As everyone knows, the Canadian tax system is a complex one, and that complexity is reflected on the annual tax return filed by individual Canadian taxpayers. The T1 Individual Income Tax Return itself is only four pages long, but the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of capital gains to determining required Canada Pension Plan contributions by self-employed taxpayers.
All of this complexity makes it easy for the majority of individuals who only deal with our tax system once each year to overlook valuable deduction and credit claims which may be available to them. One such deduction is that available for payments made during the taxation year for annual union, professional, or similar dues.
It’s particularly easy to overlook an available claim for that deduction because of where it appears on the annual return. Although there are forms used by self-employed taxpayers to claim business-related costs and forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either type of form. Rather, it shows up as a single line (Line 212) on page 3 of the T1 annual return.
The general rule for claiming such a deduction is described in the annual income tax return guide as follows:
Line 212 - Claim the total of the following amounts related to your employment that you paid (or that were paid for you and reported as income) in the year:
- annual dues for membership in a trade union or an association of public servants;
- professional board dues required under provincial or territorial law;
- professional or malpractice liability insurance premiums or professional
- membership dues required to keep a professional status recognized by law; and
parity or advisory committee (or similar body) dues required under provincial or territorial law.
There are, of course, limitations on the kinds of expenses which may be claimed and the circumstances in which a taxpayer is entitled to claim those expenses. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain his or her professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice his or her profession or trade. The costs of maintaining required membership in those organizations is deductible. The cost of maintaining membership in other, voluntary associations, even if related to one’s trade or profession, is not. So, for example, if membership in a given association does not affect professional status, dues for it are not deductible even if they entitle the individual to a designation of letters after his or her name. If, on the other hand, membership is necessary to maintain professional status, the dues for it are deductible.
As well, invoices received for annual membership costs can cover a number of different charges and levies, and not all of those costs will be deductible. The Canada Revenue Agency’s (CRA) policy is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. A taxpayer cannot claim charges for pension plans as membership dues, even if receipts received show them as dues.
Where a claim for a deduction for professional membership or union dues is made by an employee, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question. The CRA provides the following example.
A chemical engineer who is employed by a company to sell chemical products or who is the president of a company that processes chemicals satisfies this requirement in respect of engineering dues. On the other hand, an architect, who is working full-time as president of a clothing manufacturing business and who is not a practising architect does not satisfy the requirement and, accordingly, is not entitled to deduct dues paid to maintain professional status as an architect.
In some cases, an employer is willing to cover the cost of an employee’s professional dues as part of the employee’s benefit package. Where that’s the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee, he or she can claim an offsetting deduction for eligible dues or fees paid, on Line 212 of the return.
General information on the deduction of professional membership fees or union dues is available in the 2016 General Income Tax and Benefit Guide. More detailed information, for both the self-employed and employees, can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/212/menu-eng.html.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.