I have received a small number of queries about the accounting treatment of the housing allowance when a presbyter is living in a parsonage.
Most people will know that as part of the remuneration of a presbyter who is living in a parsonage, a housing allowance is added to the gross earnings of a presbyter and then deducted again after tax. The same value is given as an allowance and subtracted off as a deduction.
As set out in Information Leaflet No. 25 this is done purely for tax purposes to ensure that presbyters and the Church meet their tax obligations under the Income Tax Act. NO CASH CHANGES HANDS.
Some parishes do an entry in their accounts that debits a housing expense code and credits income received from a parsonage. The net effect is nil on the bottom line of the Statement of Financial Performance (Profit and Loss Account) is zero. The entry has no practical accounting affect but in some cases may disadvantage a parish from a compliance point of view.
Why do I say this?
The current Audit Policy of the Church provides for a review to be undertaken when operating revenue as reported in the annual financial accounts is $125,000 or over. If the above entry is done in the accounts for presbyters housing it takes the operating revenue shown in the accounts closer to the $125,000 than is necessary. In some cases it may tip them into requiring a review when they may not need one.
In relation to the new accounting standards which come into effect next year, if the entry is done, it takes the total operating expenditure closer to the Tier 3 cut off, which also happens to be $125,000.
From an accounting perspective, it is over stating your income and it is also over stating your expenses.
The notional value of a parsonage, as calculated in the Information leaflet is NOT a proxy for a market value of the rental of the parsonage so it cannot be used for calculating income lost due the parsonage not being able to be rented out on the open market.
My recommendation is that no entry is undertaken in the accounting system to record a housing allowance as income, then show a housing expense of the same value where a presbyter is living in a parsonage as provide under “Calculations for a Minister Living in a Parsonage” in Information leaflet No. 25.