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 annual dues paid by an employee to an employee association may be deducted from the employee’s income.
Position: Likely yes, provided that annual dues are paid to maintain membership in a trade union and that the deduction is not prohibited by subsection 8(5) of the Act.
Reasons: An employee association whose primary purpose is to collectively negotiate with an employer to improve the conditions of employment for its members is generally considered to be a trade union for purposes of subparagraph 8(1)(i)(iv) of the Act.
May 5, 2017
Re: Deductibility of annual membership dues
We are writing in response to your correspondence of December 19, 2016, concerning annual dues that the XXXXXXXXXX (Association) proposes to impose on its members. Specifically, you ask whether the dues will be deductible from employment income under subparagraph 8(1)(i)(iv) of the Income Tax Act (Act) as annual dues to maintain membership in a trade union.
In the situation you described:
- the purpose of the Association is to collectively negotiate conditions of employment (e.g., salaries, benefits, hours of work) for its members with the XXXXXXXXXX (the Employer);
- management and certain non-management employees holding positions that require confidentiality automatically become members of the Association when hired by the Employer (hereafter referred to as Members); and
- the Association is not a certified labour organization, but is recognized by the Employer for its role in the collective bargaining process.
The Association proposes to:
- impose the payment of annual dues by all Members;
- have the Employer collect annual dues from all Members on its behalf through payroll deduction; and
- use the dues levied to defray the Association’s ordinary operating expenses, and for no other purpose.
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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Generally, subparagraph 8(1)(i)(iv) of the Act allows an individual to deduct annual dues paid in the year to maintain membership in a trade union (as defined by section 3 of the Canada Labour Code) from his or her employment income. The deduction is allowed to the extent that such dues are not reimbursed and subject to the conditions in subsection 8(5) of the Act.
The Canada Labour Code defines a trade union as any organization of employees formed for purposes that include the regulation of relations between employers and employees. It is an established position of the Canada Revenue Agency that an association does not have to be certified trade union in order to be considered a trade union for purposes of subparagraph 8(1)(i)(iv) of the Act. Generally, an association whose primary purpose is to collectively negotiate with an employer to further the working conditions of its members is considered to be a trade union for purposes of subparagraph 8(1)(i)(iv).
In our view, the Association, as described, will likely be considered a trade union for purposes of subparagraph 8(1)(i)(iv) of the Act. Accordingly, where it is established that the annual dues are paid to maintain membership in the Association, Members will be permitted to deduct the annual dues from employment income under that subparagraph. However, subsection 8(5) of the Act will prohibit any deduction of annual dues if the dues were levied for (or under):
a) a superannuation fund or plan;
b) a fund or plan for annuities, insurance (other than professional or malpractice liability insurance that is necessary to maintain a professional status recognized by statute) or similar benefits; or
c) any other purpose not directly related to the ordinary operating expenses of the Association.
Please note that if the non-payment of annual dues will not affect a Member’s status in the Association, it is our view that the annual dues likely will not be paid to maintain membership in the Association, and therefore will not be deductible.
We trust these comments will be helpful.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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