19 October 2006 Internal T.I. 2006-0204151I7 - Scholarship versus research grant

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a fellowship can be considered a research grant such that it would be included in income under paragraph 56(1)(o)

Position: No.

Reasons: The main purpose of the grant is to further the education of the recipient and not to undertake research.

							October 19, 2006

	Tax Audit					HEADQUARTERS
	Audit Division				J. Gibbons, CGA
	XXXXXXXXXX  TSO				(819) 458-3538

	Attention:  XXXXXXXXXX
							2006-020415

XXXXXXXXXX (the "Taxpayer")

We are replying to your memorandum of September 1, 2006, concerning the income tax treatment of awards for the Postdoctoral Fellowships (the "Fellowships") received by the Taxpayer from the University of XXXXXXXXXX (the "University"). In this regard, the Taxpayer wrote to you requesting that the amounts originally reported on line 130 of his XXXXXXXXXX and XXXXXXXXXX individual tax returns as "scholarship or bursaries" be instead reported as "research grants" on line 104, thereby adding to earned income for purposes of the deduction for contributions to a "registered retirement savings plan".

Facts

The Fellowships were paid by the XXXXXXXXXX (the "Foundation") and were administered by the University through a research account in the name of the Taxpayer's supervisor. The University reported the Fellowships as "scholarships/bursaries" on T4A's. Among the information submitted by the Taxpayer, there is a letter from the Foundation dated XXXXXXXXXX , wherein the Taxpayer was informed that he had been awarded a "two-year postdoctoral research fellowship" comprised of a $XXXXXXXXXX stipend and a $XXXXXXXXXX research allowance. There was also a letter from the University dated XXXXXXXXXX (the "Offer"), the subject line of which was entitled an "Offer of Employment as Postdoctoral Fellow", which stated that "Postdoctoral Fellows are generally regarded as research apprentices and are considered by the Canada Customs and Revenue Agency to be self employed ...". This letter also stated that the Taxpayer' duties would be "to conduct research in the general areas of XXXXXXXXXX research on projects of mutual interest and the project outlined in the application submitted by you to the [Foundation]".

Your views

You feel that the Taxpayer's assertion that the Fellowships should be considered research grants within the meaning of paragraph 56(1)(o) of the Income Tax Act may have merit. In this regard, you refer to the Offer, referred to above, which outlined the conditions of the Fellowship including the statement that the Taxpayer was hired as a Postdoctoral Fellow on a salary basis to conduct certain research.

Our views

Fellowships are similar to scholarships and bursaries in that they are amounts paid or benefits given to individuals to enable them to advance their education and are generally awarded for doctoral studies and post-doctoral work. As indicated in paragraph 11 of IT-75R4, an amount received on account of a fellowship is normally included as income under subparagraph 56(1)(n)(i) but can sometimes be included as a research grant under paragraph 56(1)(o) of the Act. The particular treatment depends upon the primary purpose for which a fellowship was granted as determined by reference to the terms and conditions attached to the award. If the primary purpose of a particular award is to further the education and training of the recipient in his or her individual capacity, such as studying for a doctoral degree, the award is included under subparagraph 56(1)(n)(i), even though research is undertaken as a means to achieve that purpose. If the awarding of a fellowship is primarily for the purpose of research, a detailed description of the term or terms relating to the research requirements would normally be provided.

In the present case, it is our view that the information provided by the Taxpayer is insufficient to corroborate his position that the Fellowships should be taxed as research grants. As alluded to above, vague and general references to research do not in themselves bring a grant within paragraph 56(1)(o) of the Act. Conversely, the description of the Fellowships, XXXXXXXXXX, would appear to confirm the University's characterization of the Fellowships as paragraph 56(1)(n) amounts. This description reads as follows:

"XXXXXXXXXX " [Emphasis added.]

Based on the foregoing, it is our view that the Taxpayer's requested adjustment should be denied.

For your information a copy of this memorandum will be severed using the criteria in the Access to Information Act and placed in the CRA's electronic library. A severed copy will also be distributed to the commercial tax publishers 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 can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

If we can be of any further assistance, please feel free to contact the author or the undersigned.

Randy Hewlett
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch