5 March 2015 External T.I. 2014-0530691E5 - Professional membership 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.

Principal Issues: Whether annual membership dues paid to an organization are deductible in computing employment income?

Position: Question of fact.

Reasons: See response.

XXXXXXXXXX
T. Baltkois
2014-053069

March 5, 2015

Dear XXXXXXXXXX:

Re: Deductibility of membership dues

We are writing in response to your correspondence of May 6, 2014, concerning the deductibility of annual membership dues paid to the XXXXXXXXXX, under subparagraph 8(1)(i)(i) of the Income Tax Act (Act). XXXXXXXXXX.

Our Comments

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 70-6R5, Advance Income Tax Rulings.

Subparagraph 8(1)(i)(i) of the Act provides a deduction in computing income from an office or employment for annual professional membership dues, the payment of which are necessary to maintain a professional status recognized by statute. Generally, a deduction under subparagraph 8(1)(i)(i) of the Act is allowed only to the extent that the professional membership dues reasonably relate to the individual's employment income source, and provided that the individual has not been reimbursed or is not entitled to be reimbursed for the dues.

When determining whether membership dues are deductible under subparagraph 8(1)(i)(i) of the Act, it is the individual's professional status and not that of the organization that must be recognized by statute. The fact that a particular organization is created by statute would not, in and of itself, mean that all of its members have a professional status recognized by statute. For example, an organization may offer different categories of membership, each of which may or may not be associated with a professional status.

What is a professional status?

The phrase "professional status" is not defined in the Act. Where the legislation does not define a phrase, we generally rely on case law and the ordinary meaning (e.g., dictionary definition). The Concise Canadian Oxford Dictionary defines a "profession" as "a vocation or calling, esp. one that involves some branch of advanced learning or science (the medical profession); a body of people engaged in a profession." This dictionary defines the term "professional" as "a person qualified or employed in one of the professions; a highly skilled and experienced person."

The Dictionary of Canadian Law defines a "professional employee" as,

"An employee who (a) is, in the course of employment, engaged in the application of specialized knowledge ordinarily acquired by a course of instruction and study resulting in graduation from a university or similar institution; and (b) is, or is eligible to be, a member of a professional organization that is authorized by statute to establish the qualifications for membership in the organization."

Based on the ordinary meanings of these terms and phrases, it is our view that an individual would likely have a professional status where he or she possesses advanced education or training, and satisfies other conditions and requirements established by a professional organization. In this regard, a professional organization may require its members to complete a recognized certification or licensing process, maintain certain standards of education or professional and ethical training and conduct, or satisfy continuing education requirements in order to achieve and maintain a professional status. Depending on the organization, a member's professional status may or may not be identified by a professional designation.

When is a professional status recognized by statute?

In Montgomery et al. v. The Queen, 99 DTC 5186, the Federal Court of Appeal (FCA) stated that the purpose of the phrase "recognized by statute" in subparagraph 8(1)(i)(i) of the Act, is to establish a standard against which the validity of a professional status is measured. The FCA clarified that the phrase "recognized by statute" should be afforded a broad interpretation, and that "recognized by statute" does not necessarily mean that a professional status was incorporated, created, or regulated by a particular statute.

Thus, an individual's professional status may be recognized by any statute. This would include the statute that created or regulates a professional organization, or any other statute that acknowledges the existence, validity, character, or claims of the professional status. For example, a professional status would be considered "recognized by statute" where a statute requires that certain services be only performed by a member of a particular professional organization, even though the organization itself is not regulated by statute.

However, a professional status would generally have to be acknowledged in the statute itself to satisfy the "recognized by statute" condition in subparagraph 8(1)(i)(i) of the Act. The Dictionary of Canadian Law and Black's Law Dictionary generally define a "statute" as a law or act that is passed by a legislative body. Therefore, where a "professional status" is only acknowledged in the regulations of a statute or in an organization's bylaws, the "professional status" would not likely be considered "recognized by statute" for purposes of subparagraph 8(1)(i)(i) of the Act.

When is the payment of annual professional membership dues necessary to maintain a professional status recognized by statute?

Provided that a member of a particular organization has a professional status recognized by statute, subparagraph 8(1)(i)(i) of the Act also requires that the payment of annual professional membership dues must be necessary to maintain that professional status.

In our view, this condition would likely only be met in situations where membership in a professional organization is required (i.e., not voluntary), and the non-payment of annual professional membership dues would adversely affect or cause an individual to lose his or her professional status. While an individual with a professional status may be a member of several professional organizations, it is unlikely that the payment of annual membership dues to all such organizations would be necessary to maintain that professional status. Refer to paragraph 3 of Interpretation Bulletin IT-158R2, Employees' professional membership dues, for additional information.

It is a question of fact whether a particular member of the XXXXXXXXXX has a professional status recognized by statute, and whether membership in the XXXXXXXXXX is necessary to maintain that member's professional status. Based on the information provided, it is our view that annual membership dues paid to the XXXXXXXXXX to maintain an individual's status as a XXXXXXXXXX would likely be deductible under subparagraph 8(1)(i)(i) of the Act as the XXXXXXXXXX is a professional status acknowledged in the XXXXXXXXXX. However, annual membership dues paid to the XXXXXXXXXX to maintain an individual's status as a XXXXXXXXXX would not be deductible under subparagraph 8(1)(i)(i) of the Act, as this professional status does not appear to be acknowledged in the XXXXXXXXXX or in any other statute.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch