The Income Tax Act allows for a member of the clergy to receive payment for expenses related to travel in the course of performing ministry and related duties. Such payment must be considered reasonable by Canada Revenue Agency (CRA) and would not be included as taxable income or subject to Canada Pension (CPP) or Employment Insurance (EI) withholdings. If the amount is not deemed reasonable or if there are no accurate records of distance traveled, the entire amount of the allowance will be deemed as employment income.
Reasonable Travel Allowance
CRA considers a travel allowance to be reasonable only if all the following conditions apply:
- the allowance is based on the number of kilometres driven in connection with employment duties;
- the rate per kilometre is reasonable;
- a travel log or accurate record of distances traveled is kept by the employee; and
- the employee is not reimbursed for expenses related to the same use.
The travel allowance may be paid out when the employee turns in his travel log and the per kilometre reimbursement is calculated to establish the reimbursement, or may be paid out as a monthly advance. If such allowance is paid out as an advance, there must be an annual determination of appropriate kilometre based allowance and an accounting to reconcile advances to the actual per kilometre allowance. If an excess has been paid out, the employee must repay the excess amount to the employer. (This type of calculation would also need to be done if the employee left the employment during the year. It would be calculated to the time the employment ceased.)
If a travel allowance is paid out and not included in the employee's income, the employee is generally not entitled to claim his actual expenses, even where these expenses exceed the allowance. Churches might want to look at this matter carefully to give their pastors the best benefit. If the allowance set by the church is significantly less than actual expenses, the church could add the amount of the allowance to the salary, where appropriate deductions would be taken, and the pastor could then claim the actual business travel expense against his income using CRA form T2200, Declaration of Conditions of Employment.
GST Calculation on Travel Reimbursement
Where travel expense is calculated and paid based on kilometres driven, the church treasurer should make a calculation of GST and claim back the rebate amount (50% for religious organizations). The formula for calculating the GST amount that would be included in the travel reimbursement is:
(divided by) 105
Declaration of Conditions of Employment
Where a church may not be in a position to pay a travel allowance or reimburse travel expense, the pastor can claim such business expenses when filing his personal tax return. The employee would need to have a travel log and copies of applicable travel expense receipts to calculate the annual business expense amount. Form T2200, Declaration of Conditions of Employment, would need to be completed. The employee would keep the original signed copy for his records.