6 January 1997 External T.I. 9627215 - 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		962721
XXXXXXXXXX	M. Eisner

Attention: XXXXXXXXXX

January 6, 1997

Dear Sirs:

Re: Union Dues

This is in reply to your letter of June 26, 1996, concerning the above-noted subject. We apologize for the delay in replying.

In your letter, you asked certain questions about withholding income tax from employees' wages by XXXXXXXXXX (the Contractor) in regard to remittances made on their behalf to the union under the terms of a collective agreement.

XXXXXXXXXX

XXXXXXXXXX

Your concerns relate to whether the amounts withheld and remitted to the union by the Contractor are deductible by the employees and, thus, taken into account in determining the income taxes withheld from the employees' wages.

Our Comments

The Department's general position on union dues is set out in Interpretation Bulletin IT 103R which has been enclosed for your reference.

Under subparagraph 8(1)(i)(iv) of the Income Tax Act (the Act), employees are allowed to deduct certain annual union dues paid to maintain membership in a trade union. However, subsection 8(5) of the Act imposes a number of restrictions on amounts that are deductible under that subparagraph. One of the restrictions is that the amounts must be used for a purpose directly related to the normal operating expenses of the union. To the extent that dues are deductible under subparagraph 8(1)(i)(iv) of the Act, they can be taken into account in determining the income taxes that are to be withheld from employees' wages.

In relation to these comments, we are making the following comments on the amounts being withheld in the circumstances set out above:

(a) In our view, the amount described in (i) above is deductible under paragraph 8(1)(i)(iv) of the Act and, thus, may be taken into account for withholding tax purposes.

(b) The amount described in (ii) is only deductible under subparagraph 8(1)(i)(iv) of the Act if the conditions outlined above are met.

(c) It is our understanding that the amounts related to the stabilization fund noted in (iii) above, are being used by the union to assist unionized employers to obtain contracts by subsidizing the wages of unionized employees who work on a particular project. This enables a successful union contractor to reduce his bid through subsidized lower wage costs of his unionized workers. The wages would be lower to the extent that the subsidy would eventually be received from the stabilization fund. In these circumstances, it is our view that the amount of XXXXXXXXXX per hour is not deductible under subparagraph 8(1)(i)(iv) of the Act on the basis that the funds are not considered to be used for a purpose directly related to the union's ordinary operating expenses. Accordingly, that amount should not be taken into account in determining the income taxes that are to be withheld from an employee's salary.

(d) In our view, the amount of $XXXXXXXXXX per hour withheld from employees' wages should also not be taken into account in determining the income taxes that are to be withheld on the basis that these funds would not be considered to be used for a purpose directly related to the union's ordinary operating expenses.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch