Our church would like to buy a parish house for our minister to use as a residence for him and his family. Can we do that?
Yes, a church which is a registered charity may buy a parish house for the use of a clergy person.
The church must hold the registered title to the property. All costs associated with the parish house, such as mortgage payments, insurance, and maintenance, can be recorded by the church as charitable program expenses.
Registered charities do not need permission to spend funds that have already been accumulated to purchase property that is used for charitable purposes. However, if the church does not have the funds in hand, then under subsection 149.1(8) of the Income Tax Act, it can ask for written permission to accumulate property for a particular purpose. If the request is granted, the Canada Revenue Agency will indicate the terms, conditions, and time period for the accumulation of property.
If your church supplies a residence for your minister, there will be tax implications for him. A member of the clergy who is given a residence to live in can claim the clergy residence deduction. Section 8 (1) (c) of the Income Tax Act sets out this deduction.
Are there rules about who qualifies as “clergy”?
Yes. There are two tests that a member of the clergy must meet; the “status” test and the “function” test. The clergy person must first meet the status test. Then, the function test applies.According to the status test, a person claiming the clergy residence deduction must be one of:
- A member of the clergy;
- A member of a religious order; or
- A regular minister of a religious denomination.
The function test means that the person claiming the deduction 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.
More Information:The form required to claim the clergy residence deduction is form T1223. It must 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.
For more information, see: Interpretation Bulletin IT-141R (Consolidated) Clergy Residence Deduction.
I want to give a cash donation to our church mission so that my daughter can participate in an overseas mission. Will I be able to get a tax receipt from the church?
No. You cannot direct money to a particular volunteer in this project and receive a tax receipt. However, you may make a donation to your church and stipulate that your gift be designated to the mission project. This allows your church to maintain direction and control over the mission’s resources.
The church must decide eligibility for participants in the mission work and for funding based on relevant criteria and qualifications, and separate from the donation process. The church’s decisions must be documented as independent from solicitation of donations. If not, then the tax credit for the donation may be disallowed and the church may have its charitable status revoked. If proper procedures are followed, funds donated to the mission are tax-receiptable gifts and your church can issue a tax receipt for your donation to you.
What if some volunteers take a side trip for a holiday while they are on a mission in a foreign country?
It is permissible to take personal side trips, but all personal costs must be paid for by the person and kept strictly separated from the resources that are under the church’s direction and control. As well, if the scale of the side trip is not proportionate to the time and resources devoted to the main trip, this may raise issues of private benefit or about the legitimacy of the missionary activity.
Can our church carry on a business to generate more resources to carry out our charitable work?
Under some circumstances, the Canada Revenue Agency allows registered charities to carry on a business.
The CRA distinguishes between “related businesses” and “unrelated businesses”.
Its policy is that a “related business” must be related to the objects or purposes of the church as a registered charity and the business must be subordinate to those purposes. A business that is not tied to, or whose mandate does not derive from, the charity’s objects or purposes is not considered a related business even if the surpluses (profits) from that business are turned over to the charity.
A registered charity can also operate a business that is unrelated to the objects or purposes of the charity, but only if substantially all persons involved in the carrying on of that business are not remunerated (paid) for that employment.
“Substantially all” has been considered by the CRA to generally mean 90% or more.
Note: The Income Tax Act says that charities can lose their registration if they carry on an unrelated business. If you are not sure if the business venture your organization would like to undertake would be considered to be a “related business” you can write to CRA to request an opinion.
More Information, see:
Our church, which is a registered charity, would like to start a shop to sell prayer books and religious objects in our church hall. Merchandise would be sold at cost, by staff hired to run the shop. Is it permissible for our church to carry on this type of activity on church premises?
Yes, as long as a project such as the shop falls within the charitable objects of your church, then it is likely that the CRA would consider it to be a related business. The Canada Revenue Agency considers the nature of the business and whether it has a direct connection to the charity’s purpose. It has identified four forms of linkage:
- the business is a usual and necessary concomitant of charitable programs (for example, a hospital cafeteria);
- the business is an offshoot of a charitable program (for example, a heritage farm sells bread made from flour milled on the farm);
- the business is a use for excess capacity of the charity’s assets and staff; (for example, a university renting out dorm rooms during the summer)and
- the business involves the sale of items that promote the charity or its objects. (for example, girl guide cookies).
This type of activity would likely fall within the category of sales of items that promote the charity or its objects. However, if the scope or mandate of the shop moved beyond its connection with the church – eg, if your organization started to sell products without a religious significance – then potentially it would no longer qualify.
Is it permissible for our church to charge participants fees in programs that we offer?
Many charitable programs charge fees. Charging fees does not necessarily mean that your program is not charitable, or that it is carrying on an unrelated business. A program such as yours remains charitable as long as it maintains two essential characteristics of a charity: altruism and public benefit. The CRA has developed some guidelines about fees. A fee charged for a charitable program will generally be permissible if:
- the fee structure is designed to cover the costs of the program rather than generate a profit;
- the program does not offer services comparable to those otherwise available in the marketplace; and
- the fees are set according to a charitable objective as opposed to a market objective.
Some examples of permissible fees include rent in low-income housing programs, university tuition fees and museum admission. Remember that the activity undertaken must be authorized by your charity’s objects or purposes.
Can a church that is a registered charity take advantage of an under- used asset to generate some additional revenue?
Yes, this is sometimes possible. The CRA, in its policy about related businesses and registered charities, has listed the use of excess capacity as one of the four links that indicate that a business is related to a charity’s purpose and subordinate to that purpose.
Our church has a very large and easily accessible parking lot, located next to the church is a crowded urban environment. Except for Sunday services, it often sits mostly empty. Recently our Board of Directors was approached with a request to rent the parking lot on weekdays. Can the church do this and still maintain its charitable status?Yes, it is likely that the CRA will regard the lease of the large parking lot as a related business. The church constructed the parking lot at the time the church was built as a necessary component in providing its charitable activities.
However, the use must be reasonable and proportionate. There may, for example, be an obligation on the charity to dispose of the excess property over the longer term, if it no longer serves or will not in the foreseeable future contribute to the charity’s work. This might be the case, for instance, if the size of the congregation has shrunk and only a small part of the parking lot is needed to accommodate congregants on Sunday. If that is the case, it no longer continues to be reasonable for the church to hold on to the entire parking lot, which is well in excess of its needs.
More information, see:
What is a Related Business: Use of excess capacity (section 25, III)
Our church is applying to the Canada Revenue Agency for status as a registered charity. We know that this means that our church’s purposes must be exclusively and legally charitable, and that it must be established for the benefit of the public or a sufficient segment of the public. However, the Board is not sure what exactly is meant by “public benefit”?
Your church will meet the first requirement for charitable status in that your primary purpose is the advancement of religion, which is one of the four core purposes recognized by the CRA. The second requirement, public benefit, is a bit more complicated. The CRA generally uses a two-part test:
- does the charity’s work confer a tangible, or an objectively measurable and socially useful benefit, directly or indirectly, and
- does that benefit have a public character, in that it is directed to the public or a sufficient part of the public.
Demonstrating the benefit associated with religious belief or activity is difficult. Historically, the public benefit of faith-based charities has usually been presumed. There have, however, been cases where the public benefit of groups that assert they are religious has been challenged. But, even in cases where public benefit is questioned, generally the broad mandate and practices of a group are examined, rather than individual tenets of faith. This allows for recognition of a range of belief systems, and not just a particular denomination.
What does the CRA mean by “the public”, and a “sufficient segment of the public”?
Many registered charities target their charitable activities to the public at large, but others may focus on a specific segment of the public, for example, the homeless, or women who need a shelter because of family violence. The CRA does not necessarily focus on the number of people in the public being assisted.
A church wishes to form a registered charity in order to raise funds to provide a scholarship to several deserving students who wish to attend medical school, and then serve as missionary doctors. Such a group could be registered as a charity, even if it only benefits a few students per year.For example,
- women who need a domestic shelter; and
- groups found within a reasonable geographical area, such as recent immigrants to a given city.
Generally speaking, the CRA accepts that a “sufficient segment of the public” will include groups that need a certain service. However, such a group generally may not be limited artificially or in a discriminatory way. Restrictions on eligibility must be based on criteria that have a logical connection with the activity. Where it is necessary to place restrictions on participation or access to the activity they should be based on empirical evidence, such as academic research. For instance, it would be acceptable to base scholarship eligibility on academic performance, but generally not acceptable to base it on race.
Does this mean that our church cannot focus its charitable activities on members of its own congregation?
If your church is engaging in programs or activities exclusively for its members it is possible that the CRA will find that these activities are not charitable under the law, because they lack sufficient benefit to the public. Outreach to the broader public is frequently an element in church’s beliefs or rituals. However, potential inclusion of non-members should also be a feature of the church’s other programs and activities.
Organizations that confer a private benefit disproportionate to their public benefit are not regarded as charitable. For example, a family cannot establish a charitable organization just to benefit family members. It is acceptable however, if members of the congregation benefit from their church’s charitable activities, as long as the public benefit provided is not outweighed by the private benefit. The private benefit must be reasonable, no more than is necessary to achieve the charitable purpose, and occur in the delivery of charitable benefits to properly chosen beneficiaries.
A church sets up a food bank in the church hall. The food bank is open to all needy people in the city where the church is located. Members of the church congregation may use the food bank when they need to because the food bank is open to the public and does not exist just to serve the needs of members of the congregation.
How can we make sure that the charitable activities our church wants to undertake will meet the criteria of the CRA with regard to public benefit?
In Canada, it has generally been accepted that religious charities provide a public benefit. The advancement of religion is one of the four core purposes as established by case law and accepted by the Canada Revenue Agency. However, this presumption can be challenged. It is possible that the presumed public benefit through the advancement of religion might be challenged if one or more of the religious charities’ promoted beliefs were at odds with accepted societal norms dealing with morality.
To date, this has not happened frequently enough to establish clear criteria for when the negative impact, or perceived negative impact, associated with a faith-based purpose will be considered to override the public benefit it is presumed to have. In this context, however, it is always a good idea for charities to support their applications with evidence to establish public benefit related to their programs and activities. Such evidence might include:
- needs assessment studies by government or non-profit organizations to document the existence of the need and benefit to the community;
- project or funding proposals that demonstrate how the proposed activities will meet the needs of and benefit the community; and
- program evaluations of similar programs that show benefit to the community by effectively meeting the identified needs.
We have heard that religious societies are exempt from filing T3010 annual returns with the Canada Revenue Agency. Is that true?
Some religious charities are exempted from filling out some of the sections of the Registered Charity Information Return (T3010). The charities exempted must be religious communities or religious orders. In order to qualify for the exemption, a religious charity must:
- have been in existence on December 31, 1977;
- have not received a gift at any time since December 31, 1977, for which they have issued official donation receipts; and
- have not directly, or indirectly, received gifts from another registered charity, associated or not, that has issued official donation receipts since December 31, 1977.
As you can see, this exemption is very limited and only applies to a handful of religious charities. It was created because the groups affected did not use the tax system to attract donations, nor did they issue tax receipts. They were, in essence, private organizations. Even if a religious charity qualifies, the exemption only means that there are some sections of the T3010 form it does not need to complete. It doesn’t mean that it does not have to file the form at all. It is extremely unlikely that your group falls within this exemption.
Can a church set up a fund to help people in distress in our community?
Yes, churches can set up funds to help people in distress if the purposes and objects of the church as a registered charity allow for this activity.
Often, churches that are registered charities operate programs for the alleviation of poverty. Churches call such programs benevolence funds, or sometimes Deacon’s funds or Good Samaritan funds, and use them to support the poor and the needy in the community. It is important to know that benevolence programs must be based on helping the poor and needy in the community and not just members of the particular church. In order to be considered charitable, all activities undertaken by the charity must be available to a wide enough segment of the public to qualify as being of benefit to the public.
Example: A family in our community recently lost their house and all their possessions in a fire. Can the church ask for donations specifically to assist this family? Can it issue tax receipts for any gifts that it receives that are specifically for this family?
If a charity offers particular programs that are covered in its objects and purposes, then it can allow a donor to direct his or her donation to the program of their choice. The church can issue tax receipts for gifts to a fund to help this family if the church’s objects and purposes allow an activity such as collecting funds for the victims of a disaster.
However, a donor cannot stipulate that the tax-receipted gift go directly to an individual or family. Individuals and families are not qualified donees under the Income Tax Act, and charitable resources may only be transferred to them through a qualified donee (usually a registered charity). Also, gifts to the fund cannot be accepted if a name is attached designating who is to get the money.
The church should develop a policy and a process around the distribution of these types of funds, and document the payments that it makes.
If our church is successful in raising money to help this family, can the church give the money that is raised directly to the family?
It is considered best practice for the church to create an “impenetrable curtain” between the charity and the aid recipients. The church should consider using the money to buy furniture for the family’s new home or provide gift vouchers for items such as clothing and groceries. This allows the charity to maintain an arms length relationship with the family and to create a clear paper trail for expenditures and receipts for filing with the CRA.
Also, the church must make sure that the family is not materially enriched by the money it receives. For instance, in the example of a family that has been devastated by a fire, the family would be considered to be materially enriched by the church’s financial assistance if:
- There was fire insurance which covers much or all of the costs associated with their loss; or
- A person who died in the fire had life insurance that would meet the needs of the family.
In providing relief to this family, the Board of Directors of the church must determine the amount of support to be given from the benevolence fund on a “needs and means” test. Needs are determined on the basis of total reasonable expenses less all sources of income. Means are determined by assessing non-essential assets that might be sold by the family to meet their needs. Normally, this does not mean that the family would have to use up RRSPs or sell an active business.