Principal Issues: [TaxInterpretations translation] A union reimburses union dues from its administration fund to individuals who are current members or who were members of the union on December 31, 2001.
1) Is the following position expressed in opinion 9530937 of March 18, 1996 still valid?:
If the amount refunded to a union member in a year exceeds the individual’s paid dues for the year, the excess will reduce the amount of union dues otherwise deductible by that union member for a subsequent taxation year.
2) Do individuals who are retired or have left their jobs and received a refund from the union in 2004 have to add the money received as a refund of union dues to their income?
3) Is the union required in 2004 to issue a slip to each individual who has received a refund of union dues?
Position: 1) No. 2) Yes 3) Yes.
Reasons: 1) and 2) Application of the provisions of section 6(1)(j) and section 8(1)(i) of the Act.
3) T4A slip.
XXXXXXXXXX Danielle Bouffard
2004-008014
December 10, 2004
Dear Sir,
Subject: Request for technical interpretation: refund of union dues
This is further to your letter of May 31, 2004 in which you requested our opinion on the tax treatment to be accorded to a refund of union dues by a union that distributed to its members in 2004 a certain amount from its administration fund. This distribution of funds was approved by the members at a general meeting of union members.
The amount distributed was allocated according to the number of years of membership as of December 31, 2003 and the salary of each member. All current members and all members who were members on December 31, 2001 were eligible for the refund.
We apologize for the delay in responding to this request.
Questions
1. Is the following position expressed in opinion 9530937 of 18 March 1996 still valid?
If the amount refunded to a union member in a year exceeds the individual’s paid dues for the year, the excess will reduce the amount of union dues otherwise deductible by that union member for a subsequent taxation year.
2. Should individuals who are retired or have left their jobs and received a refund from the union in 2004 add the amounts received, as a refund of union dues, to their income?
3. Is the union required in 2004 to issue a slip to each individual who received a refund of union dues?
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue a written opinion regarding proposed transactions otherwise than by 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 we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances.
Paragraph 6(1)(j) of the Income Tax Act (the "Act") requires a taxpayer to include in income from an office or employment for a taxation year any amounts received by the taxpayer in the year that were received as an award or reimbursement in respect of amounts that would be deductible under subsection 8(1). The taxpayer must include such amounts in income to the extent that, inter alia, the taxpayer did not take them into account in computing an amount claimed pursuant to subsection 8(1) for the year or a preceding taxation year. Paragraph 8(1)(i) provides that a taxpayer may deduct in computing employment income certain expenses paid in the year, including, inter alia, dues necessary to maintain membership in a trade union, to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof. Thus, a taxpayer who receives, in a year, a refund of dues that equals or exceeds the taxpayer’s annual dues paid to the union in that year cannot deduct the annual dues in the taxpayer’s employment income pursuant to paragraph 8(1)(i). In addition, the portion of the refund that exceeds the individual’s annual dues must be added back to the individual’s income pursuant to paragraph 6(1)(j).
In response to your first question, a review of this situation and previous situations leads us to conclude that the position set out in Opinion 9530937 is no longer valid. Based on the facts described in your situation, we are of the view that the amount received in 2004 by each of the members up to the amount of their union dues paid in 2004 reduces or annuls the deduction provided for in subparagraph 8(1)(i)(iv) in computing their income. For those members who received an amount in excess of their 2004 union dues, it is our view that the excess portion must be included in their income pursuant to paragraph 6(1)(j) in the year it is received.
In response to the second question, individuals who are retired or have changed employers and who received a refund of union dues in 2004, based on being members of the union on December 31, 2001, must include the refund of dues pursuant to paragraph 6(1)(j) in their 2004 income.
In response to the third question, the union is required to complete a T4A slip for 2004 for each individual to whom it has paid an amount as a refund of union dues.
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
Best regards,
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch