ARCHIVED - Vow of perpetual poverty

What the "Archived Content" notice means for interpretation bulletins

NO.: IT86R

DATE: September 8, 1975

SUBJECT: INCOME TAX ACT
Vow of Perpetual Poverty

REFERENCE: Subsection 110(2)

This bulletin cancels and replaces Interpretation Bulletin IT-86 issued on January 18, 1973.

Notice to the reader:

• Bulletins do not have the force of law.

1. Subsection 110(2) of the Income Tax Act provides that, where a person is a member of a religious order and as such, has taken a vow of perpetual poverty and, in accordance therewith, has paid over to the order his entire earned income for the year, and, for the 1972 and subsequent years, his entire superannuation or pension benefits, he may claim the amount so paid in the year as a deduction in computing his taxable income for the year.

2. Earned income for this purpose is defined in paragraph 63(3)(b) and includes salaries and wages as well as scholarships, bursaries and research grants. It does not include investment income, such as dividends and interest, and no deduction may be claimed under subsection 110(2) in respect of such income even if it is paid over to the order. Superannuation or pension benefits are defined in subsection 248(1).

3. A claim for a deduction under subsection 110(2) must generally be substantiated by a letter from the religious order, stating that the taxpayer is a member of the order and, as such, has taken a vow of perpetual poverty and given to the order his entire superannuation or pension benefits (after 1971) and his entire earned income for the year.

4. In some circumstances, a person who has not taken a vow of perpetual poverty may arrange or agree that a salary to which he is legally entitled for teaching or other services will be paid to a religious institution and he, in return, will receive board, lodging and a small living allowance. Subsection 110(2) is, of course, not applicable in a situation of this kind and the full amount of the salary earned by such a person must be included in his income. As an offset in arriving at the amount of his taxable income for the year, the difference between the salary assigned or paid over by him to the religious institution and the value of the board, lodging and living allowance received may be deducted as a charitable donation, subject to the maximum deduction authorized in the Act of 20 per cent of income for the year. (This deduction of up to 20 per cent of income for charitable donations is available to all taxpayers, except those who have claimed a deduction under subsection 110(2) for the year.)

5. Where a person who has taken a vow of perpetual poverty is paid a salary for teaching or other services from which he deducts the cost of his board, lodging and a small living allowance and remits the balance to his religious order, subsection 110(2) is not applicable as his entire superannuation or pension benefits (after 1971) and his entire earned income for the year have not been paid over to his order. As in the previous paragraph, the amount remitted to the religious order may, however, be claimed as a charitable donation, subject to the maximum deduction of 20 per cent of income for the year.

6. Where a school board or other employer is directed to pay the salary of an employee to a religious institution, income tax and Canada Pension Plan contributions must be deducted and remitted in the usual way unless evidence is supplied that the employee is one to whom subsection 110(2) is applicable for the reason that he is a member of a religious order who, as such, has taken a vow of perpetual poverty and the salary is to be paid to that order.

7. A member of a religious order who was under a vow of perpetual poverty for part of the year only (e.g., because he took the vow, or was released from it, during the year) may claim a deduction under subsection 110(2) for the amount of his superannuation or pension benefits in addition to his earned income for that part of the year, if the whole of that amount was paid over to his order. He may not in these circumstances, deduct from his income charitable donations which he made before he took the vow or after he was released from it. Alternatively, he may waive the deduction under subsection 110(2) altogether and claim charitable donations made at any time in the year (including the amount paid to his order) up to a limit of 20 per cent of his total income for the year.