11 June 2007 External T.I. 2006-0213981E5 - Processing 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: 1.) Is it acceptable to treat all professional dues paid by an Employer as taxable benefits to employees? 2.) Is it acceptable to report professional dues, which are a taxable benefit, in Box 14 of the T4 slip, with an explanatory reference in the "Other Information" area using Footnote Code 40, "Other taxable allowances and benefit?" 3.) Is it acceptable for an Employer to instruct employees to claim the professional membership dues included on their T4 as a deduction on line 212 of their income tax return?

Position: 1.) Question of fact. Depends upon who the primary beneficiary is. When membership is not a condition of employment, the question of primary beneficiary must still be resolved in order to determine whether a taxable employment benefit arises. The employer will be responsible for making this determination and must be able to justify its decision if so requested by the CRA. 2.) Yes. In situations in which it is determined that a taxable employment benefit results from the payment of professional membership dues, the amount must be reflected on the T4 slip. 3.) Question of fact. Professional membership dues paid by an employer and included in the employee's income as a taxable employment benefit, are deductible by the employee provided the criteria in subparagraph 8(1)(i)(i) of the Income Tax Act are met.

Reasons: Previous positions taken.

								2006-021398
XXXXXXXXXX 							Joy Bertram
	   							CGA, CPA(vt)
June 11, 2007

Dear XXXXXXXXXX:

Re: Annual Professional Membership Dues

We are writing in response to your letter of November 8, 2006 regarding annual professional membership dues paid by an employer on behalf of its employees. We apologize for the delay in our response.

Your letter indicated that in your organization, the professional membership dues of employees are either reimbursed to the employee or paid directly by the employer. The payments are in the managers' discretion and are not necessarily reviewed to assess the relevancy to the employee's position or to determine whether the employer or employee is the primary beneficiary. The amount reimbursed to or paid on behalf of the employees in this regard has historically been recorded in Box 14 of the T4 slip, with an explanatory reference in the "Other Information" area using Footnote Code 40, "Other taxable allowances and benefits." The employer then instructs its employees to claim the professional membership dues as a deduction in line 212 of their income tax returns. You have asked whether the foregoing procedure is acceptable.

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. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. 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 CRA's views on professional membership dues are discussed in Guide T4130, "Employer's Guide toTaxable Benefits" as well as in ¶47 of Interpretation Bulletin IT-470R, "Employees' Fringe Benefits." In both publications it is noted that the payment of professional membership fees by an employer on behalf of employees 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 no amount should be included in employment income as a taxable benefit.

However, even when membership is not a condition of employment, the question of primary beneficiary must still be resolved in order to determine whether a taxable employment benefit arises. The employer will be responsible for making this determination and must be able to justify its decision if so requested by the CRA.

In situations in which it is determined that a taxable employment benefit results from the payment of professional membership dues, the amount must be reflected on the T4 slip. As noted on page 7 of RC4120, "Employer's Guide - Filing the T4 Slip and Summary", the amount paid, including any GST/HST or other applicable taxes should be included in employment income in Box 14 of the T4 slip. As discussed on page 11 of RC4120, it is also appropriate to use Footnote Code 40 to reflect the nature and amount of the particular benefit included in Box 14.

Professional membership dues paid by an employee (and not reimbursed by an employer) or those dues paid by an employer and included in the employee's income as a taxable employment benefit, are deductible by the employee provided the criteria in subparagraph 8(1)(i)(i) of the Income Tax Act are met. As explained in ¶1 and 2 of Interpretation Bulletin IT-158R2, "Employees' Professional Membership Dues," to be eligible for a deduction from employment income, there must be a reasonable degree of relationship between the association membership and the individual's employment duties. Further, the dues must be annual professional membership dues (as opposed to entrance fees) necessary to maintain a professional status recognized by statute. It is the employee's responsibility to determine whether the professional dues paid qualifies for the deduction. Because not every employee will necessarily be entitled to a deduction for professional membership dues, it may be misleading for an employer to provide generic instructions to its employees to claim the deduction. If employer comments in this regard are considered necessary, it may be preferable to refer employees to IT-158R2 and note that a deduction may be available.

We trust that these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch