25 November 1997 Ministerial Letter 9800668 - TAX TREATMENT OF UNIONS DUES AND STRIKE PAY

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.

November 25, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of January 7, 1998, which was written in response to my recent correspondence to you about the deductibility of union dues and the taxation of amounts received by striking employees.

You suggest that any employee paying in excess of normal union dues should be denied a deduction for those dues so that any funds received during strike action will have been funded with after-tax dollars.

I have enclosed a copy of Interpretation Bulletin IT-103R entitled “Dues paid to a union or to a parity or advisory committee” and trust that it will augment the following comments which explain more fully the limitations on the Department in denying a union dues deduction for levies made to finance strike action.

Annual union dues are not deductible to the extent that they are levied for any purpose not directly related to the ordinary operating expenses of the trade union to which they are paid. As discussed in paragraph six of the enclosed Bulletin, any levies designated as special assessments are not annual dues and are, therefore, not deductible. However, levies made during a year on some or all members of a trade union to provide funds for the prosecution of a legal strike of the union are considered by the courts as annual dues if the levies are capable of recurring and have not been designated by the union as “special assessments”.

The interpretation of what constitutes a “special assessment” was considered by the Federal Court - Trial Division in 1987 in Darrel H. Lucas (Plaintiff) v. Her Majesty the Queen (Defendant) 87 DTC 5277). The taxpayer was a teacher and member of a teachers’ association. In 1980, there was a strike by some of the members of that association and the association gave the striking teachers financial support. The association resolved to increase “annual” membership dues from $267 to $867 for the last four months of 1980 only (this resulted in an increase of $50 for each of the last four months of that year) and to $387 for the period January 1981 to August 1981 inclusive (an increase of $10.00 per month for each of those months). The by-laws of the association were amended accordingly. The taxpayer claimed a deduction for all dues paid to the association in 1980 as “annual membership dues”. The Department disallowed the additional dues, maintaining that the extra $50 per month was a special levy or assessment rather than increased monthly dues. It was the Department’s position that the additional $200 was not annual dues within the meaning of the Act but, rather, a special levy on account of the cost of the strike action by Calgary teachers. The Department’s position was not accepted by the Court. The Court found that there did not have to be a recurrence from year to year for dues to be “annual”. It was sufficient that the dues were paid in the year in order to maintain membership for that year. The facts of the case proved that the additional $200 was not a “special levy” but represented an increase in annual dues. The increase did not recur but the Court found that it was sufficient that the increase merely be capable of recurring. As a result of the Lucas decision, the Department modified its position in Interpretation Bulletin IT-103 (see paragraphs 1 and 6 in particular).

The information which you forwarded with your original correspondence of October 14, 1997, regarding increased union dues paid by different union members in support of strike action, indicates that increased levies are being paid by workers who are not on strike in order to provide additional strike pay to striking workers. However, what is not clear, is whether these dues have been designated special assessments by the specific union and, therefore, not tax assisted, or whether it has legitimately increased annual dues, capable of recurring, for the purpose of prosecuting a legal strike. A deduction will be allowed to union members if the increased dues meet the conditions established in Lucas, including that they necessarily be paid in order to maintain membership in the union for 1997. The union is required to certify how much of the total paid by each employee is deductible for income tax purposes, as reflected in paragraphs seven, ten and eleven of the enclosed Bulletin. We have forwarded the information attached to your original correspondence, along with your letter of January 7th, to Mr. Blair Sixsmith, Assistant Director of Verification, Enforcement, Vancouver Tax Services Office, 15th Floor, 1166 West Pender Street, BC, V6E 3H8 for his consideration. Mr. Sixsmith may be reached by calling 604-691-4911.

I trust that the above explains the Department’s position. Our interpretation is correct and has been guided by the courts. The Act would have to be amended in order to deny a deduction for union dues when the dues or additional dues meet the requirements for deductibility as established by the courts. As mentioned previously, amendments to the Income Tax Act are the responsibility of the Minister of Finance. I note that you have also forwarded a copy of your more recent letter to

Mr. Paul Martin, Minister of Finance.

		Yours sincerely,

		Denis Lefebvre
		Assistant Deputy Minister
		Policy and Legislation Branch

c.c. Blair Sixsmith

Assistant Director
Verification, Enforcement
Vancouver TSO

Sandra Short
February 18, 1998
957-2136
981070

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