Dues and don'ts of professional fees

National Post

2006-06-17


Do you pay annual professional membership dues that are not reimbursed by
your employer? If so, you may be entitled to deduct them on your tax return,
provided they are annual dues and not entrance fees.

The key caveat is that the dues are necessary to maintain your professional
status and your professional status is recognized by a federal, provincial or
foreign statute.

The Canada Revenue Agency is somewhat lenient on its interpretation of
"necessary." It states that "such a payment need not be essential for an
employee to hold a position or job.

"However, there must be a reasonable degree of relationship between it and
the position or job."

For example, membership in the Canadian Medical Association is not required
to practise medicine, while membership in the provincial College of Physicians
and Surgeons is necessary. Accordingly, CMA dues would not be deductible but
provincial college fees would be.

A recent tax case addressed this issue in the case of physiotherapy
association dues. Katherine Shearman is a physiotherapist employed with the
Canadian Back Institute.

She is registered with the College of Physical Therapists of British Columbia
and has practised physiotherapy since 1998.

The college is a not-for-profit organization responsible for regulating the
practice of physical therapists.

In 2003, Ms. Shearman paid $200 in fees to the College, which the CRA
permitted her to deduct. She also paid $800 in professional dues to the Canadian
Physiotherapy Association (CPA), which she deducted and the CRA disallowed.

The issue was whether the $800 paid to the CPA qualified as "annual
professional membership dues, the payment of which is necessary to maintain a
professional status recognized by statute."

Ms. Shearman testified that, according to the 2005-06 CPA Membership Guide,
her total fee comprised association fees of $550 plus GST and insurance fees of
$215.

The judge concluded that since the insurance fees are separate from the dues,
and that insurance is also available from sources other than the CPA, it could
not be properly considered part of CPA membership dues.

As for the $550 of actual CPA membership dues, there was no doubt in the
judge's mind that these fees were "clearly ... professional-membership dues."

In order for them to be deductible, however, "they must be necessary to
maintain a professional status recognized by a statute."

The judge determined that while "CPA membership enhanced her professional
status," it was not required for any professional status. As a result, the
amounts did not qualify for the professional fees deduction.

Ms. Shearman said the judge's decision was "unfair, because many other
professionals have claimed deductions in similar circumstances and the
deductions have not been challenged by the [CRA]."

This is a classic argument pleaded by taxpayers in Tax Court, but the judge
concluded: "It is not something that the court can remedy. The only authority
that the court has been given is to apply the words of the statute to the
particular circumstances of the taxpayer."

GRAPHIC: Black & White
Photo: John Mahoney, CanWest News Service; Physiotherapist dues may enhance
professional status, but are not required to work, rules Tax Court.