26 November 2013 External T.I. 2013-0492411E5 - Union 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: Whether dues are deductible under 8(1)(i)(iv).

Position: It is a question of fact.

Reasons: In this case likely yes.

XXXXXXXXXX
2013-049241
Kathryn McCarthy

November 26, 2013

Dear XXXXXXXXXX:

Re: Union dues

We are writing in response to your letter dated June 6, 2013, and further to our conference call (XXXXXXXXXX/McCarthy) concerning the deductibility of union dues under subparagraph 8(1)(i)(iv) of the Income Tax Act ("Act") by members of a trade union ("Members").

You described an employer that is a union ("Union") which is projecting increased operating costs. The employees of the Union ("Employees") manage the operations of the Union. The Employees have a pension plan ("EE plan") that has been in place for decades and is fully funded by the Union. Due to the volatile markets, low interest rates, increase in average age of Employees, and regulatory changes, a funding shortfall in the EE plan is anticipated.

The Union plans to collect a special union dues levy from the Members ("Dues") over XXXXXXXXXX years to cover a possible funding shortfall in the EE plan. The Dues are not levied on Employees and are required to maintain membership in the Union. If there is no funding shortfall in the EE plan, the Dues will be refunded to the Members. Further, if there is a partial funding shortfall, a partial Dues refund will be made. Depending on administrative convenience, the Union may also provide a contribution holiday to the Members, rather than a refund.

You have asked whether:

• the Dues are deductible under subparagraph 8(1)(i)(iv) of the Act;
• either paragraph 8(5)(a) or (c) of the Act will apply to deny the deduction of the Dues under 8(1)(i)(iv);
• a refund of Dues must be included in a Member's income under paragraph 6(1)(j) of the Act; and
• the refund of Dues must be reported by the Union on a T4A slip, Statement of Pension, Retirement, Annuity, and Other Income, for each Member that receives a refund in the year.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Annual dues

It is a question of fact whether particular union dues are deductible from employment income under subparagraph 8(1)(i)(iv) of the Act. Generally, annual dues required to maintain membership in a trade union are deductible by a member under subparagraph 8(1)(i)(iv) of the Act to the extent that the member has not been reimbursed, and is not entitled to be reimbursed in respect thereof.

Based on the situation described, it is our view that the Dues are likely deductible under subparagraph 8(1)(i)(iv) of the Act as annual dues since they are recurring over a XXXXXXXXXX year period and appear to be required to maintain membership in the Union.

Paragraphs 8(5)(a) and (c) of the Act

Paragraphs 8(5)(a) and (c) of the Act deny the deduction of union dues under subparagraph 8(1)(i)(iv) of the Act to the extent that they are, in effect, levied for or under a superannuation fund or plan, or for any other purpose not directly related to the ordinary operating expenses of the union.

It is our view that union dues used to fund the pension plan of union employees are generally not considered levied for or under a superannuation fund or plan. Further, a union's "ordinary operating expense" can generally be defined as an expenditure which falls into place as part of the undistinguished common flow of the trade union's activity. The expenditure forms part of the normal business carried on, calling for no remarks and arising out of no special or particular situation. It is also our view that union contributions to a pension plan for its employees are generally considered to be related to the ordinary operating expenses of the union. Accordingly, it appears that neither paragraph 8(5)(a) nor (c) of the Act would apply to deny the deduction of the Dues in computing a Member's income from employment.

Refund of dues

Generally, a taxpayer's deduction for union dues under subparagraph 8(1)(i)(iv) of the Act is reduced or eliminated by the amount of any refund of dues received in the year. Any excess refund is included in the taxpayer's income under paragraph 6(1)(j) of the Act, in the year it is received.

In the situation described, any refund of Dues received by a Member must first be applied to reduce or eliminate the Member's deduction under subparagraph 8(1)(i)(iv) of the Act in the year the refund is received. Any excess refund must be included in the Member's income under paragraph 6(1)(j) of the Act in the year the refund is received.

The Union would generally be required to complete a T4A slip for each Member receiving a refund of Dues. However, there are administrative exceptions from the requirement to file a T4A slip. The exceptions are where the total of all payments to the Member in the calendar year was under $501, or no income tax was deducted from the payments. For further information on completing the T4A slip, see the Canada Revenue Agency webpage at www.cra-arc.gc.ca/slips.

We trust our comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch