21 April 1998 Ministerial Letter 9804448 - STRIKE PAY & DEDUCTIBILITY OF 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.

Principal Issues: TAXATION OF STRIKE PAY & DEDUCTIBILITY OF UNION DUES

Position: STRIKE PAY NOT TAXABLE, IF STRIKE PAYMENTS ARE "RELATED TO THE ORDINARY OPERATING EXPENSES OF THE TRADE UNION" THEN THEY ARE DEDUCTIBLE

Reasons:

April 21, 1998

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to respond to your letters of February 1, and March 4, 1998, concerning the taxation of strike pay received by striking workers at XXXXXXXXXX and the deductibility of the union dues paid by non-striking workers in support of that strike action.

Revenue Canada’s role includes the interpretation and administration of the Income Tax Act. The Department of Finance has responsibility for the development and evaluation of federal taxation policies and legislation. Accordingly, I have forwarded a copy of your letter to Mr. Munir Sheikh, Acting Assistant Deputy Minister of the Tax Policy Branch in the Department of Finance so that they may be made aware of your concerns.

You note that Revenue Canada’s position regarding strike pay changed in 1990 and recommended that the Department revert to its pre-1990 position. The Department’s long-standing position has been, and continues to be, that a member of a union who is on strike or locked out need not include into income payments commonly referred to as strike pay, even when the member performs picketing duties as a requirement of union membership. On the other hand, payments made by a union to its members for services performed during the course of a strike are to be included in income if the member is employed by, or is a consultant to, the union. In 1990, the Department argued the Wally Fries case on the basis that income received by Mr. Fries fell into this latter category. However, the Supreme Court found that the payments received by Mr. Fries did not have the nature of “income from a source” as is required for income tax purposes. The Supreme Court’s decision in Wally Fries is widely cited as affirmation that strike pay is not taxable under the Act.

When a trade union incurs reasonable costs during a legal strike, such as rent for strike headquarters, telephone, advertising, as well as strike payments to members in need but to which they are not entitled as a contractual right, these costs are considered related to the ordinary operating expenses of the trade union. The Act denies a deduction for annual dues if they are levied for any purpose not directly related to the ordinary operating expenses of the trade union to which they are paid. As strike payments are considered to be related to the ordinary operating expenses of a union, Revenue Canada cannot deny an income deduction for dues paid for this purpose. A deduction is not permitted for a special assessment. However, if the increased union dues being paid by the unionized XXXXXXXXXX workers who are not on strike, represent an increase to their annual dues, a deduction will be permitted.

I trust that the above explains the Department’s position on this matter.

		Yours sincerely,
		Denis Lefebvre
		Assistant Deputy Minister
		Policy and Legislation Branch
c.c. Mr. Munir Sheikh
       Acting Assistant Deputy Minister
       Tax Policy Branch
        Department of Finance
        16th Floor, Tower E
        140 O’Connor Street
        Ottawa, Ontario
        K1A 0G5

Sandra Short
March 9, 1998
957-2136

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