Housing or utilities - Provided to a member of the clergy, a regular minister or a member of a religious order

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Generally, if you provide free or low-rent accommodation or utilities or an allowance  for housing or utilities to your employee, the benefit or allowance is taxable. This includes situations where you provide your employee with housing rent-free or for less than the fair market value (FMV) of the accommodation.

Depending on the situation, your employee who is a member of the clergy may be able to claim a deduction from their employment income for their residence when filing a personal income tax return. If they choose to claim this deduction, you may have to reduce the income used to calculate CPP and income tax withholdings by the amount of the deduction.

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• Steps
• References

Steps

1. Determine if any exceptions apply to the benefit or allowance

   If you provide a benefit or an allowance for housing or utilities  in one of the following situations, special conditions or rules may apply:

   • Your employee works at a remote location
   • Your employee works at a special work site
   • Your employee works in a prescribed zone
   • Your employee is a member of a religious order who has taken a vow of perpetual poverty

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   •  If the benefit or allowance is provided in one of the above situations, do not continue to the next step.

     Learn more on the above exceptions using the links.

   • If the benefit or allowance is not provided in one of the above situations, continue to Step 2 - Determine if the benefit or allowance is taxable.

2. Determine if the benefit or allowance is taxable

   Generally, the benefit or allowance is taxable if one of the following applies:

   • You provide your employee, including the superintendent of an apartment block, with a house, apartment or similar accommodation either rent free or for less than the FMV  of the accommodation.
   • You reimburse or provide an allowance to your employee for housing or utilities
   • You pay amounts for utilities for your employee

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   •  If the benefit or allowance is not for taxable housing or utilities benefits, do not continue to the next step.

     Refer to: Determine if a benefit is taxable

   • If the benefit or allowance is for taxable housing or utilities benefits, continue to: Step 3 - Determine if your employee is eligible for the clergy residence deduction.

3. Determine if your employee is eligible for the clergy residence deduction

   Your employee may be eligible to claim the clergy residence deduction if they meet both the status and the function tests:

   • Status test

     Your employee’s status is one of the following:

     • Member of the clergy 
     • Member of a religious order 
     • Regular minister  of a religious denomination 
     Definitions - Status test

     Member of the clergy

     A member of the clergy is a person set apart from the other members as a spiritual leader within a church or religious denomination.

     The following should be considered to determine whether a person is a member of the clergy or not:

     • Recognition process: It is not necessary for the appointment process to be called "ordination" or to be conducted by higher authorities in the religious organization. The congregation itself can formally recognize the individual. It is sufficient that there is a formal or legitimate act of recognition, requiring a serious and long-term commitment to the ministry.
     • Examples: This category includes various religious leaders, such as:
       • Priests, pastors, ministers, rabbis and imams
       • Commended workers and other persons who have been licensed, commissioned, or recognized formally or legitimately within their religious organization

     Regular minister

     A regular minister is a person who meets the following criteria:

     • Authority to perform spiritual duties: The individual is authorized to perform spiritual duties, conduct religious services, administer sacraments, and carry out similar religious functions. These duties may include:
       • Participating in the conduct of religious services
       • Administering rituals, ordinances, or sacraments
       • Providing pastoral care to specific members or groups within the religious organization
     • Legitimate appointment: The person is appointed or recognized by a body or person with the power to appoint or ordain ministers on behalf of or within the denomination.
     • Position or appointment of permanence: The appointment is of some permanence within the organization.

     Simply performing the duties of a minister is not enough to be considered a "regular minister". A legitimate appointment or recognition is required.

     Religious denomination

     A religious denomination is a group of individuals who are called by the same name and have a distinct system of religious faith or belief.

     The group’s specific religious beliefs, ideology, or practices are distinct enough to distinguish the members of the group from those of society as a whole.

     Religious order

     Your employee is considered a member of a religious order if they are part of a group of people bound by the same religious, moral, and social rules and discipline.

     Not all religious organizations are religious orders. Whether a group or part of a group is considered a religious order is a question of fact that you must determine on a case-by-case basis.

     The following criteria indicate that the organization is a religious order:

     • The group will have an ascertainable faith with specific beliefs and principles that the group requires the members to uphold
     • Members are required to engage in activities that support the religious mission, which may include:
       • Evangelism
       • Religious missions or education
       • Social outreach or counseling
       • Relief and development work
     • The purpose of the organization should be primarily religious.
     • The members must agree to, and in fact adhere to, a strict moral and spiritual regime of self-sacrifice and dedication to the goals of the organization to the detriment of their own material well-being.
     • The commitment of the members should be full-time and of a long term nature.
     • The spiritual and moral discipline and regime under which the members live must be markedly stricter than that to which the lay members of the church are expected to adhere.
     • The admission of members must be in accordance with strict standards of spiritual and personal suitability.
     • There should generally be a sense of communality.
     • A religious order will normally impose restrictions on the outside lifestyle and employment activities in which its members can engage.
     • A religious order will regulate the amount of financial support its members may receive or enjoy from the order, the religious denomination or givings from their broader community.

   • Function test

     Your employee’s function is one of the following:

     • In charge of, or ministering  to a diocese, parish or congregation 
     • Engaged exclusively in full-time administrative service  by appointment of a religious order or religious denomination 
     Definitions - Function test

     Appointment of a religious order or religious denomination

     A person’s administrative responsibilities must be appointed by a religious order or denomination.

     A recommendation or commendation (as distinct from appointment) of a person for administrative responsibilities with another organization is not considered appointment by the order or denomination. The appointment does not need to be for employment with the denomination or order. The appointment can be to a position with an entity that is controlled by, and that is an integral part of the denomination. The appointment should be in accordance with the practices and procedures of the religious organization.

     Congregation

     A congregation is not defined by a specific church structure, territory, or the number of people gathered. A congregation is a group of people assembled to receive spiritual counseling, advice, inspiration, and support from a minister.

     The following should be considered when determining whether a particular group is a congregation:

     • A group of students assembled for academic instruction is not a congregation.
     • Congregations do not require fixed membership. They can have diverse or fluid membership, and do not necessitate that all members attend voluntarily or share the same religious beliefs.
     • Ministers or spiritual leaders may serve multiple congregations, not necessarily just one.
     • Chaplains in hospitals, prisons, the military, and similar institutions are generally considered to minister to congregations.

     Full-time administrative service

     Administrative service generally describes the functions of determining organizational policies and coordinating various activities of the organization at the management level. It is not limited to the senior level of management of an organization. However, performing specific support functions such as accounting, groundskeeping, information technology and clerical work does not qualify as administrative service.

     A person who meets the status test who is employed in a full-time administrative position is considered to be working exclusively and full-time in a qualifying function even if, in addition to administrative responsibilities, the person also engages in incidental ministering activities that would satisfy the function test. Both the words exclusively and full-time imply that the person does not have some other form of appointment, business or occupation that is in addition to, and impinges upon, the administrative work performed.

     Teaching is not considered to be administrative service, whether or not it is at a denominational school, college or seminary. Occasional or incidental teaching will not disqualify a person whose full-time responsibility is qualifying administrative service.

     Ministering

     Ministering is a very broad concept of serving or attending to the needs of a congregation, diocese or parish, or its individual members. This should be looked at in the context of the religious organization's practices and expectations.

     If a person who meets the status test is employed within a congregation, they are considered to be ministering to a congregation if they are fulfilling a pastoral or ministerial role in the manner requested by that congregation. If a person who meets the status test is employed by a religious organization outside the order or religious denomination, they are considered to be ministering to a congregation such as a church, a chaplaincy audience, or a disadvantaged group if they are fulfilling a pastoral or ministerial role consistent with the religious ministry of the organization in which such person has status.

     A person who meets the status test and that ministers on a part-time or assistant basis or performs specialized ministering will satisfy the function test. As long as ministering to congregations is an integral part of their employment responsibilities and expectations, that activity will qualify.

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   •  If your employee does not meet both tests, your employee is not eligible for the clergy residence deduction. Do not continue to the next step.

      Continue to: Step 5 - Calculate the value of the benefit.

   • If your employee meets both tests, your employee may be eligible for the clergy residence deduction. For your employee to claim the deduction, you and your employee must fill out Form T1223 Clergy Residence Deduction.

      Continue to: Step 4 - Confirm if your employee is claiming the clergy residence deduction.

4. Confirm if your employee is claiming the clergy residence deduction

   If your employee meets both tests in step 3, your employee may be eligible for the clergy residence deduction. Your employee must confirm that they are claiming the clergy residence deduction before you reduce the income on which you have to deduct income tax and CPP contributions.

   • You are providing free or low-rent housing or utilities to your employee

     If you are providing free or low-rent housing or utilities to your employee, do not include the housing or utilities share of the benefit that is equal to the clergy residence deduction in your employee’s income when you calculate the employee’s income tax deductions and CPP contributions if your employee does both of the following:

     • Completes parts A and C of Form T1223 Clergy Residence Deduction, and requests that you complete part B to confirm that they meet the required conditions.
     • Tells you in writing that they intend to claim the deduction, including the amount of the deduction that will be claimed.

      You can reduce the income used to calculate the income tax deductions and CPP contributions by the amount indicated on line 11 of Form T1223 or the amount indicated by your employee in writing.

   • Your employee owns or rents their residence

     If your employee owns or rents their residence and they pay for utilities out of their own money or you provide an allowance for housing or utilities, you can reduce the income used to calculate the employee’s income tax deductions and CPP contributions if your employee does all of the following:

     • Completes parts A and C of Form T1223 Clergy Residence Deduction, and requests that you complete part B to confirm that they meet the required conditions.
     • Completes Form T1213 Request to Reduce Tax Deductions at Source
     • Sends Forms T1213 and T1223 to the CRA at the address provided on Form T1213
     • Your employee provides you with the CRA letter of authority they received in response.

      You can only reduce the income used to calculate the income tax deductions and CPP contributions by the amount indicated on the letter of authority.

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   •  If your employee confirms that they are claiming the clergy residence deduction, you must still report the housing or utilities benefit or allowance on the T4 slip using box 14 and any applicable codes even if you can reduce your employee’s income by the amount of the clergy residence deduction for the purpose of calculating tax deductions and CPP contributions.

     The deduction cannot be more than the amount of the employee's income for the year from the qualifying office or employment.

   • If your employee does not confirm that they are claiming the clergy residence deduction, do not reduce the income on which you have to deduct income tax and CPP contributions.

5. Calculate the value of the benefit

   If the benefit is taxable, the value of the benefit is equal to:

   Calculate the housing benefit

   • FMV  of the housing, including any applicable GST/HST and PST
   • minus Any amounts your employee reimbursed you
   • equals This is the total value of the housing benefit to be included on the T4 slip using code 30 and box 14

   Calculate the utilities benefit

   • Amount for the utilities, including any applicable GST/HST and PST
   • minus Any amounts your employee reimbursed you
   • equals This is the total value of the utilities to be included on the T4 slip using code 30 (if eligible to claim the clergy residence deduction) or code 40 (if not eligible) and box 14

   If you provided a taxable allowance, the value of the benefit is the amount of the allowance.

   The amounts must be included in the pay period they were received or enjoyed.

   Example 1 - Calculations

   A regular minister of a religious denomination was paid an annual salary of $35,000 and provided a rent-free residence valued at $18,000 annually. In addition, the minister received $1,500 annually for utilities. The minister will be claiming the clergy residence deduction and has given his employer a letter to that effect.

   Calculate the housing benefit

   • $18,000 is the FMV of the housing
   • minus $0 because the minister does not reimburse his employer for the rent
   • equals $18,000 is the total value of the housing benefit to be included on the T4 slip using code 30 and box 14

   Calculate the utilities benefit

   • $1,500 is the amount for the utilities
   • minus $0 because the minister does not reimburse his employer for the utilities
   • equals $1,500 is the total value of the utilities to be included on the T4 slip using code 30 (if eligible to claim the clergy residence deduction) or code 40 (if not eligible) and box 14
   Example 2 - Calculations

   A member of the clergy was paid an annual salary and a monthly cash allowance of $600 for his residence ($7,200 per year). The clergy member did not advise his employer that he was planning to claim the clergy residence deduction.

   • equals $7,200 is the total value of the benefit to be included on the T4 slip using code 40 and box 14

6. Withhold payroll deductions and remit GST/HST

   The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .

   You must withhold the following deductions:

   • Non-cash and near-cash: Option 1

     Withhold:

     • Income tax
     • CPP
     • EI (do not withhold unless cash earnings were also paid in the pay period)

     Remit:

     • GST/HST in certain situations

   • Cash: Option 2

     Withhold:

     • Income tax
     • CPP
     • EI

     Do not remit:

     • GST/HST (do not remit)

   The amounts must be included in the pay period they were received or enjoyed.

   Example 1

   In 2024, a member of a religious order was paid an annual salary of $35,000 and provided a rent-free residence valued at $18,000 annually. In addition, the member received utilities valued at $1,500 annually. The member completed and provided their employer with Form T1223, and advised their employer in writing that they will be claiming the clergy residence deduction.

   As the member of a religious order is claiming the clergy residence deduction, the employer will not include the rent-free housing and utilities share of the benefit that is equal to the clergy residence deduction in the income from which they withhold income tax deductions or CPP contributions.

   The employer will still withhold income tax and CPP contributions from all of the member’s income after subtracting the authorized reduction.

   The employer will withhold EI premiums on the value of the non-cash housing benefit because the member also received cash earnings in the pay period. The employer will not withhold EI premiums on the value of the utilities benefit as it is considered non-cash.

   The employer will withhold payroll deductions from their income as follows:

   • $35,000 is subject to income tax deductions ($35,000 salary)
   • $53,000 is subject to EI premiums ($35,000 salary + $18,000 housing benefit)
   • $35,000 is subject to CPP contributions ($35,000 salary)
   Example 2

   In 2024, a regular minister of a religious denomination was paid an annual salary of $35,000 and provided a housing allowance of $18,000 annually, paid monthly. The minister completed and provided their employer with Form T1223, completed Form T1213, and sent the two forms to the CRA. They received a letter of authority from the CRA, authorizing them to reduce the income from which withholdings are calculated by $17,000.

   As the minister is claiming the clergy residence deduction, the employer will not include the authorized reduction in the income from which they withhold income tax deductions or CPP contributions. The employer will still withhold income tax and CPP contributions from all of the minister’s income after subtracting the authorized reduction.

   The employer will still withhold EI premiums on the housing allowance as it was received in cash.

   The employer will withhold payroll deductions from their income as follows:

   • $36,000 is subject to income tax deductions (($35,000 salary + $18,000 housing allowance) - $17,000 authorized reduction)
   • $53,000 is subject to EI premiums ($35,000 salary + $18,000 housing allowance)
   • $36,000 is subject to CPP contributions (($35,000 salary + $18,000 housing allowance) - $17,000 authorized reduction)
   Example 3

   In 2024, a member of the clergy was paid an annual salary of $35,000 and did not receive any housing or utilities benefits or allowances. The member completed and provided their employer with Form T1223, completed Form T1213, and sent the two forms to the CRA. The employer received a letter of authority from the CRA, authorizing them to reduce the income from which withholdings are calculated by $10,000.

   As the member is claiming the clergy residence deduction, the employer will not include the authorized reduction in the income from which they withhold income tax deductions or CPP contributions. The employer will still withhold income tax and CPP contributions from all of the member’s income after subtracting the authorized reduction.

   The employer will withhold payroll deductions from their income as follows:

   • $25,000 is subject to income tax deductions ($35,000 salary - $10,000 authorized reduction)
   • $35,000 is subject to EI premiums ($35,000 salary)
   • $25,000 is subject to CPP contributions ($35,000 salary - $10,000 authorized reduction)

    Learn how to calculate deductions and the GST/HST to remit: How to calculate - Calculate payroll deductions and contributions

7. Report the benefit on a T4 slip

   If the benefit is taxable, you must report the following on a T4 slip:

   • Non-cash and near-cash: Option 1

     Report on:

     • Box 14 - Employment income
     • Box 26 - CPP/QPP pensionable earnings
     • Code 30 - Housing or utilities
     • Code 40 - Other taxable allowances and benefits, including utilities when the clergy member does not claim the clergy residence deduction

   • Cash: Option 2

     Report on:

     • Box 14 - Employment income
     • Box 24 - EI insurable earnings
     • Box 26 - CPP/QPP pensionable earnings
     • Code 30 - Housing or utilities
     • Code 40 - Other taxable allowances and benefits, including utilities when the clergy member does not claim the clergy residence deduction
   Example 1

   In 2024, a member of a religious order was paid an annual salary of $35,000 and provided a rent-free residence valued at $18,000 annually. In addition, the member received utilities valued at $1,500 annually. The member completed and provided their employer with Form T1223, and has advised their employer in writing that they will be claiming the clergy residence deduction.

   The employee’s T4 slip will be prepared as follows:

   • $54,500 in box 14 - Employment income ($35,000 salary + $18,000 housing benefit + $1,500 utilities benefit)
   • $53,000 in box 24 - EI insurable earnings ($35,000 salary + $18,000 housing benefit)
   • $35,000 in box 26 - CPP/QPP pensionable earnings ($35,000 salary)
   • $19,500 in code 30 - Housing or utilities ($18,000 housing benefit + $1,500 utilities benefit)
   Example 2

   In 2024, a regular minister of a religious congregation was paid an annual salary of $35,000 and provided a housing allowance of $18,000 annually, paid monthly. The minister completed and provided their employer with Form T1223, completed Form T1213 and sent the two forms to the CRA. They received a letter of authority from the CRA, authorizing them to reduce the income from which withholdings are calculated by $17,000.

   The employee’s T4 slip will be prepared as follows:

   • $53,000 in box 14 - Employment income ($35,000 salary + $18,000 housing allowance)
   • $53,000 in box 24 - EI insurable earnings ($35,000 salary + $18,000 housing allowance)
   • $36,000 in box 26 - CPP/QPP pensionable earnings (($35,000 salary + $18,000 housing allowance) - $17,000 authorized reduction)
   • $18,000 in code 30 - Housing or utilities ($18,000 housing allowance)
   Example 3

   In 2024, a member of the clergy was paid an annual salary of $35,000 and did not receive any housing or utilities benefits or allowances. The member completed and provided their employer with Form T1223, completed Form T1213 and sent the two forms to the CRA. They received a letter of authority from the CRA, authorizing them to reduce the income from which withholdings are calculated by $10,000.

   The employee’s T4 slip will be prepared as follows:

   • $35,000 in box 14 - Employment income ($35,000 salary)
   • $35,000 in box 24 - EI insurable earnings ($35,000 salary)
   • $25,000 in box 26 - CPP/QPP pensionable earnings ($35,000 salary - $10,000 authorized reduction)

    Learn how to report the benefit or allowance: T4 slip - Information for employers

References

Related

IT141R- Clergy Residence Deduction (Archived)

Legislation