Principal Issues: [TaxInterpretations translation] Does the amount of union dues reimbursed to union members have to be included in the income of the member receiving it?
Position: No, if the repayment does not constitute income from a source. However, if the reimbursement is received by virtue of the member's employment with the union, the amount of the reimbursement must be included in the member's income.
Reasons: Income Tax Act.
XXXXXXXXXX 2009-030660 François Bordeleau, LL.B. March 11, 2009
Dear Sir,
Subject: Reimbursement of union dues
This is further to your email of January 14, 2009 in which you asked our opinion on the tax treatment of amounts paid by a union to its members. More specifically, the union wishes to return to its members the amounts it has accumulated and over-collected from them. You also wish to know the filing requirements regarding the payment of those amounts.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is the practice of our Directorate not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that may not apply in full to your particular situation.
The Act provides that a member of a trade union may deduct, in computing income from an office or employment, annual dues to the extent that they have not been reimbursed and there is no entitlement to be reimbursed in respect thereof.
However, pursuant to subsection 8(5), the annual dues of a union member are not deductible to the extent that they are actually levied for any other purpose not directly related to the ordinary operating expenses of the trade union to which they were paid, such as where the union uses the dues to provide benefits or reimbursements to its members.
Where union dues, deductible by virtue of paragraph 8(1)(i), have been reimbursed to a taxpayer in a taxation year, paragraph 6(1)(j) provides that the taxpayer must add the amounts so reimbursed to the taxpayer’s income from an office or employment. The taxpayer must include these amounts in income to the extent that, inter alia, they were not taken into account in computing an amount deducted by virtue of subsection 8(1) for the year or a preceding taxation year. Thus, a taxpayer receiving, in a year, a reimbursement of dues that equals or exceeds the annual dues paid to the union in that year cannot deduct the annual dues from employment income under paragraph 8(1)(i). In addition, the portion of the reimbursement that exceeds the taxpayer’s annual dues must be added to the taxpayer’s income under paragraph 6(1)(j). Any amount that must be added to a taxpayer's income pursuant to paragraph 6(1)(j) must be reported on the T4 slip for the year.
However, in certain situations a taxpayer may receive amounts from a union that are not a reimbursement of union dues. In such cases, and based on Canada v. Fries, [1990] 2 S.C.R. 1322, the Canada Revenue Agency ("CRA") is of the view that those amounts will not be required to be included in the taxpayer's income since they do not represent income from a source in Canada. Similarly, a fund generated over the years for legitimate union purposes that is no longer required as a result of the disposition of the union's operations and that is distributed to union members will not be required to be included in the income of the union members.
The determination of whether an amount is taxable or deductible is a question of fact. Without limiting the generality of the following, the CRA will pay particular attention to the following factors:
- The frequency with which the amounts are paid to the taxpayer;
- The size of those amounts;
- The purpose for which the contributions were made - this analysis will require us to examine the use of the contributions where that use is inconsistent with the original purpose.
Although amounts that do not have to be included in a taxpayer's income do not have to be reported on a tax slip, any amount paid to a taxpayer in respect of employment must be reported on a T4 slip.
These comments do not constitute an advance income tax ruling and are not binding on the Canada Revenue Agency in respect of any particular factual situation.
Best regards,
François Bordeleau
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.