2019-0804641I7 Professional Dues 8(1)(i)(i)

Principal Issues: Whether the words “professional status recognized by statute” (or “un statut professionnel reconnu par la loi” in French) found in subparagraph 8(1)(i)(i) of the Income Tax Act includes recognition in the regulations made under legislation for purposes of the professional dues deduction.

Position: Notwithstanding our previous position in 2014-0530691E5, the words “professional status recognized by statute” found in subparagraph 8(1)(i)(i) of the Income Tax Act includes recognition in the supporting regulations.

Reasons: Legislative schemes depend on regulations to make them work and regulations must strictly conform to the limits established by the Act that authorizes the regulation. Therefore, even if the word statute is interpreted only in the narrower sense to include Acts that are passed by a legislative body, applying a textual, contextual and purposive analysis, a professional status can be recognized by a statute even if it is only recognized in the supporting regulations of an Act.

Author: Witteveen, Tobias
Section: 8(1)(i)(i), 118.5(d) of the Act and Section 18, Part VI of Schedule V, of the Excise Tax Act

                                                                     August 8, 2019

Heather Reardon                                            HEADQUARTERS
A/Manager                                                      Income Tax Rulings
Charities and Non-Profit Organizations Unit   Directorate
Excise and GST/HST Rulings Directorate      T. Witteveen
16th Floor, 344 Slater Street, Ottawa              (613) 670-0590

ATTN: Desneiges Arbour                                  2019-080464

Professional membership dues

We are writing in reply to your memorandum of March 28, 2019, in which you asked for our views regarding whether the phrase “professional status recognized by statute” (or “un statut professionnel reconnu par la loi” in French) found in subparagraph 8(1)(i)(i) of the Income Tax Act (“Act”) includes recognition in the regulations made under legislation for purposes of the professional dues deduction. Our understanding of the key facts is briefly summarized as follows:

*    To be eligible for an Active Membership in the XXXXXXXXXX (“Society”), a person must fulfill one of the conditions outlined below:

1.    Graduation from a XXXXXXXXXX Society accredited program in XXXXXXXXXX.

2.    Graduation from a post-secondary program other than XXXXXXXXXX accredited programs XXXXXXXXXX of XXXXXXXXXX.

*    A person who has an Active Membership and wishes to maintain the membership must complete continuing education requirements XXXXXXXXXX.

*    The regulations enacted in support of legislation in XXXXXXXXXX provinces impose requirements that XXXXXXXXXX services be provided by a member of the Society or a XXXXXXXXXX:

XXXXXXXXXX.

Excise and GST/HST Rulings Directorate’s Views

You have referred to technical interpretation (“TI”) 2014-0530691E5, where the Canada Revenue Agency (“CRA”) previously indicated that:

     “    …a professional status would generally have to be acknowledged in the statute itself to satisfy the “recognized by statute” condition in subparagraph 8(1)(i)(i) of the Act. The Dictionary of Canadian Law and Black’s Law Dictionary generally define a “statute” as a law or act that is passed by a legislative body. Therefore, where a “professional status” is only acknowledged in the regulations of a statute or in an organization’s bylaws, the “professional status” would not likely be considered “recognized by statute” for purposes of subparagraph 8(1)(i)(i) of the Act.”

As set out in your memorandum, you do not agree with the view that where a “professional status” is only acknowledged in the regulations of a statute the “professional statute” would not likely be considered “recognized by statute” for purposes of subparagraph 8(1)(i)(i) of the Act. You have suggested that a broader interpretation of the words “professional status recognized by statute” that would include recognition in the regulations made under the legislation is more appropriate.

In this respect, you have noted that the Dictionary of Canadian Law defines the term “statute” as “a law which expresses the will of a legislature or Parliament”, the term “law” to include an enactment, and the term “enactment” to include a regulation. As such, it is your view that the definitions do not generally limit the term statute to an Act. You also note that TI 2014-0530691E5 does not take into account that the French version of the legislation uses the term “loi”, which can be translated into “law” in English, which would support a broader interpretation. Finally, you have noted that, applying a contextual and purposive analysis, the phrase “recognized under a statute” should be interpreted as including regulations under an Act as they are necessary to support the application of the provisions of an Act.

Our Comments

We understand that your question arises in the context of a request from the Society, regarding the tax status of the supply of certain memberships for the purposes of the Excise Tax Act.

Section 18, Part VI of Schedule V of the Excise Tax Act exempts

*    “a supply of a membership made by an organization membership in which is required to maintain a professional status recognized by statute, except where the supplier has made an election under this section in prescribed form containing prescribed information,” (or in French)

*    « la fourniture, effectuée par une organisation, d’un droit d’adhésion qui est nécessaire pour conserver un statut professionnel reconnu par la loi »

This provision mirrors subparagraph 8(1)(i)(i) of the Act, which allows for the deduction in computing income from an office or employment for annual professional membership dues. The statutory wording of subparagraph 8(1)(i)(i) states in part:

“(i) an amount paid by the taxpayer in the year , …..

(i)   annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,” (or in French)

(i)   “des cotisations annuelles de membre d’association professionnelle dont le paiement était nécessaire pour la conservation d’un statut professionnel reconnu par la loi, »

In Montgomery et al. v. The Queen, 99 DTC 5186, the Federal Court of Appeal (“FCA”) stated that the purpose of the phrase “recognized by statute” in subparagraph 8(1)(i)(i) of the Act, is to establish a standard against which the validity of a professional status is measured. The FCA clarified that the phrase “recognized by statute” should be afforded a broad interpretation, and that “recognized by statute” does not necessarily mean that a professional status was incorporated, created, or regulated by a particular statute.

Thus, an individual’s professional status may be recognized by any statute. This would include the statute that created or regulates a professional organization, or any other statute that acknowledges the existence, validity, character, or claims of the professional status. For example, a professional status would be considered “recognized by statute” where a statute requires that certain services be only performed by a member of a particular professional organization, even though the organization itself is not regulated by statute.

The definition of statute in Black’s Law Dictionary, 6th edition, 1990 emphasizes that statutes are enactments of a legislative body:

n. a formal written enactment of a legislative body, whether federal, state, city, or county. An act of the legislature declaring, commanding, or prohibiting something; a particular law established by the will of the legislative department of government; the written will of the legislature, solemnly expressed according to the forms necessary to constitute it the law of the state. (emphasis added)

A by-law is defined in the Dictionary of Canadian Law as:

n. A rule or administrative provision adopted by an association or corporation for its internal governance; corporate by-laws are usually enacted apart from the articles of incorporation

In TI 2014-0530691E5 the CRA was asked whether annual membership dues paid to the XXXXXXXXXX would be deductible under subparagraph 8(1)(i)(i) of the Act. With respect to the meaning of the phrase “recognized by statute” found in subparagraph 8(1)(i)(i) it was our view that based on these definitions a by-law would unlikely meet the requirement of having been enacted by a legislative body. Similar concerns arise with respect to regulations, as they are not enacted by legislative bodies, but are instead promulgated in support of legislation by cabinet (the executive branch) through orders in council.

In TI 2012-0444181M4 (E), we were asked whether certain examination fees paid by an individual to obtain his/her licence to practice as a family physician in the Province of Ontario qualify for the tuition tax credit under paragraph 118.5(1)(d). Paragraph 118.5(1)(d) and subparagraph 8(1)(i)(i) both use similar wording when referring to statute. In that TI, the CRA found that Part I and II of the Medical Council of Canada Qualifying Examination and the certification by the College of Family Physicians of Canada were eligible licensing examinations for the purposes of whether fees paid for these licensing examinations qualified for the purposes of paragraph 118.5(1)(d) of the Act and cited section 3 of the Ontario Regulation 865/93 under the Registration of the Ontario Medicine Act in support of this finding.

Conclusion

Based on the above, we would agree with your views that for purposes of the meaning of the phrase “professional status recognized by statute” in subparagraph 8(1)(i)(i) of the Act, applying a textual, contextual and purposive analysis, a “professional status” can be “recognized by a statute” for purposes of subparagraph 8(1)(i)(i) of the Act, even if it is only recognized in the supporting regulations of an act.

However, it is our view that where a “professional status” is only acknowledged in an organization’s bylaws, the “professional status” would not likely be considered “recognized by statute” for purposes of subparagraph 8(1)(i)(i) of the Act.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: LPRA-PLAR ITR-DDI Access Team-Équipe d’Accès. In such cases, a copy will be sent to you for delivery to the taxpayer.

We trust our comments will be of assistance.

Yours truly

Sandro D’Angelo, C.P.A., C.M.A.,
A/Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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