Citation: 2012 TCC 212
Date: 20120612
Docket: 2011-3105(IT)I
BETWEEN:
MARIA F. CAROPRESO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
This appeal concerns payments made
by a medical research institute to a postdoctoral research fellow. Maria
Caropreso appeals an assessment made for the 2008 taxation year which included such
payments in her income pursuant to paragraph 56(1)(n) of the Income
Tax Act.
[2]
In 2008, Dr. Caropreso was
registered as a postdoctoral fellow at the University of Ottawa. She had two separate research engagements
during that year. For the first half of the year, she was engaged by the Ottawa
Health Research Institute (OHRI) in medical research. For the balance of the
year, she was engaged by the University in another type of research.
[3]
Dr. Caropreso was assessed tax
only for the first engagement and this is the only item is dispute.
[4]
Dr. Caropreso’s area of
specialization is computers, and she was engaged by OHRI to conduct research in
a field involving computers and medicine. The payments made by OHRI totalled
$19,928 and they were funded by a grant received by Dr. Miguel Andrade, who was
a senior researcher employed by OHRI. The grant was received from the Canadian
Institutes of Health Research (CIHR).
[5]
Dr. Caropreso suggested that as
the working arrangement was the same in the engagement with the University, and
since she was not taxed on payments by the University, that payments by OHRI
should similarly not be taxed. The respondent introduced evidence suggesting
that the second engagement with the University was simply missed by the Canada
Revenue Agency.
[6]
It is not necessary to consider
the respondent’s evidence on this point. The Minister’s assessing action on the
second engagement cannot have a bearing on the proper tax treatment of the
first engagement. The proper tax treatment depends on the legislation and
relevant jurisprudence, and not on the actions of the Minister.
[7]
With respect to the arrangement
with OHRI, Dr. Caropreso’s circumstances are similar to those of En Huang and
Dianbo Qu, who recently brought appeals to this Court. I heard the appeals
and decided in favour of Dr. Huang and Dr. Qu (2012 TCC 81).
[8]
The decision in Huang and Qu
considered two issues. The first was whether the payments were received as or
on account of a fellowship pursuant to s. 56(1)(n) or whether they were
on account of a research grant within the meaning of s. 56(1)(o).
The conclusion on that issue was that the payments were not a grant and were subject
to s. 56(1)(n). The second issue was whether the payments qualified for
the scholarship exemption in s. 56(1)(n)(ii). I concluded that they did.
[9]
On these two issues, the evidence
in this appeal was very similar to that in Huang and Qu and I
will not go through it again. I see no reason to come to a different conclusion
on these points.
[10]
Counsel for the respondent submits
that further evidence has been provided in this appeal. Although some of the
witnesses in this appeal were different than in Huang and Qu, the
evidence as a whole was not significantly different and it did not persuade me
that the conclusion reached in Huang and Qu was incorrect.
[11]
That is not the end of the matter,
however. A further argument is being made in this appeal, which is that the
payments are income from employment. I declined to hear argument on this issue in
the earlier appeals because the issue had been raised by the respondent too
late.
[12]
If the payments have the character
of employment income, they are specifically excluded from s. 56(1)(n)
and do not qualify for the scholarship exemption. In an earlier appeal dealing
with postdoctoral funding, Chabaud v. The Queen, 2011 TCC 438, 2012 DTC
1076[1] Archambault J. raised this
issue and, after receiving submissions, concluded that the fellowship payments
were taxable as employment income.
[13]
The only issue that requires
further comment, then, is whether the payments received by Dr. Caropreso from
OHRI are income from employment. The respondent bears the burden of proof as no
relevant Ministerial assumptions are stated in the Reply.
Analysis
[14]
Paragraphs 56(1)(n) and
56(3)(a) of the Act are reproduced below.
56. (1) Amounts to be
included in income for year. Without restricting the generality of section
3, there shall be included in computing the income of a taxpayer for a taxation
year,
[…]
(n) Scholarships,
bursaries, etc. - the amount, if any, by which
(i)
the total of all amounts (other than amounts described in paragraph 56(1)(q),
amounts received in the course of business, and amounts received in respect of,
in the course of or by virtue of an office or employment) received by the
taxpayer in the year, each of which is an amount received by the taxpayer as or
on account of a scholarship, fellowship or bursary, or a prize for achievement
in a field of endeavour ordinarily carried on by the taxpayer, other than a
prescribed prize,
exceeds
(ii) the
taxpayer’s scholarship exemption for the year computed under subsection (3);
56. (3) Exemption for
scholarships, fellowships, bursaries and prizes. For the
purpose of subparagraph (1)(n)(ii),
a taxpayer’s scholarship exemption for a taxation year is the total of
(a) the total of
all amounts each of which is the amount included under subparagraph (1)(n)(i) in computing the taxpayer’s
income for the taxation year in respect of a scholarship, fellowship or bursary
received in connection with the taxpayer’s enrolment
(i) in an educational program in respect of which an amount may
be deducted under subsection 118.6(2) in computing the taxpayer’s tax payable
under this Part for the taxation year, for the immediately preceding taxation
year or for the following taxation year, or
(ii) in an elementary or secondary school educational program,
[15]
Paragraph 56(1)(n)
draws a distinction between payments made
in the course of business or employment versus payments made to provide financial
assistance to further the recipient’s education. Payments of the first type are
fully taxable and payments of the latter are potentially eligible for the scholarship
exemption described in s. 56(1)(n)(ii) and 56(3)(a).
[16]
As a preliminary comment, I would
note that the respondent did not suggest that Dr. Caropreso received the
OHRI payments as an independent contractor (i.e., in the course of business).
Accordingly, in order for the respondent to succeed in the appeal, it must be
established that (1) Dr. Caropreso was an employee of OHRI, and (2) the
payments were not assistance for education.
[17]
I will first consider whether the
payments were provided as educational assistance.
[18]
The case law on this point is
divided. In Bekhor v. MNR, 2005 TCC 443, Justice Lamarre Proulx
concluded that a postdoctoral fellow was not an employee for purposes of the Employment
Insurance Act and Canada Pension Plan because the payments were in
the nature of financial assistance for education.
[19]
A different conclusion was reached
by Justice Archambault in Chabaud. His conclusion is stated in paragraph
109:
[109] In my opinion, the Report on Postdoctoral Fellows prepared
for the MEQ, describing postdoctoral training as an activity enabling the
fellow to develop "expertise" in research in a complementary or more
specialized field, and according to which postdoctoral fellows must be
considered employees, seems much closer to reality than the T2202A issued to
postdoctoral fellows by the Université Laval and other Canadian universities.
It is possible that the decision rendered by Lamarre Proulx J. of this Court in
Bekhor v. Canada (Minister of National Revenue), 2005 TCC 443, [2005] T.C.J No. 314 (QL), encouraged them to
find that postdoctoral fellows were not employees. Considering the numerous
similarities between Mr. Chabaud's fellowship and that of Mr. Bekhor, I do
not think it is appropriate to make any factual distinctions in order to come
to a different conclusion than that in Bekhor. With great respect for those who hold the opposite view, I
cannot adopt here the same reasoning as that adopted in Bekhor. It is
unfortunate that Mr. Bekhor did not see fit to appeal to the Federal Court
of Appeal so that it could rule on this issue. In keeping with the opinion I
have just expressed, I encourage Mr. Chabaud to do this in order to obtain a
decision that will create a judicial precedent, which my decision cannot be.
[20]
The root of the difficulty is that
payments to postdoctoral research fellows often have dual elements. The payments
further the education of research fellows and they also provide compensation for
work performed. If the payments are received by virtue of employment, this
takes precedence. However, in making this determination, it is relevant to
consider the dominant characteristic of the payments, whether it is
compensation for work or student assistance.
[21]
In this case, I would conclude
that the primary aspect is compensation for work performed. Although the
relationship with OHRI had an element of furthering Dr. Caropreso’s education,
I find that this element was subsidiary.
[22]
According to the operating budget
for the grant to Dr. Andrade from which the payments to Dr. Caropreso were
made, the labour component of the budget was allocated to research staff. It was
not allocated to postdoctoral fellows, but according to the evidence CIHR guidelines
permitted funds allocated for research staff to be paid to postdoctoral
fellows. This suggests that CIHR intended to provide funds primarily for research
and not primarily as financial assistance for postdoctoral education.
[23]
It would have been helpful to have
someone from CIHR testify as to the nature of the funding, but I have not drawn
a negative inference against the respondent for the failure to call this
evidence since the appeal is under the informal procedure.
[24]
I accept that Dr. Caropreso was
furthering her education when she worked at Dr. Andrade’s laboratory, but her
means of doing so involved being remunerated for work performed. This was the
dominant aspect of the relationship that Dr. Caropreso had with OHRI.
[25]
Testimony contrary to this was
provided by Dr. Gary Slater, who at the relevant time was the Dean of the
Faculty of Graduate and Postdoctoral Studies at the University of Ottawa. He testified that payments to postdoctoral fellows
are in the nature of a scholarship.
[26]
The relevance of Dr. Slater’s
testimony on this point is questionable because he was with the University and
not OHRI. These are separate organizations and have separate arrangements with
postdoctoral fellows.
[27]
In any event, I am unable to agree
with Dr. Slater that payments to postdoctoral fellows are simply scholarships. In
this case, the payments were made by a government institution, CIHR, as part of
funding for a research laboratory. The focus of the funding appears to be on
the research, and not on providing an education to postdoctoral fellows.
[28]
I accept that payments to
postdoctoral fellows have elements of providing educational assistance. Such
payments encourage recent graduates to become full‑time researchers
and/or university teachers. The fellows are expected to give seminars and take
some courses. However, the predominant element of the payments to Dr. Caropreso
is compensation for work.
[29]
I would also note that Dr. Slater
is not a disinterested witness. He is the former Dean of Graduate and
Postdoctoral Studies, and he testified that the University sought legal advice
to assist postdoctoral fellows in qualifying for the tax exemption. There is
nothing wrong with this, of course, but it does suggest that Dr. Slater’s
testimony should be viewed with caution.
[30]
I now turn to the second issue,
which is whether Dr. Caropreso was engaged as an employee. I would first
comment that if the respondent
had taken the position that Dr. Caropreso received the payments as either an
employee or independent contractor, it would not be necessary to consider this
second issue. It is only necessary to consider it because the respondent did
not raise the possibility that Dr. Caropreso received the payments in the
course of business as an independent contractor.
[31]
The circumstances in this case are
similar to those in Chabaud in which the relationship was found to be that
of employment.
[32]
Dr. Caropreso was engaged to
provide substantial full-time research and she worked under the close supervision
of Dr. Carolina Perez‑Iratxeta, who was in charge of Dr. Andrade’s
laboratory while he was away on sabbatical. Based largely on the testimony of
Dr. Perez, I would conclude that OHRI had the ability to control the manner in
which Dr. Caropreso performed her work. Ms. Perez assigned the work to Dr.
Caropreso and directed it on a day-to-day basis.
[33]
Dr. Caropreso’s testimony differed
from that of Dr. Perez. Dr. Caropreso testified that the work was determined on
a collaborative basis between Dr. Perez and herself. She also testified that she
could control her own work hours, and that she merely had to inform Dr. Perez
when she would be away.
[34]
I accept that Dr. Perez
collaborated with Dr. Caropreso and allowed her some freedom. However, based on
Dr. Perez’ evidence, this was likely due to Dr. Perez’ management style
and not a contractual right that Dr. Caropreso had. The question is whether
OHRI had the “right” to control. I find that it did.
[35]
I would briefly comment that OHRI’s
policy required postdoctoral fellows to obtain permission to take time off. I
have not taken this policy into account because it is not clear that it applied
to Dr. Caropreso. The policy that was entered into evidence was a version that
was amended after the engagement letter was signed.
[36]
Dr. Slater testified that in the arrangement
between OHRI and the University, it was required that postdoctoral fellows not
be employees. I accept that this is the case, but it appears that OHRI did not
comply with the requirement. If OHRI intended postdoctoral fellows not to be
employees, it needed to put working conditions in place that were consistent
with this. Based on the evidence provided, this was not done.
[37]
The control that OHRI
had is the most important factor in
determining employment in this case, but I would note that the other usual
factors, tools, chance of profit and risk of loss, all point to an employment
relationship as well.
[38]
I would also note that the
contract with Dr. Caropreso stated that OHRI was the employer. This statement
of the parties’ intention is not determinative, and I have not given it much
weight in this case. In a document prepared by OHRI shortly after the contract
with Dr. Caropreso was signed, the relationship with postdoctoral fellows was
described as not being employment. However, this document was not provided to
Dr. Caropreso and her contract was never amended to delete the reference to
employment. It is difficult to conclude that the parties’ had a clearly defined
intention.
[39]
Regardless of the
intention of the parties, the actual relationship between the parties strongly
points to employment. I would conclude
that the payments made by OHRI to Dr. Caropreso were received by virtue of
employment and are required to be included in income under section 5 of the Act.
[40]
The appeal will be dismissed.
Signed at Toronto,
Ontario this 12th day of June 2012.
“J. M. Woods”
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