Clergy Residence Deduction: The Employer's T1223 Duties

Your minister asks you to sign a form so that less tax comes off each pay. What you are being asked to do has three parts, only one of which is signing anything, and the order matters. The deduction belongs to the minister; the withholding decision belongs to you, and what authorises it depends on who provides the housing. This guide covers what the employer certifies, the two routes to reducing tax at source, what happens to Canada Pension Plan contributions, and what still appears on the T4.

What is the employer actually being asked to certify?

Part B of Form T1223, to the best of your knowledge. The employee completes Parts A and C and asks you to complete Part B.

Part B confirms the employment facts behind the claim. Two tests sit underneath it. The status test asks whether the person is a member of the clergy, a regular minister of a religious denomination, or a member of a religious order. The function test asks what they actually do, whether that is ministering to a congregation, having charge of a congregation, or engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.

Your certification is to the best of your knowledge, which is a real limit rather than a formality. You are confirming the employment facts you know, not adjudicating the person's theology or their entitlement to the deduction.

The deduction itself is the member's to claim on their own return. Nothing you sign creates it, and nothing you sign guarantees CRA will accept it.

What happens when the member provides their own housing?

They file two forms with CRA, and you wait for the letter that comes back. This is the route for a cash housing allowance, or where the minister owns or rents their own home.

The employee completes the T1223 and gives it to you for Part B, and also completes Form T1213, Request to Reduce Tax Deductions at Source. They send both to CRA. If CRA approves, it issues a letter of authority, which the employee gives to you.

Only then can you reduce anything, and only by the amount on the letter. The reduction applies to income tax and Canada Pension Plan contributions only, not to employment insurance. You reduce the income used to calculate income tax deductions and Canada Pension Plan contributions by that amount, and by nothing more. A verbal request, a completed T1223 on its own, or a number the minister worked out at home are not authority to reduce withholding.

The letter applies to a period. Renew it each year, and put a reminder in the autumn so the approval arrives before the January payroll rather than in April.

What happens when the church provides the residence?

A different route, without the T1213. Where the organisation provides a rent-free or subsidised residence and utilities, the employee gives you the completed T1223 and tells you in writing that they will claim the deduction.

On that basis you exclude, from the income used to withhold income tax and Canada Pension Plan contributions, the share of the housing and utilities benefit equal to the deduction. The benefit and the deduction largely offset each other, which is why no letter of authority is needed to get the withholding right.

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Keep both documents on the payroll file. The written notice is short, and it is the only thing standing between your treatment and an unsupported reduction.

What does the deduction do to Canada Pension Plan contributions?

It reduces pensionable earnings, but only by the authorised amount. CRA's employers' guide lists amounts for the residence of a clergy member who receives the deduction among amounts not subject to Canada Pension Plan contributions.

So a minister claiming the deduction may have lower pensionable earnings than their gross pay suggests, and both the employee contribution and your matching contribution fall accordingly. Where earnings remain above the year's maximum, the reduction changes nothing, because contributions were already capped.

Over-contributing is not harmless. The employee gets their share back on filing; the organisation's share is a real cost that has to be recovered through an amended return rather than a refund cheque.

Employment insurance does not follow the Canada Pension Plan treatment. A cash housing allowance stays in insurable earnings. Where the organisation provides the residence, the housing benefit is insurable because the member also receives cash earnings in the pay period, while a non-cash utilities benefit is excluded. In CRA's example a $35,000 salary with an $18,000 housing amount gives $53,000 of insurable earnings against $35,000 of pensionable earnings.

What still goes on the T4?

The housing benefit or allowance is still reported as employment income. Reducing withholding does not remove anything from the slip.

The employer may reduce the income used to calculate income tax and Canada Pension Plan contributions, and must still report the housing or utilities benefit or allowance on the T4. It forms part of employment income in box 14, and the value of the housing and any utilities is also reported under code 30. In CRA's example the slip shows $54,500 in box 14, $53,000 in box 24 for insurable earnings, $35,000 in box 26 for pensionable earnings and $19,500 under code 30. The reduction affects withholding; the reporting is unchanged.

Pensionable earnings are reported on their own, reflecting the authorised reduction. So the slip will show a box 14 figure and a lower pensionable earnings figure, and the difference should tie back to the letter of authority or the written notice on file.

Reconcile that at year end alongside the rest of the payroll. If the two figures cannot be explained from the file, the reduction was applied on something other than the authority.

What if you are not sure the person qualifies?

Complete Part B on what you know, and do not guess at the rest. The certification is to the best of your knowledge.

Where the facts are genuinely unclear, say so rather than signing around it, and send the question to CRA or to a payroll adviser before the first reduced pay run. Signing a form you do not believe and reducing withholding on it are two separate exposures, and the second one is yours.

Some arrangements are unusual, such as a member serving several congregations or an administrator with no pastoral charge. Treat these as questions to answer, not templates to apply. Whether a role meets the status and function tests can depend on how the denomination and the charity’s governing documents define it, so it may be worth having a charity lawyer review the position before you sign. 

Quebec has its own form, TP-76, for the equivalent provincial deduction, and organisations with Quebec employees deal with Revenu Quebec separately.

How should the housing allowance sit in your books?

In its own compensation account, not folded into a general stipend line. The year-end reporting depends on the two being separable.

Set up a housing allowance account beside salary, and where the organisation provides a residence, record the occupancy costs where they belong and track the benefit calculation on a schedule rather than in the general ledger. A chart of accounts that carries the allowance separately is doing the work when the T4 is prepared.

For the annual return, all of it is compensation. The allowance and the value of the benefit form part of the total your charity reports on Schedule 3, and the same amounts allocate across the functional expenditure lines with the rest of your payroll.

Keep the payroll file complete: the T1223, the letter of authority or the written notice, the calculation, and the year-end reconciliation. That file is what answers any later question about a line on a T4. Our scope of service covers maintaining those bookkeeping records and the year-end reconciliation. For churches that want the allowance, the benefit schedule and payroll kept separate and reconciled month to month, ongoing charity bookkeeping support handles that day-to-day work. Our note on common pitfalls covers the surrounding bookkeeping. 

Frequently Asked Questions

Can we reduce tax at source as soon as the minister gives us the T1223?

Only where the organisation provides the residence, and then on the basis of the T1223 plus written notice of the claim. Where a cash allowance or the minister's own home is involved, you need CRA's letter of authority first.

Do we still report the housing allowance on the T4?

Yes. The benefit or allowance is reported in box 14 with the applicable code, even where you were authorised to reduce the income used for withholding.

Does the deduction change Canada Pension Plan contributions?

It can. Amounts for the residence of a clergy member who receives the deduction are among the amounts not subject to Canada Pension Plan contributions, so pensionable earnings may fall, within the year's maximum.

Who decides whether the minister qualifies?

The member claims the deduction and CRA assesses it. The employer certifies the employment facts in Part B to the best of its knowledge.

How often does the paperwork have to be redone?

The letter of authority applies to a period, so plan on renewing each year, and request it in the autumn so it is in place for January.

We have a part-time minister and are unsure about the function test.

Do not resolve it on the payroll. Confirm the position before the first reduced pay run, which is the kind of question we take on our FAQ page.

This article covers the employer's payroll responsibilities for the clergy residence deduction as at September 2026, following CRA's guidance on housing provided to a member of the clergy. It does not cover the member's own entitlement or the calculation of their deduction, which belong with the member and their advisor.