Jan 2018 Charity & NFP Law Update
In a decision released December 18, 2017, the Tax Court of Canada in Lichtman v The Queen considered whether three ordained rabbis (“Appellants”) teaching Judaic studies in a Jewish elementary day school were “ministering to a…congregation” in order to be eligible for the clergy residence deduction (the “Deduction”) under s. 8(1)(c)(ii)(B) of the ITA. This Deduction allows qualifying individuals to deduct from their personal income a specified amount in relation to their housing, whether rented or owned, when filing their personal income tax return.
In order to qualify for the Deduction, the court stated that an individual is required to meet a two-fold test for status and function set out under s. 8(1)(c) of the ITA. The status test requires the individual to be a member of the clergy or of a religious order, or a regular minister of a religious denomination (a “Clergy Member”). In this regard, the Appellants met the first part of the test as members of clergy. The function test asks whether the individual is performing one of the functions outlined in s. 8(1)(c)(ii) of the ITA. In this regard, as s. 8(1)(c)(ii)(B) allows for the Deduction where a Clergy Member is “ministering to a diocese, parish or congregation,” the issue was whether the Appellants’ activities and functions could be considered “ministering” and whether the students could be considered a “congregation.”
In its consideration of whether the Appellants were “ministering”, the court held that “a rabbi teaching Torah to Orthodox Jewish children [would need to represent] a specialized ministry within the context of Orthodox Judaism,” and that the students would have to constitute a congregation for the purposes of s. 8(1)(c). Through its review of expert evidence, the court concluded that there was no consensus on the spirituality of Torah education or that learning Torah “is any more of a spiritual or religious act than it is an academic and intellectual pursuit”. Further, while it noted that rabbis may engage in a variety of specializations, including education, it held that in contrast to a music minister at a Pentecostal church, which was found to be a specialized ministry in Austin v The Queen, the Appellants’ activities did not amount to a specialized ministry within the context of Orthodox Jewish ministry. Of note, the Appellants’ employment contracts and work duties, which stipulated that they were employed as teachers of Judaic studies at the day school, were contrasted with the activities and duties of a synagogue rabbi, and the Appellants’ duties were found to be those that “would be typically required of any teacher in a typical school setting.”
Concerning whether the students constituted a “congregation”, the court reviewed the ordinary meaning of “congregation” and found that, in the context of Orthodox Jewish rabbis, the term was used in relation to synagogues. In its review of legislation and case law, it held that the term had to be read contextually in reference to a “diocese, parish or congregation”, as outlined in s. 8(1)(c)(ii) of the ITA. It held that these three words “share the common element of regularized religious worship in an organized institutional setting,” and that elementary school students gathered for Jewish religious education and instruction were not a congregation in this regard. The court also took a purposive approach to the ITA provision, concluding that the purpose, history and general scheme of the ITA further supports the conclusion that the students, in this case, were not a congregation, and that teachers of religious studies could not be considered to be ministering to the students. Based on its findings, the court dismissed the appeal, holding that the Appellants were not eligible for the Deduction.
While the s. 8(1)(c) two-fold status and function test is not new, this case is a good example of the court’s application of the test to determine an individual’s eligibility for the Deduction. In this regard, individuals applying for the Deduction under s. 8(1)(c)(ii)(B) should be aware that they may need to satisfy the CRA and, if applicable, satisfy the court that they are Clergy Members, that their activities constitute ministry and that those to whom they minister can be considered a congregation.