2015-0569011I7 Clergy Residence Deduction

Principal Issues: Whether a dormitory room is a principal place of residence or other principal living accommodation? Whether fees paid for the use of a dormitory room would be considered rent for purposes of computing the clergy residence deduction?

Position: See response.

Reasons: See response.

Author: Baltkois, Thomas
Section: 8(1)(c)

                                                            June 16, 2015

      London Tax Services Office          Income Tax Rulings Directorate
      Individual Enquiries                       Business and Employment Division
      451 Talbot Street, 10th Floor        Tom Baltkois
      London ON  N6A 5E5

      Attention: Sarah Griffin                  2015-056901

      Clergy residence deduction

We are writing in response to an email dated January 27, 2015, concerning whether a room in a college or university dormitory may be considered an individual’s principal place of residence or other principal living accommodation for purposes of the clergy residence deduction. You have also asked whether the fees paid for the use of a dormitory room would be considered rent for purposes of computing the clergy residence deduction.

Our Comments

Paragraph 8(1)(c) of the Income Tax Act (Act) provides a deduction in certain circumstances, to clergy, ministers, and members of religious orders (qualifying individuals) in respect of their principal place of residence or other principal living accommodation, if they are engaged in qualifying employment.

Where both the status and function tests have been satisfied, the amount of the deduction provided under paragraph 8(1)(c) of the Act depends on whether the property occupied by a qualifying individual was supplied by virtue of his or her employment, was rented by the individual, or was owned by the individual (or by his or her spouse or common-law partner).

In situations where a property is rented, the amount of the clergy residence deduction is calculated under subparagraph 8(1)(c)(iv) of the Act (regardless of whether a housing allowance has been received), and is based on the rent and utilities paid by the individual for the property.

Subparagraph 8(1)(c)(iv) of the Act further requires that the property (rented or owned) must have been ordinarily occupied by the individual during the year as his or her “principal place of residence” or “other principal living accommodation”.

Is a dormitory room a “principal place of residence” or “other principal living accommodation” for purposes of subparagraph 8(1)(c)(iv) of the Act?

The phrase “principal place of residence” is not defined in the Act, nor has its meaning been interpreted in Canadian case law. However, technical interpretation (TI) 2012-045596 considered the meaning of this phrase for purposes of paragraph 8(1)(c) of the Act, and noted that a principal place of residence is generally considered to be the place where an individual regularly lived, slept, received mail, etc., and in some cases, where the individual’s immediate family also resided.

In our view, a principal place of residence would generally be a self-contained domestic establishment (SCDE), which is defined in subsection 248(1) of the Act as “a dwelling-house, apartment or other similar place of residence where a person generally sleeps and eats”. In TI 2011-042192, we clarified that a residence is considered to be an SCDE if it is a living unit with restricted access that contains a kitchen, bathroom, and sleeping facilities. A room in a hotel, dormitory, boarding house, or bunkhouse would not ordinarily meet this definition.

The phrase “principal living accommodation” is also not defined in the Act, and its meaning has similarly not been interpreted in Canadian case law.  In such situations, we generally rely on the ordinary meaning of the words (e.g., dictionary definitions). While “principal living accommodation” is not specifically defined in any dictionary, the Concise Canadian Oxford Dictionary defines the word “principal” as “first in rank or importance; chief; main; leading”.

The Dictionary of Canadian Law defines the following words and phrases which may also assist in determining the meaning of “principal living accommodation”:

A “dwelling” is a “[p]lace of residence, a place in which to live, a habitation”;

A “housing accommodation” is “any place of dwelling and includes any place where other services are provided in addition to accommodation, but does not include a place of dwelling that is part of a building in which the owner or his family resides and where the occupant of the place of dwelling is required to share a bathroom or kitchen facility with the owner or his family.”;

A “hostel accommodation” is “a hostel or dormitory type dwelling having shared food preparation or bathroom facilities”.

These definitions suggest that a living accommodation can be any place where an individual resides or lives. This position is consistent with the definition of “rental unit” in the Residential Tenancies Act, 2006 (Ontario), which states that a rental unit is “any living accommodation used or intended for use as rented residential premises, and “rental unit” includes, . . . a room in a boarding house, rooming house or lodging house and a unit in a care home;”.

Based on the above, it is our view that a dormitory room with access to shared facilities (e.g., a bathroom, kitchen, etc.) would be considered a living accommodation. Whether a particular living accommodation is an individual’s “principal” living accommodation (i.e., the main place where the individual resides) for purposes of subparagraph 8(1)(c)(iv) of the Act, is a question of fact.

In TI 2012-045596, we concluded that a property will generally be considered to have been ordinarily occupied during the year as the taxpayer’s principal place of residence where it is established that it was the place where, in the settled routine of life, the individual regularly lived, slept, received mail, etc., and in some cases, where the individual’s immediate family also resided.

While the above comments pertain specifically to a principal place of residence, they are also relevant in determining whether a property is ordinarily occupied as a taxpayer’s principal living accommodation. Thus, provided that a dormitory room has access to shared facilities and is established to be the place where the individual regularly lived, slept, received mail, etc., such accommodation would likely be considered to be ordinarily occupied as the individual’s principal living accommodation for purposes of subparagraph 8(1)(c)(iv) of the Act.

Do fees paid for the use of a room in a college or university dormitory constitute rent for purposes of the clergy residence deduction?

The term “rent” is not defined in the Act. As noted previously, where the legislation or Canadian case law does not define a word or phrase, we generally rely on the dictionary definition of the word or phrase. The Concise Canadian Oxford Dictionary defines “rent” as “a regular payment made by a tenant to a landlord for the use of land or premises.” Black’s Law Dictionary similarly defines “rent” to be “consideration paid, usu. periodically, for the use or occupancy of property (esp. real property).”

The Residential Tenancies Act, 2006 (Ontario) states that “rent” includes,

      “     the amount of any consideration paid or given or required to be paid or given by or on behalf of a tenant to a landlord or the landlord’s agent for the right to occupy a rental unit and for any services and facilities and any privilege, accommodation or thing that the landlord provides for the tenant in respect of the occupancy of the rental unit, whether or not a separate charge is made for services and facilities or for the privilege, accommodation or thing . . .”

Based on the ordinary meaning of this term, it is reasonable to conclude that a person who provides monetary consideration to another person for the use of, or right to occupy, a rental unit, residential property, or similar premises, for a period of time would be paying rent. Thus, it is our view that fees paid for the use of, or the right to occupy, a dormitory room would be considered rent for purposes of subparagraph 8(1)(c)(iv) of the Act.

Summary

Provided that a dormitory room has access to shared facilities and is established to be the place where an individual regularly lived, slept, received mail, etc., such accommodation would likely be considered to be ordinarily occupied as the individual’s principal living accommodation for purposes of subparagraph 8(1)(c)(iv) of the Act. In the situation described, only the room charge portion of the total residency fees would constitute the rent paid by the individual for the year.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: LPRA-PLAR ITR-DDI Access Team-Équipe d'Accès. In such cases, a copy will be sent to you for delivery to the taxpayer.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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