7 October 1991 Income Tax Severed Letter - 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.

Dear Sirs:

This is in reply to your letter of August 13, 1991 in which you requested a technical interpretation on whether or not amounts received by union members out of a strike fund can be considered to be "income from a source" for the purposes of paragraph 3(a) of the Income Tax (the Act).

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It seems apparent that the information you have provided us reflects the facts of an actual situation involving a proposed transaction. As indicated in paragraph 21 of Information Circular 70-6R2 entitled "Advance Income Tax Rulings", we are unable to issue an opinion with respect to such transactions. If you wish to obtain an advance income tax ruling, a written request can be submitted in accordance with the Circular. We are, however, prepared to offer the following general comments.

It is not unusual for a union that is exempt from tax under paragraph 149(1)(k) of the Act to use a portion of the annual dues paid by its members for the purposes of establishing a strike fund. Where a union decides to pay the strike funds or a portion thereof back to its members who will be dismissed from their employment positions as a consequence of a non-recurring event (e.g. automation, the scaling down of operations, or a plant closure), it is possible that the payments are not subject to tax.

For the purposes of determining the nature of the payments, we would consider the indicia set out on page 6073 of the Cranswick case [[1982] C.T.C. 69] (82 DTC 6073), set out below, where it was held that:

• (a) The Respondent had no enforceable claim to the payment;
• (b) There was no organized effort on the part of the Respondent to receive the payment;
• (c) The payment was not sought after or solicited by the Respondent in any manner;
• (d) The payment was not expected by the Respondent, either specifically or customarily;
• (e) The payment had no foreseeable element of recurrence;
• (f) The payment was not a customary source of income to the Respondent;
• (g) The payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the Respondent; it was not earned by the Respondent, either as a result of any activity or pursuit of gain carried on by the Respondent or otherwise.

In relating the above indicia to the payments, (e), (f), and (g) are indications that the payments are in the nature of "windfalls" which are not subject to tax. On the other hand, it can be argued that (a), (b), (c), and (d) are indications that the payments are subject to tax as union members can influence union activities through the union's voting procedures. However, the type of event which is the cause of the payments indicates that those latter indicia would be less relevant. Accordingly, it appears that the payments such as the ones in question may be regarded as "windfalls" which are non-taxable.

However, we would caution that a more definitive response would have to take into consideration all of the relevant circumstances involved. Should you have other concerns, we would be pleased to consider them in the form of an advance income tax ruling request.

In your letter, you have also referred to our position concerning strike pay in paragraph 3 of Interpretation Bulletin IT-334R entitled "Miscellaneous Receipts", as well as several articles and case law on that issue. It is our view that the tax treatment of strike pay is not relevant to the issue at hand because strike pay occurs in connection with a union's ongoing activities in the bargaining process on behalf of its employees whereas the issue under consideration involves payments out of a strike fund as a result of a non-recurring single event which eliminated the need for the fund or a part thereof.

We hope that our comments are of assistance to you.