Association subscription tax deductible eligibility can endure into retirement

are your association subscriptions tax deductible?

A lot of professionals, business or tradespeople are members of a trade or professional association, and during their working life subscribe to an appropriate organisation.

In most cases, the membership of a trade union for example, or professional association relevant to workers in a particular occupation, would qualify for deduction under the general deduction provisions of the tax laws. See taxation ruling TR 2000/7 for details.

What is the test for deductibility of subscriptions?

In general, the test for deductibility under the TR 2000/7 rules is whether the payment is an outgoing that is relevant and incidental to the derivation of assessable income. In most cases, where the taxpayer receives a salary or contractor fees, the membership of a relevant association would qualify under this section of the regulations. And the entire amount of the subscription can be claimed as a deduction.

Downside of subscription deductions

The downside, however, is that the deduction is limited to only $42 (under section 25.55).

So, if the taxpayer was a member of two associations each costing $50, the deduction would be limited to $84. It has been that amount for decades and it has not been adjusted for inflation.

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.

Pensioners and self-funded retirees

There is another section of the tax law that allows a deduction for such memberships, and there is fudge (of sorts) in that the requirement that the taxpayer derives assessable income associated with that subscription extends to “purposes related to” income earning activities.

For example, “the association may provide advice on taxation or how to maximise the return on investments”.

However, it is also permissible for a retired professional who still belongs to a professional association that is a “trade, business or professional association” to make a deduction for that membership. The deduction is still restricted to a $42 limit.

Special fees or levies

Sometimes, in addition to periodic subscriptions, associations may charge members’ joining fees, special levies and other contributions, such as a special fund for one-off purposes (for example, a trade union’s strike fighting fund).

The deductibility of those fees depends on whether there is a clear and necessary nexus 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 that provides the new member with the enduring benefit of membership of the association. Its purpose is to cover the additional administrative 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 that workers may have paid to their union for pay negotiations may qualify 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.

For professional advice regarding any association subscriptions deductions, please contact the accountants at our Epping office