14 April 2004 External T.I. 2004-0058301E5 - Employer Paid Professional Member Initiation Fees

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Whether professional initiation or admission fees paid by an employer on behalf of its employee is a taxable benefit to the employee. 2. Whether such fees paid by an employer on behalf of its employee are deductible by the employer.

Position: 1. The payment of professional initiation or admission fees is a taxable employment benefit to the employee under paragraph 6(1)(a). 2. The professional initiation or admission fees paid by an employer on behalf of its employee are deductible by the employer.

Reasons: 1. The payment of professional initiation or admission fees confers an economic advantage which is primarily for the employee's benefit. 2. The professional initiation or admission fees paid on behalf of an employee are a deductible business expense of the employer where the amount of the payment is included in the employee's income under paragraph 6(1)(a).

XXXXXXXXXX 2004-005830
Kathryn McCarthy, CA
April 14, 2004

Dear XXXXXXXXXX,

Re: Employer Paid Professional Membership Initiation or Admission Fees

We are writing in response to your letter of January 19, 2004, concerning the above-noted issue.

Your letter concerns the deductibility of professional initiation or admission fees paid by an employer on behalf of its employee and whether such a payment is a taxable benefit to the employee. In the scenario you described, a professional employer is requested by an employee to pay the employee's initiation or admission fees as well as the annual fees to a professional legal or accounting organization. It is your understanding that where a payment for annual professional membership fees or education costs is made by an employer and it can reasonably be determined that the primary beneficiary of the payment is the employer, the payment is not a taxable benefit of the employee under paragraph 6(1)(a) of the Income Tax Act (the Act) and is a deductible business expense of the employer. You expect a similar tax treatment for the payment of initiation or admission fees to a professional organization since, in your view, it is the employer who primarily benefits from the payment which is necessary to hire and retain professional employees.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

The Canada Revenue Agency's general position on the taxable status of employer-paid annual professional membership fees is outlined in Interpretation Bulletin IT-470R (Consolidated), Employee's Fringe Benefits, which is available on our website at www.cra-arc.gc.ca. As noted in paragraph 47 of IT-470R, the payment of annual professional membership fees by an employer on behalf of an employee is not a taxable benefit if the employer is the primary beneficiary of the payment. Whether the employer is the primary beneficiary is a question of fact. When the professional association is related to an employee's duties and membership is a requirement of employment, the fact that the employer is the primary beneficiary will be accepted and consequently, there is no taxable benefit resulting from the payment. Where the employer is the primary beneficiary of the payment of an employee's annual professional membership fees, the amount paid is a deductible business expense of the employer.

It should be noted that the position outlined above is in respect of annual employer-paid professional membership fees. Where the employer pays initiation or admission fees to a professional organization on behalf of an employee, it is our view that the payment is a taxable employment benefit to the employee under paragraph 6(1)(a) of the Act. In our view, there is a material difference between ongoing annual membership dues and initiation or admission fees which are paid only once. The fact that the employer pays initiation or admission fees to assist in the recruitment or retention of qualified professionals does not make the payment non-taxable. In our view, the acquisition of a professional designation by an employee provides an enduring benefit to the employee which is not tied to any particular employment situation and primarily confers an economic advantage on the employee, not the employer. The professional initiation or admission fees paid on behalf of an employee, however, are a deductible business expense of the employer where the amount of the payment is included in the employee's income under paragraph 6(1)(a).

We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch