• A religious congregation’s “Halo Effect” is the dollar value of its socio-economic contribution to society.
• As registered charities, religious congregations are usually exempt from paying property tax, income tax, and GST/HST. They are also able to issue charitable tax receipts for donations received, which donors can use to reduce their own taxes owing.
• The Halo Effect, and the value of tax exemptions and credits, were calculated for sixty-four Christian congregations in Canada.
• The congregations’ Halo Effect is 10.47 times the value of the tax exemptions and credits, on average. Put differently, the value of the tax exemptions and credits is less than one-tenth the value of what these congregations contribute socio-economically.
• The net-positive socio-economic contribution (Halo Effect, minus the value of tax exemptions and credits) of all religious congregations in Canada is an estimated $16.5 billion.
• If religious congregations ceased being tax-exempt, their Halo Effect would likely decline. Since they would no longer be able to issue charitable tax receipts, their revenue would likely decline, and since they would need to start paying taxes, their funds available for other spending would likely decline also.
• If the congregations’ Halo Effect declined by more than 10 percent, society would be worse off, socio-economically speaking, by removing the tax exemptions and credits.

Religious organizations in Canada, if they are registered charities, are exempt from paying various forms of taxes. Recent media reports from Iqaluit, Montreal, and Nova Scotia suggest that some Canadians are questioning whether these organizations should be allowed to maintain some or all of these exemptions. 1 1 “Iqaluit Mayor Wants City’s Churches to Be Taxed,” CBC News, June 25, 2021, https://www.cbc.ca/news/canada/north/iqaluit-mayor-church-tax-residential-schools-1.6080953; R. Bruemmer, “Montreal Churches Fear Stricter Taxation After Visits from Inspectors,” Montreal Gazette, May 20, 2017, https://montrealgazette.com/news/local-news/montreal-churches-fear-stricter-taxation-after-visits-from-inspectors/; M. Prentiss, “Churches Take Tax Hit After Provinces Strips Exemption for Daycares,” CBC News, October 28, 2018, https://www.cbc.ca/news/canada/nova-scotia/nova-scotia-revokes-tax-exempt-status-for-church-daycares-1.4881316.

In 2019, the Centre for Inquiry Canada suggested that religion “costs” Canadians up to $3 billion each year in tax exemptions. 2 2 S. Dunham, “The Cost of Religion in Canada. Part 1: Canadian Taxpayers Funding the Advancement of Religion,” Centre for Inquiry Canada, 2019, 1, https://centreforinquiry.ca/wp-content/uploads/2020/01/CoR-Part-1-v4.1-1.pdf. One commonly heard argument for removing tax-exempt status is that religious congregations are essentially clubs, primarily benefiting their own members. The American comedian and political commentator Bill Maher has expressed this view. “The atheists, agnostics, and anti-religionists are 22.8 percent [of the American population]. That means that almost a quarter of us in America are being forced to subsidize a myth that we’re not buying into. Why am I subsidizing their Sunday morning hobby?” 3 3 B. Maher, “Real Time with Bill Maher: New Rule—Tax the Churches (HBO),” YouTube video, originally aired April 15, 2016, https://www.youtube.com/watch?v=IPZAYgovau0.

Is it accurate to say that the wider society is “subsidizing” religious congregations? This paper seeks to answer this question by comparing the dollar value of congregations’ socio-economic contribution with the dollar value of the tax exemptions they receive and the tax credits that their donors receive. It finds that the socio-economic contribution is an estimated ten times greater than the tax exemptions and credits.

Tax exemptions for charities, as they have developed in British law and later in Canadian law, are premised on the understanding that charities benefit society as a whole and they relieve the state of costs that it might otherwise bear. The Statute of Charitable Uses, enacted in England in 1601, granted churches and other entities an exemption from taxes on the basis that these organizations benefited the wider public. The Pemsel case of 1891 continues to be a reference point for charities law and identifies four categories of public benefit:

“Charity” in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads. 4 4 John Frederick Pemsel v. the Commissioners for Special Purposes of the Income Tax, House of Lords, July 20, 1891, as reported in Law Reports, Council of Law Reporting (London: Clowes, 1891), 583, quoted in R. Watson, “Charity and the Canadian Income Tax: An Erratic History,” Philanthropist (1985): 3–21, 1, https://thephilanthropist.ca/1985/01/charity-and-the-canadian-income-tax-an-erratic-history/.

The Canadian Constitution Act, 1867, section 92(7), gives the provinces jurisdiction over legislation of charities. Property taxes are within the purview of the provinces and in some cases are delegated to municipalities. The federal government also plays a part in charities law, through the Canada Revenue Agency. Charities that are registered with the Canada Revenue Agency receive the tax exemptions specified in the federal Income Tax Act. 5 5 Government of Canada, How to Draft Purposes for Charitable Registration, Canada Revenue Agency, CG-019, https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/guidance-019-draft-purposes-charitable-registration.html; Government of Canada, Guidelines for Registering a Charity: Meeting the Public Benefit Test, Canada Revenue Agency, CPS-024, https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/policy-statement-024-guidelines-registering-a-charity-meeting-public-benefit-test.html.

Religion and religious organizations produce benefits that are experienced at the individual and communal levels. A large body of social-science research has documented these contributions.

It is important to recognize that the most important or central contributions of religious belief and activity cannot be quantified in economic terms. The following list combines benefits that can and cannot be measured in dollars. 6 6 The content and phrasing of the bullet points draw primarily on J. Pellowe, “The Impact of the ‘Advancing Religion’ Charitable Sub-sector in Canada,” Submission to the Special Senate Committee on the Charitable Sector, November 23, 2018, https://www.cccc.org/news_blogs/wp-content/uploads/2019/03/CCCC-Senate-Brief-Advancing-Religion-1.pdf; J. Pellowe, “The Public Benefit of ‘Advancing Religion’ as a Charitable Purpose: A Canadian Perspective,” in The Status of Religion and the Public Benefit in Charity Law, ed. B.W. Bussey (London: Anthem Press, 2020).

• Religious congregations provide opportunity for people to explore and cultivate beliefs, participate in rituals of meaning, find support in times of pain and sorrow, and foster relationships in community. Communities of faith and places of worship are where people often gather to explore answers to life’s biggest questions, questions to which all Canadians seek at least provisional answers: Why are we here? Where do I belong? And what is the meaning of life?
• Religion and the freedom of religion form the bedrock of modern liberal democracies. Religious freedom is viewed as a prototypical freedom that has led to freedom of assembly, speech, and the press.
• The ethical teachings of religions inculcate pro-social values and attributes, such as honesty, generosity, and concern for others. These attributes in turn contribute to societal trust and well-being. If we consider the impact of these attributes specifically on the economy, we note that the degree of honesty and trustworthiness in a society affects the strength of formal and informal contracts and the rule of law, which all thriving economies depend on.
• Religious involvement is linked with better personal outcomes, in such areas as more-resilient marriages, larger social networks, better school attendance, and better physical and mental health. These expanded levels of well-being help to reduce demands on government services such as policing, rehabilitation, social supports, and health care.
• Religious Canadians contribute disproportionately in volunteering, to both religious and non-religious organizations. 7 7 M. Vézina and S. Crompton, Volunteering in Canada, Statistics Canada (April 16, 2012), p. 44. https://www150.statcan.gc.ca/n1/en/pub/11-008-x/2012001/article/11638-eng.pdf?st=sm6wsHcn. Vézina and Crompton also note that “it is a basic axiom of research in the non-profit sector that more religious people exhibit higher rates of giving, participating and volunteering” (44). As of 2018, 61 percent of those who attended religious services weekly participated in volunteering. Their average annual volunteer hours were 179. These weekly attenders constituted 14 percent of the population and contributed 29 percent of total volunteer hours. Of those who attended religious services less often or not at all, 37 percent participated in volunteering, with 117 hours on average. 8 8 Statistics Canada, Table 45-10-0045-01, Volunteer Rate and Average Annual Volunteer Hours, by Definition of Volunteering and Religious Attendance (January 26, 2021), https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=4510004501.
• Religious Canadians contribute disproportionately in charitable giving, to both religious and non-religious charities. 9 9 M. Turcotte, Charitable Giving by Canadians, Statistics Canada (April 16, 2012), p. 30, https://www150.statcan.gc.ca/n1/pub/11-008-x/2012001/article/11637-eng.pdf. As of 2018, 82 percent of those who attended religious services weekly were donors (to any charity or non-profit organization). The average annual amount was $1,503. These weekly attenders constituted 14 percent of the population and their giving amounted to 45 percent of all dollars donated. Of those who attended religious services less often or at all, 65 percent made a charitable donation, with an average annual amount of $378. 10 10 Statistics Canada, Table 45-10-0038-01, Donor Rate and Average Annual Donations, by Religious Attendance (January 26, 2021), https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=4510003801.

As this paper is concerned with comparing religious congregations’ socio-economic contribution with the value of the tax exemptions and credits received, we will focus only on the benefits of religion that can be measured in dollar terms. And in order to make use of prior research, described below, we will focus only on the subset of religious charities that are religious congregations, such as temples, churches, and gurdwaras.

A series of research studies led by University of Pennsylvania researcher Ram Cnaan has sought to measure in dollar terms the contributions that religious congregations make to their local communities. 11 11 R.A. Cnaan, R.J. Wineburg, and S.C. Boddie, The Newer Deal: Social Work and Religion in Partnership (New York: Columbia University Press, 1999); R.A. Cnaan et al., “If You Don’t Count It, It Doesn’t Count: A Pilot Study of Valuing Urban Congregations.” Journal of Management, Spirituality and Religion 10 (2013): 3–36; R.A. Cnaan and S. An, “Even Priceless Has to Have a Number: Congregational Halo Effect.” Journal of Management, Spirituality and Religion 15, no. 1 (2018): 64–81. This contribution has been termed “Halo Effect.”

The methodology used in those American studies was adapted for the Canadian context and applied in several studies since 2016, beginning with a ten-congregation study co-sponsored by Cardus, the School of Urban and Regional Planning at Toronto Metropolitan University (Ryerson), and the City of Toronto’s Social Research and Analysis Unit. As of 2023, the impact of more than one hundred congregations across the country has been studied. 12 12 For details, see M. Wood Daly, “Valuing Toronto’s Faith Congregations,” Cardus, June 2016, https://www.cardus.ca/research/spirited-citizenship/research-report/valuing-torontos-faith-congregations/; M. Wood Daly, “Taxing Faith: Halo Effect and the Implications of Taxing Canadian Places of Worship,” Studies in Religion / Sciences Religieuses 50, no. 3 (2021): 1–22, https://doi.org/10.1177/0008429820957643; and "Welcome to the Halo Project," https://haloproject.ca.

The Halo Effect is calculated by summing the dollar value of the following. Religious congregations in Canada:

• Provide space, often at below-market rate or for free, for groups to hold cultural and artistic events, recreation and sports, education, social services, and other activities. 13 13 A recent study in Ontario found that one-third of the community groups that currently use congregational space do so at no cost, and that over 50 percent of groups surveyed indicated that if the place of worship that they were currently using closed its doors, they would not be able to find another affordable place for their group’s activities. See K. Fry and M. Friesen, “No Space for Community: The Value of Faith Buildings and the Effect of Their Loss in Ontario,” Faith and the Common Good, 2020, 1, https://www.faithcommongood.org/community_spaces_faith_places_survey_results.
• Provide programs and services, such as addiction recovery, counseling and mental-health services, childcare, refugee sponsorship and settlement services for newcomers, education, and food banks.
• Contribute to the economy through direct spending.
• Generate economic activity through the “magnet effect” of attracting attendees to bar/bat mitzvahs, funerals, weddings, and the like, who then spend their dollars at hotels, restaurants, and other businesses.
• Provide open space, which has environmental and recreational value.

The latest data suggest that for every dollar that a typical Canadian congregation spends, the local community receives on average $3.39 in socio-economic benefit. When applied to congregational spending for the 2019 tax year, the socio-economic contribution to Canada is more than $18 billion. 14 14 See "Welcome to the Halo Project." When the impact of other religious organizations, such as hospitals and schools, is added to congregational impact, even a modest estimate of the socio-economic contribution of religious organizations to Canadian society approaches $67 billion. See B. Grim and M. Grim, “The Hidden Economy: How Faith Helps Fuel Canada’s GDP,” Cardus, 2020,19, https://www.cardus.ca/research/spirited-citizenship/reports/the-hidden-economy-how-faith-helps-fuel-canadas-gdp/.

For the present study, the researcher calculated the Halo Effect for sixty-four congregations. It is important to note that these congregations represent a convenience sample. They are all Christian congregations, and are predominantly United Church and Fellowship Baptist because the researcher conducted Halo studies at the request of these denominations. Both groups were asked, however, to submit data from congregations representing a variety of geographic regions, membership size, and budget size. A study of other faiths, or other Christian congregations, might produce a different result.

The congregations were studied between 2018 and 2020. Their combined total expenditure per year was about $54 million. The average Halo Effect per congregation was about $2.8 million (median of about $2.1 million), and the combined total Halo Effect value was $181.3 million. This means that, on average, society received $3.98 (median of $3.39) of benefit for every dollar that these congregations spent.

Religious congregations that are registered charities in Canada are eligible to receive certain tax exemptions. Tax law is complex. The following bullet points provide accurate but simplified information about these exemptions. Registered charities are:

• exempt, in most cases, from paying property tax, income tax, and goods and services tax (GST) or harmonized sales tax (HST), or receive a rebate for these;
• able to issue charitable tax receipts for donations received, which donors can use to reduce their own taxes owing;
• able to receive gifts from other registered charities; and
• able to provide lower remuneration to religious workers, on the premise that the clergy-residence deduction enables these workers to realize an equivalent after-tax income since the value of that benefit is excluded from tax. 15 15 Government of Canada, T1223: Clergy Residence Deduction (2021), https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1223.html.

The researcher’s conversations with religious leaders suggest that the exemption from property tax and GST/HST and the ability to issue tax receipts to donors are the benefits that have the greatest impact on a congregation’s finances. For the purpose of this research, then, the congregation’s tax exemptions and credits were defined as the sum of the following:

• An amount equal to the estimated property tax that would be levied if the congregation was not tax exempt.
• An amount equal to the sales-tax rebates that federal and provincial governments currently provide.
• An amount equal to the personal tax credits that various levels of government would no longer credit back to donors who give to the congregation.

To estimate this property-tax value, the assessed value of each congregation’s property was determined using publicly available data. 16 16 The source of data differed depending on the jurisdiction. For example, in Ontario, the Municipal Property Assessment Corporation is responsible for assessing the value of properties. See Municipal Property Assessment Corporation (MPAC), MPAC Fact Sheet (2023), https://www.mpac.ca/en/News/FactSheet/MPACFactSheet. Once the assessed property value was obtained, the municipal tax table was used to determine the amount of tax the congregation would pay if it were taxed.

As a hypothetical example, consider a church in Kitchener, Ontario, with an assessed property value of $1 million. The municipal tax table for Kitchener can be used to determine the highest rate of tax that could be levied for this property if it ceased being used as a church and was converted to another use. The highest rates are levied on multi-dwelling or commercial uses. In 2023, the multi-dwelling tax rate in Kitchener was 2.945156 percent. Thus, for this church property in Kitchener, the result is $29,452 that is not being collected in property taxes.

Congregations are able to receive a partial rebate on the sales taxes they pay. 17 17 Canada Revenue Agency, RC4034 GST/HST Public Service Bodies’ Rebate (2017), https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4034.html. Each congregation provided the researcher with the value of the rebate they received, as given on their annual income statement.

Congregations can issue charitable tax receipts, which individuals can use as a credit on their income-tax return. To assess the value of this credit, each congregation provided the researcher with the total number of individuals who received charitable tax receipts during the previous year, and the total amount receipted. From this, the mean average donor contribution for each congregation was calculated. The Charitable Tax Credit Calculator provided by Canada Helps was then used to calculate the average tax credit that each donor received. 18 18 “Charitable Tax Credit Calculator,” Canada Helps, 2023, https://www.canadahelps.org/en/tax-time/.

The three values that make up the tax exemptions and credits were calculated for the sixty-four congregations. The total exemption and credits was an estimated $24.8 million, broken out as follows:

• $5.9 million in property-tax exemptions (24 percent).
• $1.1 million in sales-tax rebates (4 percent).
• $17. 8 million in personal tax credits (72 percent).

The data for each congregation are provided in the appendix.

The average Halo Effect of these congregations is therefore 10.47 times the average value of the tax exemptions and credits. The “subsidy” that these congregations receive by being tax-exempt is less than one-tenth the value of what these same congregations are contributing socio-economically.

These congregations, on average, provide 10.47 times the benefit that taxation would provide—and this is assuming that all of the revenue that the state would take in from this hypothetical taxation would be applied to the same kinds of needs that the congregations are currently addressing, and applied in the same local community.

Let us apply these findings to the country as a whole. A recent Cardus study has found that Canada’s religious congregations make a socio-economic contribution of approximately $18.2 billion annually. 19 19 “Welcome to the Halo Project.” If the Halo Effect is 10.47 times greater than the tax exemptions and credits, this means that Canadian congregations receive some $1.7 billion in tax exemptions. There is a net positive socio-economic contribution to Canadian society of about $16.5 billion.

The net positive contribution of $16.5 billion represents the contributions of congregations only; it does not consider the contributions of other religious entities such as schools, health-care facilities, and relief and service organizations.

Nor does it consider how the Halo Effect would change if congregations’ tax-exempt status were removed. For example, how would donations to the congregation be affected if donors could no longer receive a charitable tax receipt? Since charitable tax receipts serve as an incentive to giving, it is reasonable to assume that the congregations’ revenue would decrease by some percentage, despite donors’ ongoing affinity for their congregations. 20 20 A substantial body of research has examined how various changes in tax law might affect charitable giving. The details lie beyond the scope of this paper.

Further, if the tax-exempt status were removed, the allocation of the congregation’s financial resources would need to change. Some portion of the funds currently going toward direct spending in the community, or to programs such as food banks and refugee sponsorship, would need to go to taxes instead.

These and other considerations suggest that the Halo Effect would decline if congregations were no longer tax exempt. As earlier stated, the dollar value of the tax exemptions and credits is approximately 10 percent of the dollar value of the Halo Effect. If the Halo Effect declined by 10 percent, the loss of tax exemption would accomplish no benefit to society, socio-economically speaking, since the tax revenue that came with it would be entirely offset by the Halo Effect decline. If the Halo Effect declined by more than 10 percent, society would actually be worse off, socio-economically speaking.

A decline of 10 percent is not unreasonable as a scenario. Thus, as a purely socio-economic calculus, Canadian society is better off maintaining the existing tax exemptions and credits for religious congregations.