Deducting membership dues for employees

Article Archives

Article Archives >> Employer and Employee Issues

(Monday, December 21, 2009)

Employees can deduct union dues if they relate to their employment, but can only deduct memberships dues if they are required to maintain a professional status in a profession recognized by statute (federal or provincial legislation). This is actually quite restrictive, and most industry or trade associations do not qualify, even if they certify and regulate the conduct of members.

Further, that professional status must be required to gain or hold employment. Thus, an accountant or engineer that is not working as an accountant or engineer usually cannot deduct professional dues as an employment expense.

If the employer certifies by providing a form T2200 Statement of Conditions of Employment that the employee is required to pay membership fees or dues in an association, the employee may be able to deduct these costs as advertising expense. This option is only open to commission sales persons, and only to the extent of commission income. There are other restrictions imposed by various provisions of the Income Tax Act, so that memberships in health clubs or gyms are generally not deductible, nor are membership or fees for recreational or social clubs or associations. In order to be able to deduct such membership fees, an employee would have to demonstrate that the membership was primarily used to carry out employment duties, rather than being personal in nature.

When an employer pays membership dues on behalf of an employee or reimburses the employee, the employer will generally be able to deduct the expense, but may have to add the amount of the dues to the employee’s income as a taxable benefit. If the employee’s membership is primarily to the employer’s benefit, then the payment of the membership dues does not result in a taxable benefit. Thus, employee membership in trade associations or professional societies, if related to the performance of job duties, will normally be to the employer’s advantage and therefore if the employer pays for such memberships, no taxable benefit will be charged to the employee. Similarly, where an employee belongs to social or recreational associations and uses those memberships for employment purposes, ie, for networking to promote the employer’s business, payment or reimbursement by the employer of dues and fees will generally not result in a taxable benefit.

Canada Revenue Agency normally considers memberships in fitness clubs or recreational clubs to be a taxable benefit to the employee when paid for by the employer, unless the membership is primarily to the employer’s benefit because of a condition of employment such as a certain level of fitness being a specific requirement of the employee’s job. CRA doesn’t consider an indirect benefit such as reduced sick time due to the improved health of employees to be primarily benefit the employer, and therefore paying for health club memberships would result in a taxable benefit to the employee.

There is a potential solution to this problem. According to CRA’s IT 148, Recreational Properties and Club Dues, “The use of an in-house recreational facility or a physical fitness facility that is owned by the employer for the use of the employees does not usually give rise to a taxable benefit to the employees. In addition, no taxable benefit will generally arise to the employees if the employer pays a related or unrelated organization to provide such facilities, as long as the facilities or membership is available equally to all employees.”

Talk to your tax accountant if you pay membership dues for your employees, to make sure you are aware of the consequences of doing so.