The Income Tax Act provides a tax deduction from the income of a member of the clergy from office or employment equal to the value of the individual’s housing if the individual meets a status and function test. The deduction is framed as only an employment income deduction. As a result, the CRA has had a relatively restrictive approach of denying the deduction to clergy receiving disability income if the disability income is provided by a disability insurer (since that income is not remuneration for employment).
Justice Woods of the Tax Court of Canada rejected CRA’s approach in Connie Shaw v. The Queen in April 2010. Connie Shaw had been employed as a correctional chaplain until 2002 when she began an extended sick leave and started to receive benefits from an insurer. The CRA denied her clergy residence deduction and she appealed. The Tax Court concluded that the CRA’s approach was too restrictive. As a result, it appears that disabled clergy are now able to continue claiming a clergy residence deduction even if in receipt of insurance payments. [As of the publication date of this newsletter, no appeal or application for extension of time to institute an appeal has been filed in the Federal Court of Appeal.]