15 December 2008 External T.I. 2008-0267901E5 - Deduction of Annual 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 the membership fees paid to the XXXXXXXXXX for their professional XXXXXXXXXX designation are deductible?

Position:

Membership fees are not eligible as a deduction under 8(1)(i)(i) for employee taxpayer. However, for self-employed members, the membership fees could be deductible.

Reasons:

As required pursuant to subparagraph 8(1)(i)(i), the membership is not required in order to maintain a professional status recognized by statute.

Dues paid by a taxpayer whose income is from a business is deductible to the extent that they were incurred for the purpose of gaining or producing income from the business.

XXXXXXXXXX 2008-026790
George A. Robertson, CMA
December 15, 2008

Dear XXXXXXXXXX ,

Re: Professional Designation Recognition

We are writing in response to your facsimile of November 30, 2007 concerning the recognition of the XXXXXXXXXX designation. The recognizing of a designation as a professional designation is beyond the authority of Canada Revenue Agency ("CRA"). However, it is our understanding that your concerns pertain to the deductibility of the annual membership fees paid to the XXXXXXXXXX by an individual member for his or her professional XXXXXXXXXX designation. .

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments, which may be of assistance.

Under subparagraph 8(1)(i)(i) of the Income Tax Act ("ITA"), a deduction in computing income from an office or employment is permitted for amounts paid by an employee taxpayer for annual professional membership dues, the payment of which are necessary to maintain a professional status recognized by statute.

Paragraph 1 of Interpretation Bulletin IT-158R2, "Employees' professional membership dues" explains the deductibility pursuant to subparagraph 8(1)(i)(i) of the ITA as follows:

An employee may deduct annual professional membership dues in computing the income or loss from an office or employment to the extent that they may reasonably be regarded as applicable to that source of income and provided that:

(a) they are annual dues (in contrast with entrance fees) necessary to maintain professional status,
(b) the amount claimed is paid in the taxation year and the employee is not reimbursed or entitled to be reimbursed, and
(c) the professional status is recognized by a Canadian, provincial, or foreign statute."

The main issue to be resolved is whether the membership is required to maintain a professional status that is recognized by a Canadian, provincial, or foreign statute. In Alan Montgomery et al. v. Her Majesty the Queen, 99 DTC 5186, (FCA), the issue was whether a real estate appraiser in Ontario had a professional status "recognized by statute" within the meaning of subparagraph 8(1)(i)(i) of the ITA. The court found that "recognized by statute" does not mean that professional organizations have to be established and regulated by statute but instead that the statute "acknowledge the existence, validity, character or claims" of the professional status. Since the professional status of appraisers was referred to by three statutes, the Court was satisfied that there was statutory acknowledgement of the status of appraisers whose status is associated with membership in the Appraisal Institute of Canada, and therefore the requirements of subparagraph 8(1)(i)(i) of the ITA were met.

Based on the information provided as well as on the XXXXXXXXXX website, it is our view that membership fees paid to the XXXXXXXXXX by an employee taxpayer would not qualify for a deduction from employment income under subparagraph 8(1)(i)(i) of the ITA as the professional status is not recognized by a Canadian, provincial, or foreign statute.

We note that members of the XXXXXXXXXX may be self-employed individuals. As noted in paragraph 2 of Interpretation Bulletin IT-211R, "Membership Dues - Associations and Societies", subject to a limitation not applicable to the XXXXXXXXXX , membership fees in professional associations, trade or commercial associations, learned societies, service clubs and cultural organizations will be allowable deductions from income if they can reasonably be shown to related to the earning of income from the business or property. This determination will always be a question of fact.

Similarly, if an employer were to pay the XXXXXXXXXX membership fee on behalf of an employee taxpayer and could demonstrate that the expense was incurred for the purpose of earning business income, the employer would be entitled to deduct the cost of membership from business income. In that case, it would be a question of fact whether the payment of the membership fee constitutes a taxable employment benefit to the employee. Generally speaking, when an employee maintains membership in a particular organization because of a legal requirement or because of a job requirement, such as a specification contained in a classification standard or in a job description, the payment or reimbursement of reasonable membership fees by the employer would not be considered to be a taxable benefit to the employee.

We trust our comments will be of assistance.

Yours truly

Louise J. Roy, CGA
Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch