A commonly forgotten tax deduction

One generally forgotten tax deduction is for subscription or membership fees, which affects many of us as professionals, business or trades people will be members of an association.  The tax law allows a deduction for membership of a trade, business or professional association, and there is no requirement that the taxpayer gain income from that membership (so the deduction is still available into retirement).

However, the down side is that the deduction is limited to only $42.  It has been that amount for decades and it is not adjusted for inflation. If the taxpayer was a member of two associations each costing $50, the deduction would be limited to $84.

However, in the situation where the taxpayer is in receipt of a salary or contractor fees, then the entire amount of the subscription can be claimed as a deduction in their tax return.

In most cases the membership of a trade union or professional association relevant to workers in a particular occupation would qualify for deduction under this section of the regulations.

A taxpayer could also qualify for either deduction for different subscriptions. For example, a person who is qualified as an engineer but who also works as an accountant for an engineering firm might claim a $42 deduction for the membership of an engineer’s association, and claim a full deduction for membership of an accounting body.

Sometimes, in addition to periodic subscriptions, associations may charge members joining fees, special levies and other contributions, such as a special fund for a special purposes (for example, an industrial action fighting fund). The deductibility for those fees depends on whether there is a clear and necessary connection between the activities by which the assessable income is derived and the purpose for which the fees are made.

A joining fee is generally a once-and-for-all payment which provides the new member with the enduring benefit of membership of the association.  Its purpose is to cover the additional administration expenses associated with inducting a new member or to contribute towards the infrastructure costs met by past members. The deduction for this is still limited to $42.

On the other hand, the payment of a special levy or contribution is an allowable deduction if the purpose is clearly linked to the activities by which the assessable income is derived. For example, a special levy or contribution workers may have paid to their union for pay negotiations qualifies for a tax deduction. However, if the levies and contributions are used to assist a political party or families of employees suffering financial difficulties as a result of strike action, these payments are not deductible.

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