Lucas v. The Queen, 87 DTC 5277, [1987] 2CTC 23 (FCTD)

Cullen, J.:—This is an appeal commenced by way of statement of claim pursuant to section 172 of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended, against a decision of the Tax Court of Canada dated August 2, 1984 dismissing the plaintiff's appeal of a notice of confirmation dated January 22, 1982 with respect to the plaintiff's 1980 taxation year.

Facts

At all material times (in his 1980 taxation year) the plaintiff was a resident of Edmonton and was a member in good standing of the Alberta Teachers' Association (the Association). In 1980 every teacher employed by a school board in Alberta was required to be an active member of the Association. The plaintiff was employed by the Edmonton Public School Board as a school teacher. The Association was an association for the purposes of subparagraph 8(1)(i)(iv) of the Income Tax Act R.S.C. 1952, c. 148 as amended by S.C. 1970-71-72, c. 63, s. 1.

The annual dues payable by members of the Association were (up to June 28, 1980) governed by by-laws 8(1)(2) and 10 of the General By-laws of the Association. These by-laws are reproduced on page 2 of the agreed statement of facts.

On May 27, 1980, teachers in Calgary went on strike. The Provincial Executive Council (of the Alberta Teachers' Association) made a discretionary decision to grant financial support to the striking Calgary teachers. In order to finance this decision the by-laws of the Association were amended so that the monthly dues of each member were increased by $50 per month for the months of September to December 1980 and $10 per month for the months of January through August 1981. This amended by-law 8(2) reads:

8(2) Until varied pursuant to By-Laws 8(1) or 10, the fees shall be:

(a) for an active member employed full time, $267.00 per annum from September 1, 1979, $867.00 per annum from September 1, 1980 and $387.00 per annum from January 1, 1981;

(b) for an active member on leave of absence, $24.00 per annum;

(c) for an active member employed part time or as a substitute, 1% of earnings

in each month, and from September 1, 1980, 2% of earnings in each month;

(d) for an associate member, $30.00 per annum from September 1,1976;

(e) for a student member, $1.00 per annum;

(f) for an honourary member or life member, no fee.

In his 1980 income tax return the plaintiff deducted all amounts paid to the Association in 1980, including the amount of $200 representing the extra $50 per month for the months of September to December 1980 which all members were required to pay.

The Minister of National Revenue (the Minister) disallowed the deduction by the plaintiff of the $200. The plaintiff objected to the disallowance but the assessment was confirmed by the Minister by a notice of confirmation dated January 22, 1982.

The plaintiff appealed to the Tax Court of Canada which dismissed the appeal by a judgment dated August 2, 1984.

The Crown's Position

The Crown maintains that the additional amount of $50 per month was a special levy rather than increased monthly dues. In assessing the plaintiff's tax liability for his 1980 taxation year, the Minister assumed that the $200 was not annual dues within the meaning of paragraph 8(1)(i) of the Act but rather it was a special levy on account of the cost of the strike action by the Calgary teachers.

The Plaintiff's Position

The plaintiff maintains that the extra $200 was annual dues. Pursuant to its by-laws the Association was entitled to levy either annual dues pursuant to by-law 8 or special dues pursuant to by-law 10. The dues in question were levied pursuant to by-law 8(2) and not by-law 10, and are therefore annual dues.

Tax Court of Canada's Decision

The Tax Court dismissed the plaintiff's appeal. It held that the issue before it was whether the resolution passed by the Alberta Teachers' Association fell within the provisions of paragraph 8(1)(i) of the Act. Subparagraph 8(1)(i)(i) of the Act allows for the deduction of annual professional dues while subparagraph 8(1)(i)(iv) allows for the deduction of annual dues to maintain membership in a trade union.

The Tax Court relied on two cases, Western Leaseholds v. M.N.R., [1961] C.T.C. 490; 61 D.T.C. 1309 and Moss Empires Ltd. v. Inland Revenue Commissioner, [1937] A.C. 785; [1937] 3 All E.R. 381, for the proposition that “annual” infers the quality of being recurrent or being capable of recurrence.

The Court then looked at the Minutes of the Association whereby fees were increased $50 per month for the last four months of 1980. The Tax Court found that what the Association was really attempting to do was to effect a special levy against all teachers in the Association to support the striking teachers. The resolution purporting to increase the “annual dues" was merely a device whereby the Association protected its substantial portfolio on account of dues, a special levy to support a strike of the Calgary teachers. The $200 sought to be deducted by the taxpayer was not of a recurrent nature nor did it fit within the generally accepted understanding of the word “annual” as it was not a yearly recurring expense. The amount in question did not come within the provisions of subparagraph 8(1)(i)(iv) of the Act.

Case Law

There are very few cases which deal with the meaning of the word "annual" as it is used in the Income Tax Act and specifically as it relates to the payment of union dues and professional membership dues described in subparagraphs 8(1)(i)(i) and (iv). One principle has clearly been established with regard to payments of trade union and other dues: such dues must be annual payments to maintain membership and any initial fee payable upon admittance to a union or association cannot be deducted (Daley v. M.N.R., [1950] C.T.C. 254; 4 D.T.C. 877 and Herbert Burke v. The Queen, [1976] C.T.C. 209; 76 D.T.C. 6075).

In order for payments to be deductible under subparagraph 8(1)(i)(i), the payment of professional membership dues must have been necessary to maintain a professional status recognized by statute. Membership fees payable to an association are not deductible if the taxpayer can maintain his professional status without paying them, for example, membership fees paid by a lawyer to the Canadian Bar Association are not deductible.

Subparagraph 8(1)(i)(iv) of the Act permits the deduction of certain dues payable by an employee to a trade union or an association of public servants of which he is a member. This is the subparagraph which is relevant to the case at bar.

In its decision the Tax Court of Canada relied on the decision of Western Leaseholds Ltd. v. M.N.R., (supra) which dealt with the meaning of "annual" as it related to annual payments. Thorson, P. held that the kind of annual payment contemplated by the section of the Act in question had the quality of being recurrent and did not include payments which were paid only once.

Of more relevance to this case is the decision in the Burke case (supra). In that case the taxpayer was seeking to deduct as union dues under subparagraph 8(1)(i)(iv) of the Act an amount of $383.87 paid by him in 1973 as regular monthly contributions. In disallowing the deduction one of the Crown's arguments was that the dues were not “annual” dues within the meaning of subparagraph 8(1)(i)(iv) because they were not paid on a recurring basis.

Thurlow, A.C.J. (as he then was) rejected the Crown's argument. He was of the view that the language of the provision did not express such a limitation and there was no sound reason for applying one. He held that the use of the word "annual" in subparagraph 8(1)(i)(iv) was simply used to make it clear that only union dues of the recurring kind, as opposed to initiation or entrance dues paid once and for all on becoming a member, are to be deductible. At pages 217-18 (D.T.C. 6081) Thurlow, A.C.J. stated:

Here the dues paid by the plaintiff were not initiation! or entrance dues but dues of the recurring kind. They accrued in the taxation year and were the dues of the year, the payment of which was required to maintain the plaintiff's membership for the year. In my opinion, they are ''annual" dues within the meaning of the provision and the fact that they were calculated monthly, that they varied in amount from month to month depending on the member's earnings for the month and that they were paid monthly are all immaterial for this purpose. [Emphasis added.]

Accordingly, the Crown's argument and the finding of the Tax Court of Canada that the payments were not annual in this case must fail.

Second, the argument and the basis of the Tax Court's decision that the payments in fact represented a “special levy" does not seem to me to be supportable. I have read the minutes of the meeting of the Alberta Teachers' Association wherein it was agreed to increase monthly fees and I am unable to come to the same conclusion as that of the Tax Court, i.e. that the payments were in fact a special levy to support the striking Calgary teachers.

When any member of the Association took the trouble to read the amendment, it was quite clear to him that his annual dues had increased by $50 per month beginning September 1, 1980. The Association would probably have informed all members of the increase and the reason for it. There is no suggestion that the Association had no authority to replenish the special emergency fund and it did so by calling a special meeting and passing the necessary resolution.

It is true that the $200 did not recur but it was capable of recurring. Had the Calgary strike given any indication of lasting longer than the summer, or if Edmonton teachers went out, or if the whole membership of the Associa- tion had gone on strike, I daresay a further meeting would have been necessary.

I cannot find that subparagraph 8(1)(i)(iv) is sufficiently explicit to give the interpretation given to it by the defendant. Certainly the word “annual” is capable of two definitions, i.e. occurring from year to year or dues paid in that year. I have concluded that the section does not require a recurrence from year to year. In the final analysis, quoting Estey, J. in Johns-Manville Canada Inc. v. The Queen, [1985] 2 C.T.C. 111 at 126; 85 D.T.C. 5373 at 5384:

Such a determination is, furthermore, consistent with another basic concept in tax law that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.

For the reasons stated above the appeal is allowed, and the matter should be referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the $200 in question is deductible pursuant to subparagraph 8(1)(i)(iv) of the Income Tax Act. The plaintiff is entitled to his costs of this action.

Appeal allowed.