Go ahead and join but don't deduct cost from your taxes

National Post

2014-02-08


When it comes to the deductibility of certain private club membership dues, the tax rules couldn't be clearer - they're generally not deductible and haven't been for over 40 years.

Specifically, the Income Tax Act states that "no deduction shall be made in respect of an outlay or expense made or incurred by the taxpayer ... as membership fees or dues [whether initiation fees or otherwise] in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members."

The phrase "main purpose" has been interpreted by the Canada Revenue Agency to mean that the restriction would only apply to clubs that use more than 50% of their assets to provide members with dining, recreational or sporting facilities.

If your employer pays for your membership in such a club, even though it may not be entitled to a tax deduction, you could still get assessed with a taxable benefit.

The CRA's long-standing position is that if your employer pays or reimburses you for club dues or membership fees, it is typically considered to be a taxable benefit from employment and must be included by your employer on your T4 slip. There are, however, three exceptions to this rule.

First, if an employer provides an in-house recreational facility that is available to all employees, no taxable benefit will arise. Similarly, if your employer pays a fee to an external recreational facility that is available to all employees and the membership is in the employer's name, no benefit will be assessed to the employees. Finally, the most contested exception to the taxable benefit rule is when dues are paid for membership in a social or athletic club for select employees, such as the executive team, and it can be

"clearly demonstrated that the membership is for the employer's advantage."

In such cases, no taxable benefit will arise. The onus is both on the employer and employee to prove that the membership is primarily to the employer's advantage.

Finally, note that the CRA does not consider an employer to be the primary beneficiary in situations where an employee's membership in a fitness facility provides only an indirect benefit by becoming physically healthier as a result of using the club's facilities, even though the argument has been made that the employee's "good health provides benefits to (the) employer through reduced stress and disability leave." In these cases, a taxable employment benefit will generally be assessed.