Principal Issues: Deductibility of annual membership fees for "business social clubs".
Position: General comments only.
Reasons: Question of fact - can only be determined on a case-by-case basis.
XXXXXXXXXX Michael Cooke 2007-023685 January 23, 2008
Dear XXXXXXXXXX :
Re: Deductibility of Club Dues
We are writing in response to your electronic correspondence of May 17, 2007, wherein you requested our views the deductibility of club dues under paragraph 18(1)(l) of the Income Tax Act (the "Act"). In your correspondence you refer to a recent CA Magazine article on that topic and specifically certain comments attributed to the Canada Revenue Agency ("CRA") concerning the deductibility of membership dues for business social clubs.
As you are aware, the confidentiality provisions of the Act prohibit us from discussing a particular taxpayer's tax affairs with a third party without the taxpayer's written authorization. Further, 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. We are prepared to offer the following general comments.
The position of the Canada Revenue Agency ("CRA") with respect to the deductibility of club dues or memberships is outlined in IT-148R3, Recreational Properties and Club Dues and IT-211R Membership dues - Associations and societies. Paragraph 11 of IT-148R3, states the following:
"Subparagraph 18(1)(l)(ii) prohibits the deduction of any expense incurred by the taxpayer in respect of membership dues (whether initiation fees or otherwise) which entitle the taxpayer, the taxpayer's employees or anyone else to use the facilities of any club, the main purpose of which is to provide dining, recreational or sporting facilities for its members. When determining the main purpose for which a club was organized, the instruments creating the club, such as the content of the club's by-laws to regulate its affairs, are to be considered. Also of importance in this determination is whether more than 50 percent of the club's assets are used in providing dining, recreational or sporting facilities. [my emphasis added]"
It remains a question of fact as to whether the main purpose of a particular club is to provide dining, recreational or sporting facilities for its members. Generally speaking, however, the CRA would consider that subsection 18(1)(l)(ii) of the Act would apply to deny a deduction for annual membership fees or dues unless it can be factually established to our satisfaction that it is not the main purpose of such a club to provide dining, recreational or sporting facilities for its members.
We trust the above comments are of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch