The rabbi, the taxman and the meaning of the word 'or': A tax case for grammarians
Earlier this month, the Scrabble community welcomed 2,800 new words into the official international Scrabble dictionary. Now containing over 279,000 words, this orthographic tome is used in tournaments and homes around the world as the official arbiter of all playable words. Among the new words added to acceptable Scrabble play were three two-letter words: ew (an “expression of disgust”), ok and ze (a gender-neutral pronoun.) As avid Scrabble players will attest, two-letter words play an important role in the game. They are the “lifeblood of high-score Scrabble, enabling us to make those high-scoring parallel plays involving many words,” according to Philip Nelkon, four-time U.K. national Scrabble champion, as reported in The Guardian.
This week, a different two-letter word played an essential role in a decision of the Tax Court, in a case involving a Toronto rabbi, the clergy residence deduction and the meaning of the word “or” in the Income Tax Act.
The clergy residence deduction
The purpose of the clergy residence deduction is to provide a subsidy for the use of a clergyperson’s home. This is an exception to the basic rule in the Income Tax Act which generally restricts the ability for individuals to deduct personal and living expenses. Under the Tax Act, to claim the clergy residence deduction, the individual must be a member of a clergy or of a religious order or a regular minister of a religious denomination and generally must be in charge of, or ministering to, a diocese, parish or congregation.
The amount eligible for the clergy residence deduction depends on the clergyperson’s situation. If the clergyperson is provided with free housing, perhaps in a home owned by the church, mosque or synagogue, the fair market rental value of that free housing must be included in the clergyperson’s income as a taxable employment benefit. Under the first subparagraph of the clergy residence deduction rule, however, the clergyperson may then deduct the same amount from his or her income.
Under the second paragraph of the clergy residence deduction rule meant to cover the clergyperson who rents or owns their own residence, a deduction can be taken for either the rent actually paid by the clergyperson for their place of residence or the fair market rental value of such a residence if the clergyperson owns the residence.
During the tax years under review (2014 and 2015), the taxpayer was employed by a Toronto synagogue as its principal rabbi. During those years, the taxpayer lived in a home located within easy walking distance of the synagogue. While the home was legally owned by the synagogue, the taxpayer and his wife were considered to be beneficial owners of 3/8ths of the home, while the synagogue was the beneficial owner of the remaining 5/8ths.
For both the 2014 and 2015 tax years, the synagogue issued a T4 slip to the rabbi indicating the value of the taxable housing employment benefit relating to the 5/8ths of the home the synagogue owned as $45,000. This amount was included in the rabbi’s income as an employment benefit and he claimed a clergy residence deduction of the same amount under the first subparagraph of the clergy residence deduction. The rabbi, however, also claimed an additional clergy residence deduction in the amount of $39,460 in respect of the 3/8ths portion of the home that he and his wife beneficially owned, pursuant to the second subparagraph of the clergy residence deduction rule.
The Canada Revenue Agency disallowed the rabbi’s deduction under the second subparagraph on the basis that clergy residence deduction cannot be claimed under both subparagraphs. The issue before the Tax Court, therefore, was whether whether the word “or” between the first and second subparagraphs of the clergy residence deduction rule is disjunctive or conjunctive.
The ambiguous “or”
For the non-grammarians among us (and for those who have not spent much time poring over our tax statute), when you come across a list of items, rules or conditions in the Tax Act, they are typically joined either by the word “or,” or the word “and.” If they are joined by “or,” the legislative provision is said to be disjunctive meaning that either condition A applies or condition B applies, but not both. If the list is joined by “and,” then both conditions apply at the same time.
In order to determine whether the rabbi was able to claim a clergy residence deduction under the rules in both the first and second subparagraphs, the Tax Court had to decide on the appropriate meaning of the word “or” in the context of the clergy residence legislation.
The judge first began his analysis by applying the seminal rule of statutory interpretation as set out by the Supreme Court of Canada which found that if the words of a particular statute are “clear and plain, they should be given their effect and not be altered by legislative purpose or object.” The judge then turned to the Oxford English Dictionary which states that “or” is “used to coordinate two (or more) sentence elements between which there is an alternative.” While “or” can be conjunctive in limited circumstances, prior jurisprudence concluded that “or” in the ordinary sense is “prima facie disjunctive.”
The judge also focused on the existence of a comma before “or” at the end of the first subparagraph finding it “an important interpretative aid indicating that this ‘or’ is disjunctive.” Quoting prior jurisprudence, “The presence of a comma ‘opens the door to a disjunctive interpretation.’”
Finally, the judge turned to the French version of the clergy residence deduction legislation, where the French word “soit” is used. This roughly translates to “either, or” in English. As prior jurisprudence concluded, “the use of the word ‘soit’ is significant, since it clarifies the French text and since it has no counterpart in the English text. Although both ‘soit’ and ‘ou’ are disjunctive particles used to express an alternative, it was a deliberate choice by the legislator to use these distinct terms to indicate a disjunction.”
The judge therefore ruled that “the ordinary definition, comma placement, and the French version of the provision show that the word ‘or’ in the first subparagraph is disjunctive,” meaning that the rabbi was not entitled to claim clergy expenses pursuant to both subsections.