11 July 2006 External T.I. 2006-0182451E5 F - Indemnité versée par un syndicat -- translation

Principal Issues: [TaxInterpretations translation] Are amounts received by union members for attending union councils or conventions on their days off, the main purpose of which is to promote the improvement of members' conditions of employment, taxable?

Position: In our view, if the member is not employed by the union and the member does not carry on a business in which he or she receives those amounts, the amounts received would not be taxable. If the member is employed by the union, the amounts would be taxed as employment income. If the amounts are received in the course of a business of the member, the amounts would be taxed as business income. We have added as a comment that the portion of the dues relating to the organization of its councils or conventions may not be deductible by virtue of 8(5).

Reasons: Income tax law. Case law.

Section 3 of the Act provides that a taxpayer's income for tax purposes includes, inter alia, income from all sources. Amounts received for referrals, if the member is not employed by the union and if the member does not carry on a business in the course of which the member receives such amounts, would not be from a source.

XXXXXXXXXX 2006-018245

July 11, 2006

Dear Sir,

Subject: Request for technical interpretation - trade union compensation

This is further to your letter dated April 19, 2006, in which you asked for our opinion on a benefit paid by a union to members who attend union councils or conventions on their days off. Specifically, you wish to know whether this allowance is taxable.

Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").

Facts

The stated facts are as follows:

1. The union was established under the Trade Unions Act;
2. The union is a non-profit organization;
3. In order to be a member of the union, a union fee must be paid;
4. The union has various members;
5. Union members are invited to participate in union councils or conventions;
6. At union councils or conventions, the members discuss working conditions, training, pressure tactics if necessary, the general administration of the union, the purchase or sale of buildings and various other matters relating to working conditions;
7. Members who are released by the employer during working hours to attend union councils or conventions are paid by the employer on the same basis as if they had been working. That remuneration is included in the member's employment income.
8. The number of members who are released by the employer during working hours in any one year is limited;
9. Members are entitled to a certain number of days off per week;
10. Members who attend union councils or conventions on their day off are compensated by the union;
11. Members who receive compensation for attending union councils or conventions are not employees of the union and do not act as consultants;
12. The amount of compensation paid is based on the member's salary range;
13. The allowance that is paid by the union is intended to take into consideration the following elements:
14. The number of members released by the employer during working hours is limited in a year;
15. The union wants as many of its members as possible to be able to participate in different union councils or conventions;
16. In order to encourage members to participate in union activities on their day off, the union compensates them.

Questions

You wish to know whether the allowance, which is paid to members who attend union councils or conventions on their days off, is taxable under the ITA.

Our Comments

As stated in paragraph 22 of Information Circular 70-6R5 dated 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 which may not be fully applicable to the situation you have provided.

Section 3 provides that a taxpayer's income for tax purposes includes, inter alia, income from all sources. Some of these sources are listed in section 3. This is also indicated in paragraphs 1 and 2 of Interpretation Bulletin IT-334R2. In a situation such as the one you have presented to us, it would be necessary to determine whether or not the amounts received by union members as a result of attending union councils or conventions on their days off are from a source for the purposes of section 3 in order to determine whether those amounts are taxable. First, it would be necessary to determine whether the member is an employee of the union or whether the member's attendance at conventions is part of a business carried on by the member.

We wish to bring to your attention that only an examination of the facts of a particular situation would enable us to make this determination. Consequently, despite your statements to that effect, we cannot give an opinion since we do not have all the information necessary to make that determination. Furthermore, we wish to add that we cannot make a determination in the context of a general request. Finally, please note that that determination has a consequence on the taxation or not of the amounts received by your members.

As a general comment, in a situation where the member is an employee of the union, it is our view that amounts received as compensation for attending union councils or conventions on their days off would be taxable as employment income.

In a situation where the member participates in activities as part of a business that the member carries on, amounts received as a result of participation in various union councils or conventions would be taxable as business income.

In a situation where the member who attended the conventions is not employed by the union and the member does not carry on a business in the course of which the member receives those amounts, the amounts the member receives as compensation for attending union councils or conventions on their days off would not be derived from a source of income and would not be taxable.

Furthermore, we wish to bring to your attention that, according to the information you have provided, we are of the view that payments made in a particular year by a trade union to its members as an allowance for attending trade union councils or conventions on their days off, may not be expenses directly related to the ordinary operating expenses of the union for the year so that the portion of the annual dues of the union members for the year corresponding to the payments made by the union as an allowance for the year would not be deductible by virtue of subsection 8(5).

These comments are not advance income tax rulings and do not bind the Canada Revenue Agency with respect to any particular factual situation.

Finally, we regret the delay in responding to your request. Please accept our apologies.

We hope that these comments are of assistance.

Best regards,

Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate