Taxation of Communal Organizations Sharing Income

Blackmore v The Queen, 2014 FCA 2010 ( CanLII )

This decision concerns a rarely encountered provision of the Income Tax Act dealing with the income taxation of organizations that share property, income, and the burdens of living communally.

This is an appeal from Blackmore v The Queen, 2013 TCC 264.  At issue was whether the polygamous community at Bountiful, BC, qualified to be taxed as a “communal organization” under Section 143 of the ITA.  [For an interesting insider’s book on Bountiful’s recent legal troubles see Professor Craig E Jones, QC, A Cruel Arithmetic: Inside the Case Against Polygamy (Toronto: Irwin Law Book, 2012).

ANALYSIS

The “Communal Organizations” provisions applies to a “congregation”, defined in subsection 143(4) of the ITA:

143(4) For the purpose of this section,

[…]

“congregation” means a community, society or body of individuals, whether or not incorporated,

(a) the members of which live and work together,

(b) that adheres to the practices and beliefs of, and operates according to the principles of, the religious organization of which it is a constituent part,

(c) that does not permit any of its members to own any property in their own right, and

(d) that requires its members to devote their working lives to the activities of the congregation

Subsection 143(4) also defines a “religious organization” and includes a belief in the existence of a supreme being.  [Note: This definition may be subject to challenge as it excludes religious organizations that do believe in a supreme power or concept but not a being, for example Buddhism, or believe in more than one supreme being, for example Zoroastrianism or Hinduism.]

Section 143 is an exception to the general principle that income tax is imposed on the income of each taxpayer, and is a relieving provision [which must be broadly and liberally interpreted as such].  It operates by deeming the congregation property to be owned by an inter vivos trust taxed at the highest marginal rate.  There is an election available to have the income of the trust attributed to members of the congregation, thereby lowering the tax burden of the community.

The FCA stated that if the community fails to meet any of the four conditions in the definition of “congregation”, then the provision cannot apply, and upheld the TCC decision.

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