a) A member of the clergy i.e. someone who is "set apart" or in a leadership position in a church or other religious organization

b) A member of a religious order (i.e. a group bound by the same regulations and discipline), carrying out a ministry such as evangelism or social outreach

c) A regular minister of a religious denomination (i.e. a group with a common system of religious beliefs)

2. The function test, which requires that a person must be one of:

a) Someone in charge of, or ministering to, a diocese, parish, or congregation. This need not be full-time, but the ministry must be an integral part of their employment responsibilities and expectations

b) Someone engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination. This is someone who has a management position within an organization, but normally excludes support staff. The position must be full-time, though the person could also be involved in incidental ministering activities

So, the word "clergy" can be seen to be misleading, as it includes not only traditional religious leaders such as priests, pastors, rabbis, and imams, but also other individuals in missionary and administrative positions.

The deduction itself is made on the person's income tax return, though it can never be greater than the employees' income from that vocation. The amount of the deduction varies according to the employment situation:

1. If the employee is provided with a residence or other free living accommodation, the fair value of that benefit must be included in his or her T4 and therefore reported as income for tax purposes. They can, however, deduct the same amount from their income so that the two offset each other

2. If free accommodation is not provided, the individual may still claim a clergy residence deduction, though the calculation is more complicated. The amount is either :

a) the rent and utilities paid for the residence or

b) the fair rental value (including utilities) of the residence owned by the person or their spouse

Both of these deductions have limits. They cannot be more than the lower of:

(i) the greater of: $1,000 multiplied by the number of months (to a maximum of 10) of service and one third of the employees' remuneration from that employment

(ii) the rent paid or fair value of the residence

From an administrative standpoint, the deduction is often made when the individual files their annual income tax return, though they can alternatively make arrangements to have less tax deducted at source (i.e. from weekly/monthly pay). The clergy residence deduction does not reduce income for the purpose of calculating Employment Insurance, though it does reduce earnings for calculating CPP, to the extent that it reduces the earnings below the maximum.

If you have any questions about this topic, please contact your RLB advisor.