Pastors and Paid Staff
All income received by pastors and employees of the church is considered employment income and is subject to payroll deductions. This includes love offerings, fees for weddings & funerals, honorariums. The amount of the gift should not be paid directly to the person but be added to the payroll cheque with applicable taxes deducted.
A one –time gift given to a salaried pastor or employee of the church is considered employment income and is subject to all payroll deductions. The gift amount should not be paid directly to the person but be added to the payroll cheque and taxes taken at the source. The same applies to a volunteer of the church. This will be covered in more detail in the next section.
In some situations, a church will create a staff fund that allows for gifts to be made to help cover the expense of payroll costs for pastors and leaders. This is a common practice for missionaries sent out from the church.
In doing this, the church should determine ahead of time the compensation amounts that will be paid each month and should never be set up in the name of a particular person. The proceeds of this fund are then used to offset the monthly expense.
Where funds received in a month exceed the determined amounts, the excess is not to be paid but kept in reserve to cover future payments. A fundamental requirement in the Income Tax Act, which is enforced by CRA in charity audits, is that a church is to have direction and control over its resources. One proof of that direction and control is a church setting salaries for its employees (a capped amount which represents reasonable maximum compensation for the work done by the pastor and staff).
CCCC Recommendation on Staff Funding accounts:
When a church has volunteers or persons who support the ministry of the church and it is decided that these people will be compensated on a continuous basis for their time, this is considered employment income and is subject to deductions. Whether it’s called a gift, an honorarium, or something else, it is considered employment income by the CRA and falls under the guidelines of the ITA.
Where individuals are paid an honorarium for a single preaching, speaking or other service engagement, it is considered self-employed income to the individual. The church is encouraged to set an amount in their budget for honorariums and then be expended as the situation arises.
If the church gives volunteers such as Sunday school teachers or camp counselors an amount in appreciation for the service they have provided, the amount would be considered a salary whether it is called an honorarium, gift of anything else. If the volunteer work is an integral part of the ministry of the church and is under the overall direction of the church any amount paid is likely to be employment income.
If someone regularly speaks in a church (a lay member preaching once a month) and is paid an honorarium for that, it should be treated as employment income.
Regardless of the amount, the entire compensation in both of these scenarios is applicable to employment deductions and a T4 should be issued.