Albert W Taylor v. Minister of National Revenue, [1979] CTC 2356, 79 DTC 331

The Chairman:—This is the appeal of Dr Albert W Taylor from an income tax reassessment dated July 4, 1975, by which the respondent disallowed certain expenses claimed by the appellant in his 1973 tax return.

Issue

The principal issue is whether the expenses claimed by the appellant were for purposes of “research” within the meaning of paragraph 56(1)(o), or whether they are ‘‘scholarships, bursaries, etc” which, but for a basic $500 exemption, are not deductible pursuant to paragraph 56(1)(n) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

The appellant had majored in physiology and minored in biochemistry and, in the pertinent taxation year, held a doctorate in applied physiology. He was an associate professor of physical education and a research assistant at the Surgical Medical Research Institute, affiliated with the Department of Surgery at the University of Alberta.

Having been seven years with the University of Alberta, the appellant was entitled to, applied for, and was granted sabbatical leave for 1973-74 (Exhibit A-1 to Exhibit A-5). During his sabbatical, the appellant received 80% of his salary from the University of Alberta. At about the same time, the appellant applied to The Canada Council for a grant to do research in his field of work with a Dr Saltin and other researchers in the Scandinavian countries. On September 23, 1973, the appellant was advised that his leave fellowship was granted (Exhibit A-6). By letter dated October 5,1972, the appellant was advised that his request for a research allowance of $8,000 to $9,000 could not be met as the leave fellowship award was limited to $1,500. He was, however, advised to apply for a research grant for the balance of expenses (Exhibit A-7).

Prior to leaving for Europe the appellant was required to submit to the University his itinerary for sabbatical leave (Exhibit A-11). The appellant, in fact, proceeded to Stockholm and established himself at the Karolinska Hospital for his research, and at the Wennergren Centre, a residence for international researchers, where he resided for a period of ten months.

He subsequently went to Copenhagen and later to Freiburg. The appellant also attended an international symposium in Macolin, Switzerland on biochemistry and particularly on muscle physiology. He was invited to present a paper at the meeting and took part in several forums dealing with the appellant’s field of research. The appellant met with researchers from Germany, Denmark, Finland, Belgium and Russia, who were working on comparable projects and was invited by some of these researchers to work with them on their techniques for short periods of time. The appellant claims that in so doing he learned to avoid the mistakes they had made and he learned of solutions they had arrived at in dealing with problems involved in the study of muscle tissue.

The appellant, in his application, indicated that his field of research was generally to be in muscle physiology and research in physical education, and more specifically, as described in Exhibit A-11.

The appellant explained that he had, among others, a specific project in mind, and I quote from the transcript:

Ms Bélair: What was this project about?

Mr Taylor: I wanted to, on this particular project I wanted to work on a method to isolate myosin ATP Ase from very small human samples.

Ms Bélair: But when you do ask for a sabbatical leave, you have to submit a report giving out your research for the period in which you will be away?

Mr Taylor: Yes, when you return, you are given three (3) months to prepare report for the University and then submit it to the University on the work that you did while you were there and it is supposed to be what you suggested you are going to do when you left.

A report of the appellant’s work while on sabbatical was submitted to the University and to The Canada Council (Exhibit A-12). A letter of acknowledgement dated August 8, 1974, of the receipt by The Canada Council of the appellant’s final report was filed as Exhibit A-14. Exhibit A-13 is a series of papers written by the appellant on the principal subject of his research while on sabbatical in the Scandinavian countries and in Germany.

Finding of Facts

On the basis of oral and written evidence adduced, and on the balance of probabilities, I am satisfied that the appellant did in fact obtain his sabbatical leave and was granted funds by The Canada Council for the purpose of carrying out research in the field of muscle physiology in the Scandinavian countries. Counsel for the respondent questioned the appellant’s application forms to The Canada Council (Exhibit R-1 and R-2) and sought to distinguish between “leave fellowships” and “research fellowships” and attempted to establish that the grant made by The Canada Council was not for research, but was a scholarship or bursary within the meaning of paragraph 56(1)(n) of the Act. Paragraph 56(1 )(n) reads:

(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(n) the amount, if any, by which

(i) the aggregate of all amounts received by the taxpayer in the year, each of which is an amount received by him 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,

exceeds

(ii) $500;

Although the application forms filed by the appellant with The Canada Council on the basis of which the funds were granted are not as clear as one would wish, the correspondence between the appellant and both the University of Alberta and The Canada Council indicates to me that what was sought was a grant for the purpose of doing research on a specific project. The contents of the appellant’s compulsory report to the University and the several papers subsequently written by the appellant in association with researchers in both the Scandinavian countries and in Germany (Exhibit A-13 and A-15) corroborate the appellant’s testimony.

The preponderance of the evidence leads me to accept that the appellant applied for, was given funds, and carried out research by means of a research grant within the meaning of paragraph 56(1)(o) of the Act, which reads:

(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(o) the amount, if any, by which any grant received by the taxpayer in the year to enable him to carry on research or any similar work exceeds the aggregate of expenses incurred by him in the year for the purpose of carrying on the work, other than

(i) personal or living expenses of the taxpayer except travelling expenses (including the entire amount expended for meals and lodging) incurred by him while away from home in the course of carrying on the work,

(ii) expenses in respect of which he has been reimbursed, or

(iii) expenses that are otherwise deductible in computing his income for the year;

The appellant succeeded in establishing, to the satisfaction of the Board, that the expenses claimed by the appellant were incurred to enable him to carry on research in his professional field and were greater than the amount of the research grant received; that they did not include personal or living expenses; that they were over and above the amounts of the expenses that had been reimbursed; and, that the expenses claimed were not otherwise deductible in his 1973 taxation year.

Counsel for the appellant referred to an interesting case on point in Her Majesty The Queen v G Grant Amyot, [1976] CTC 352; 76 DTC 6217, in which Mr Justice Mahoney, in his decision, arrived at a distinction between a “fellowship” and a “research grant”. At pp 356 and 6220, respectively, the learned Justice states:

Just as the Canada Council can make grants for either study or research, so the term “fellowship”, in ordinary parlance, embraces grants for study or research, inter alia. A distinction must, however, be made for purposes of the Income Tax Act. It is manifest that research is an essential element or ingredient or technique of study. Generally, the more eminent the station in the academic hierarchy of the student, the higher the quality and greater the quantity of research reasonably to be expected of him. I accept, without reservation, that what the Defendant was doing, during 1972, in terms of activity, was research and nothing else.

Further on pp 357 and 6220 respectively, it is stated:

In order to bring the receipts within paragraph 56(1 )(o), the purpose of the grant must have been to enable the Defendant to carry on that research. The key question is the purpose of the payments he received from the Canada Council and not the means adopted, by necessity or choice, to achieve that purpose. If the purpose was the research itself, which is to say, in most cases, not research as an activity for its own sake but for the sake of the novel proposition, anticipated or otherwise, that might ensue upon it, then the grant was made for that purpose and fell within paragraph 56(1)(o). That would be so even if the Defendant’s advancement in the academic world was an active, but secondary, objective or an inevitable, but incidental, benefit. On the other hand, if the purpose of the grant was to assist the Defendant to advance his academic career and the research undertaken was but a means, however essential, to carry out that purpose then the grant was a bursary, scholarship or fellowship and fell within paragraph 56(1)(n).

Notwithstanding the undisputed quality of the research in this case and the time devoted to it in 1972 to the exclusion of other activities, the object of the grant was not the Defendant’s contribution to the general body of knowledge on the Italian Communist Party; it was to assist the Defendant toward his doctorate. Having regard to the Defendant’s level of academic attainment in 1972, the grant was a fellowship and the amounts received by him on its account fell within paragraph 56(1)(n) of the Act.

In the instant appeal, the research done by the appellant, who already held a doctorate, was not to acquire a further academic degree but was aimed, among other things, at finding methods of isolating myosin from human biopsy samples. The research and resulting reports done by the appellant on this and other subjects with researchers in the Scandinavian countries were published in several publications and have added to the existing knowledge in the general field of muscular physiology. The grant awarded to the appellant and the research done by him in my view meet the requirements of the test set out by Mr Justice Mahoney in the Amyot case. Paragraph 56(1)(o) is therefore applicable to the facts of this appeal and not paragraph 56(1)(n).

Quantum Under Litigation

There was a great deal of confusion as to exactly what amounts were in issue. It was alleged by the appellant that he had, in fact, incurred expenses far beyond what he had claimed in his return, whereas the respondent felt that some reimbursements had been made to the appellant which had not been brought into income. It was decided that the appeal would nevertheless proceed on the basis of the reassessment of July 4, 1975. The respondent disallowed an amount of $926 as convention expenses, an amount of $1,500 as research expenses previously allowed, and $708.05 as part of travelling expenses, for a total of $3,134.05.

The appellant’s representative stated:

What we are attempting to do, Mr Chairman, is if we look at the amounts of approximately Thirty-one hundred dollars ($3,100.00) disallowed of expenses, we are introducing evidence that the taxpayer not only paid Thirty-one hundred dollars ($3,100.00) but paid an amount in excess of this and we are suggesting that the amount claimed should be allowed because the expenses were at least that amount and we are not suggesting that any further expenses be allowed but simply the ones as originally claimed.

Counsel for the respondent accepted that the amount involved was $3,134.05, and the appeal was heard principally on whether paragraph 56(1)(o) was applicable to the facts of this appeal.

On the basis of the evidence adduced and for the above stated reasons, I hold that paragraph 56(1)(o) is applicable to the facts of this appeal and that the expenses claimed in the amount of $3,134.05 are deductible. Paragraph 56(1)(n) not being applicable, no deductions under that section can be made.

Decision

The appeal is allowed and the matter referred back to the Minister of National Revenue for reassessment on that basis.

Appeal allowed.