8 September 2004 External T.I. 2004-0073801E5 - Membership Dues

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: Are membership dues paid to the XXXXXXXXXX deductible?

Position: a) Non-deductible for an employee. b) A self-employed individual may in certain circumstances deduct the annual membership fees.

Reasons: a) The dues are not required to maintain a professional status recognized by statute nor do they meet the requirements of subparagraphs 8(1)(i)(iv) through (vii). b) If the self-employed individual can demonstrate that the fees relate to his or her income from business, the fees may be deductible in computing business income.

2004-007380
XXXXXXXXXX Karen Power, CA
(613) 957-8953
September 8, 2004

Dear XXXXXXXXXX:

Re: Membership Dues

We are writing in reply to your letter of April 20, 2004, which was sent to the Ottawa Tax Services Office and forwarded to the Income Tax Rulings Directorate for reply. You have requested our comments on whether membership dues paid to the XXXXXXXXXX would be deductible by its members.

Our Comments

The particular circumstances in your letter on which you have asked for our views involve a factual situation concerning a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of assistance

The deductibility of membership dues depends on whether the individual requesting a deduction is an employee or is self-employed. We have provided comments with respect to both scenarios.

Employee

Under paragraph 8(1)(i) of the Income Tax Act (the "Act"), an employee may deduct certain dues in computing income from an office or employment. Paragraph 8(1)(i) refers, in part, to:

i) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,...

(iv) annual dues to maintain membership in a trade union as defined

(A) by section 3 of the Canada Labour Code, or

(B) in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,

or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members' conditions of employment or work,

(v) annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer's employer from the taxpayer's remuneration and paid to a trade union or association designated in subparagraph (iv) of which the taxpayer was not a member,

(vi) dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and

(vii) dues to a professional board, the payment of which was required under the laws of a province...

Based on the limited information provided it appears that annual membership fees paid to XXXXXXXXXX by an employee are not deductible pursuant to paragraph 8(1)(i) of the Act as they are not incurred to maintain a professional status recognized by statute nor do they meet the requirements of subparagraphs (iv) through (vii). Furthermore, there are no other provisions within the Act that would permit the deduction of XXXXXXXXXX fees to an employee.

Self-Employed

Paragraph 2 of Interpretation Bulletin IT-211R states that:

"Subject to the limitations of subparagraph 18(1)(l)(ii), membership fees in professional associations, trade or commercial associations, learned societies, service clubs and cultural organizations will be allowable deductions from income if they can reasonably be shown to relate to the earning of income from the business or property."

In our view, if a self-employed individual can demonstrate that membership in XXXXXXXXXX relates to the earning of income from his or her business, XXXXXXXXXX annual membership fees would be deductible by the individual in computing business income. We would also note that, as indicated in paragraph 5 of IT-211R, initiation or admission fees paid to an organization are eligible capital expenditures (see IT-143R3) where it can be shown that annual membership fees of the organization are allowable deductions in computing income of a business. Otherwise they are a non-deductible capital outlay.

Copies of the above publications are available from your local tax services office or on the Internet at the following site - http://www.cra-arc.gc.ca/formspubs/type/menu-e.html.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch