Citation: 2010 TCC 592
Date: 20101118
Docket: 2009-3067(IT)I
BETWEEN:
FAN ZHANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal under
the informal procedure against a reassessment made by the Minister of National
Revenue (the "Minister") under the Income Tax Act, R.S.C.
1985, c. 1 (5th Suppl.) as amended (the "Act"),
for the Appellant's 2006 taxation year. By the reassessment, the Minister
increased the total income of the Appellant to $48,165 by:
a)
reducing the T4
earnings to $26 to match a T4 - Statement of Remuneration issued by the University of British Columbia ("UBC");
b)
increasing other income
(fellowship awards) to $46,999 to match a T4A – Statement of Pension,
Retirement, Annuity and Other Income issued by UBC for scholarships,
fellowships, bursaries, or art production grants; and
c)
allowing a $500
exemption on the other income of $46,999 in accordance with
subsection 56(3) of the Act.
[2]
In making the
reassessment, the Minister relied on the facts described in paragraph 10
of the Reply to the Notice of Appeal which reads as follows:
a)
the Appellant received fellowship awards
totalling $46,999 from UBC during the 2006 taxation year, and
b)
UBC has not issued a T2202A – Tuition,
Education and Textbook Amounts Certificate for the 2006 taxation year to the
Appellant.
[3]
The issue is whether
the Appellant is entitled to an exemption for scholarships, fellowships,
bursaries and prizes in excess of the $500 allowed by the Minister. The
Minister submits that the amount of the exemption was properly calculated as
the Appellant did not receive the fellowship awards totalling $46,999 as a
student enrolled in a program that entitles her to claim the education amount
as described in subsection 118.6(2) of the Act.
[4]
The relevant provisions
of the Act for the purpose of this appeal are paragraph 56(1)(n),
subsection 56(3) and subsection 118.6(2). They read as follows:
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 (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,
(b) the total of all amounts each of which is the lesser of
(i) the amount included under subparagraph (1)(n)(i) in
computing the taxpayer's income for the taxation year in respect of a
scholarship, fellowship, bursary or prize that is to be used by the taxpayer in
the production of a literary, dramatic, musical or artistic work, and
(ii) the total of all amounts each of which is an expense incurred
by the taxpayer in the taxation year for the purpose of fulfilling the
conditions under which the amount described in subparagraph (i) was received,
other than
(A) personal or living expenses of the taxpayer (except expenses in
respect of travel, meals and lodging incurred by the taxpayer in the course of
fulfilling those conditions and while absent from the taxpayer's usual place of
residence for the period to which the scholarship, fellowship, bursary or
prize, as the case may be, relates),
(B) expenses for which the taxpayer is entitled to be reimbursed,
and
(C) expenses that are otherwise deductible in computing the
taxpayer's income, and
(c) the lesser of $500 and the amount by which the total
described in subparagraph (1)(n)(i) for the taxation year exceeds the
total of the amounts determined under paragraphs (a) and (b).
118.6 (2) Education credit -- There
may be deducted in computing an individual's tax payable under this Part for a
taxation year the amount determined by the formula
A ×
B
where
A is the appropriate percentage for the year; and
B is the total of the products obtained when
(a) $400 is multiplied by the number of months in the year
during which the individual is enrolled in a qualifying educational program as
a full-time student at a designated educational institution, and
(b) $120 is multiplied by the number of months in the year
(other than months described in paragraph (a)), each of which is a month during
which the individual is enrolled at a designated educational institution in a
specified educational program that provides that each student in the program
spend not less than 12 hours in the month on courses in the program,
if the enrolment is proven by filing with the Minister a certificate
in prescribed form issued by the designated educational institution and
containing prescribed information and, in respect of a designated educational
institution described in subparagraph (a)(ii) of the definition "designated
educational institution" in subsection (1), the individual has attained
the age of 16 years before the end of the year and is enrolled in the program
to obtain skills for, or improve the individual's skills in, an occupation.
[5]
For purpose of
subsection 118.6(2), the enrolment certificate in prescribed form issued by the
designated educational institution and containing prescribed information is
form T2202A.
[6]
During the 2006
taxation year, the Appellant was enrolled in a full time training program at
UBC as a postdoctoral fellow ("PDF") to finance her postdoctoral
fellow training program, she received two leading fellowship awards from the
Canadian Institutes of Health Research ("CIHR") and the Michael Smith
Foundation for Health Research ("MSFHR"). The terms of these awards
were from January 1, 2006 to December 31, 2008. The stipend for the CIHR
award was $40,000 per annum and the research allowance was $5,000 per annum.
The stipend for the MSFHR award was $21,000. She conducted her PDF training
program at the BC Cancer Research Centre in hematology under the supervision of
Dr. Paul Sorensen.
[7]
The UBC Website
provides the following information concerning the post doctoral fellows:
Postdoctoral Fellows are individuals who have completed a doctoral
degree and who are seeking the opportunity to train further in a particular
area of research. Postdoctoral Fellows at UBC can be either employees or
trainees, depending on the job description, level of direction and nature of
the research grant.
**A Postdoctoral Fellow is an employee where the
individual plays a key role on a research team under the direction of and
funded by the supervising faculty member.
**A Postdoctoral Fellow is a trainee where the individual is
awarded a competitive fellowship from an external granting agency, which may or
may not be paid through UBC, or receive financial support from a sponsoring
agency. Trainees do not have an employment relationship with UBC. They
independently work under the mentorship of a supervising faculty member at UBC.
[8]
According to the
Appellant, PDFs are considered by UBC to be trainees not employees. As such,
PDFs are not eligible for benefits of any type (health plan, employment
insurance, federal parental leave or worker's compensation in case of injury)
and are not eligible for registered retirement savings plan or Canada
Pension Plan contributions. She testified that the only relationship she
had with UBC was through Dr. Sorensen. She did not take courses or attend seminars
at UBC and she did not pay any tuition fees to UBC. She had no contract with
UBC nor obtained any benefit from UBC. She further explained that her
relationship with UBC Cancer Research Centre was temporary and could be
terminated at any time. She worked in Dr. Sorensen's team in conducting
laboratory work and in writing research articles for publication.
[9]
She also testified that
she received her awards through UBC. This income was received as a T4A Scholarship/Fellowship.
Income tax was withheld from her fellowship and she is seeking reimbursement of
the income tax so withheld in 2006. Unlike other universities (such as McGill,
Montréal, Ottawa and Dalhousie) UBC did not issue T2202A to
their PDFs due to administrative complexities and the change in the income tax
treatment of awards.
[10]
Despite the fact that
the Appellant did not file any such T2202A certificate with the Minister, she
argued that such a certificate was not required because she did not claim the
education credit referred to in subsection 118.6(2) of the Act but
instead claimed the unlimited exemption (effective for 2006 and subsequent
taxation years), for scholarship in connection with enrolment at an educational
program that qualifies under subsection 118.6(2) of the Act.
[11]
Unfortunately for the
Appellant, the enrolment certificate referred to in subsection 118.6(2) of
the Act is not merely directory; it is mandatory for an individual in
order to deduct an amount as an education credit. As no certificate has been
obtained from UBC, the Appellant is not entitled to the education credit with
respect to her PDF training program.
[12]
The scholarship
exemption in subparagraph 56(3)(a)(i) specifically refers to a
taxpayer's enrolment in an educational program in respect of which an amount
may be deducted under subsection 118.6(2) of the Act in computing
the taxpayer's tax payable under Part I of the Act for the taxation
year, for the immediately preceding taxation year or for the following taxation
year. Accordingly, there is no amount under subparagraph 56(3)(a)(i)
in respect of which an amount may be deducted under subsection 118.6(2).
Consequently, as the amount set out in paragraphs 56(3)(a) and (b)
is zero, the amount computed under paragraph 56(3)(c) is $500,
being the lesser of $500 and the amount of the fellowships obtained.
[13]
Therefore, the
Appellant must include the $46,999 minus the statutory exemption of $500 in her
income for the 2006 taxation year. Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this 18th day of November 2010.
"Réal Favreau"
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