Principal Issues: Whether the amount or percentage of annual union dues which relate to activities such as political and support for general social causes or issues and the non-payment of which does not affect a member’s status in the trade union, are deductible under subparagraph 8(1)(i)(iv)
Reasons: Subparagraph 8(1)(i)(iv), Paragraph 8(5)(c)
CRA PUBLICATIONS: RC4120 Employers' Guide - Filing the T4 slip and summary, IT-103R - Dues Paid to a Union or to a Party or Advisory Committee, 2007-0261121E5, 2009-0346331E5 - association dues, 2016-0681161E5 - deductibility of annual membership dues
February 25, 2021
Brigitte Richer HEADQUARTERS Manager Income Tax Rulings Policy & Legislative Research Section Directorate Business Compliance Directorate Sandro D’Angelo Collections and Verification Branch - HQ (613) 410-9703
ATTN: Brigitte Richer 2020-087195
Re: Deduction of union dues
This is in response to an email we received from Craig Mutter on November 23, 2020, and our discussion of January 14, 2021, (D’Angelo/Mutter), asking whether legislative changes made in Alberta’s Bill 32: Restoring Balance in Alberta’s Workplaces Act, 2020 (“Bill 32”), relating to annual union dues will have implications on the deductibility of those dues under subparagraph 8(1)(i)(iv) of the Income Tax Act (“Act”).
Based on the information provided, our understanding of the facts and the changes in Bill 32 that relate to trade union dues is as follows:
- Bill 32 received royal assent on July 29, 2020 and made a number of amendments to the Alberta Labour Relations Code (“ALRC”) regarding trade unions and union dues. However, these amendments are not yet in effect.
- Trade unions will have to indicate to its members the amount or percentage of union dues or fees that are attributable to each of two categories:
o Category A – amount of union dues related to political activities, and includes amounts for general social causes or issues, charities, non-government organizations, or organizations or groups affiliated with or supportive of a political party (essentially amounts not related to core union activities) (“Category A dues”).
o Category B – amount of union dues that relate to collective bargaining and representation of members, and other activities that are not included in Category A (“Category B dues”).
- A trade union will not be able to collect Category A dues, unless an employee makes an election to opt in to pay the Category A dues.
- A trade union will not be able expel, suspend, discipline, or penalize a union member who chooses not to pay the Category A dues.
- Employees will still be required to pay Category B dues to maintain their membership in the trade union.
You have asked whether the changes described above would affect whether either Category A or Category B dues would be deductible from employment income under subparagraph 8(1)(i)(iv) of the Act. You have also asked whether an employer would be required to report either Category A or Category B dues in box 44 of an employee’s T4 slip, Statement of Remuneration Paid, where the employer has deducted the dues from the employee’s pay.
Our Comments
Deduction of union dues
Pursuant to subsection 8(2) of the Act, no deductions are allowed in computing an individual’s income from an office or employment except as specifically permitted by section 8. Generally, subparagraph 8(1)(i)(iv) of the Act allows an individual to deduct from employment income, annual dues paid in the year to maintain membership in a trade union (as defined by section 3 of the Canada Labour Code), to the extent that the individual has not been reimbursed or is not entitled to be reimbursed. However, subsection 8(5) of the Act prohibits the deduction of annual dues to the extent they were levied for (or under):
a) a superannuation fund or plan;
b) a fund or plan for annuities, insurance (other than professional or malpractice liability insurance that is necessary to maintain a professional status recognized by statute) or similar benefits; or
c) any other purpose not directly related to the ordinary operating expenses of the trade union.
It is our view that Category A and Category B dues should be considered separate amounts for purposes of subparagraph 8(1)(i)(iv) of the Act. That is, each of Category A and Category B dues will be considered amounts paid in the year as annual dues.
After the above mentioned amendments to the ALRC come into force, trade unions in Alberta will have to indicate to employees the amount or percentage of the annual dues that are Category A dues and Category B dues. These trade unions will not be able collect Category A dues from an employee unless the employee makes an election under the ALRC to pay the dues. Further, these trade unions must inform employers of any employee elections.
The amendments will also prohibit Alberta trade unions from expelling, suspending, disciplining, or penalizing an employee who does not elect to pay the Category A dues. As such, the non-payment of the Category A dues would not affect an employee’s status in the trade union. Therefore, the Category A dues would not be deductible under subparagraph 8(1)(i)(iv) of the Act. In addition, even if the Category A dues were paid to maintain membership in a trade union, paragraph 8(5)(c) of the Act would prohibit the deduction of these dues because they appear to be levied for a purpose not directly related to the core trade union activities.
Based on the information provided, employees are still, however, required to pay Category B dues to maintain their membership in the trade union. Therefore, it is our view that the Category B dues would likely be deductible under subparagraph 8(1)(i)(iv) of the Act and likely will not be prohibited by paragraph 8(5)(c).
Reporting Requirements
Guide RC4120, Employers' Guide: Filing the T4 Slip and Summary, provides the instructions for completing a T4 slip. Concerning Box 44 it states:
“Use this box only if you and the union agree that the union will not issue receipts for union dues to employees. Keep the certificate of agreement on file in case we ask to see it. Enter in box 44 the amount you deducted from employees for union dues. Include amounts you paid to a parity or advisory committee that qualify for a deduction.”
Since the Category A dues would not qualify for a deduction under subparagraph 8(1)(i)(iv) of the Act, an employer should not report the amounts deducted from employees for Category A dues in box 44 of the T4 slip. An employer should include the Category B dues in box 44 of the T4 slip, as these annual dues appear to be paid to maintain membership in a trade union.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure.
We trust these comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate