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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether income received by an individual, where the source of funds is provided under a fellowship award program, is taxable under paragraph 56(1)(n) of the Act, or is employment income that is taxable under subsection 5(1).
Position:
The amounts represent employment income that is taxable under subsection 5(1).
Reasons:
The general terms and conditions governing fellowship awards issued by the Grantor, when combined with the specific information provided, indicate that there is an employer-employee relationship. Further, the general terms and conditions governing fellowship awards issued by the Grantor specifically state that its fellowship awards are "salary". It is also apparent that the Payer regards the amounts received by the Payee as employment income, CPP and EI are withheld at source.
March 11, 2002
Mr. Paul Remillard HEADQUARTERS
A/Director Randy Hewlett, B.Comm.
CPP/EI Eligibility Division 613-957-8973
Revenue Collections Directorate
ATTN: Ms. Ann Weaymouth
2002-012573
Technical Interpretation Request - Research Fellowship Award
We are writing in response to your request of February 21, 2002, for our opinion on the taxability of amounts paid to XXXXXXXXXX (the Payee) by XXXXXXXXXX (the Payer). The source of funds used by the Payer to make these payments was from a fellowship award (the Assistance) that was specifically granted in the name of the Payee by XXXXXXXXXX (the Grantor). We also acknowledge additional information obtained in a recent telephone conversation between Ann Weaymouth and Randy Hewlett.
Facts
Based on the information provided, our understanding of the facts is as follows:
1. The Payer from XXXXXXXXXX employed the Payee as a research assistant. The source for funds used by the Payer to make these payments was from a research award granted to another individual by some other organization. You have determined that these amounts are income from an office or employment to the Payee, taxable under subsection 5(1) of the Income Tax Act (the Act).
2. For a XXXXXXXXXX-year period commencing after XXXXXXXXXX the source of funds used by the Payer to make payments to the Payee was from the Assistance provided by the Grantor, specifically intended for the benefit of the Payee.
3. The arrangement in place is such that the Grantor pays the Assistance to the Payer, who then pays the Payee.
4. The Payer's payroll records indicate that:
? the Payee is paid XXXXXXXXXX for XXXXXXXXXX hours of work, based on XXXXXXXXXX rate of pay,
? the Payee is in receipt of health benefits, and
? the Payer withholds an amount from the payments to the Payee for EI and CPP.
5. The Payee's duties generally include research on XXXXXXXXXX.
6. Specific documentation is unavailable, which likely describes the Assistance and the relationship between the Payee, Payer and Grantor (such as a contract or letter granting the Assistance). As well, you were unable to obtain a detailed description of the daily duties performed by the Payee.
7. You did provide a document published by the Grantor that describes the general nature of the terms and conditions governing its fellowship awards program (the Document).
You requested our views on whether the income received by the Payee from the Payer, which is sourced from the Assistance provided by the Grantor, represents fellowship income that is taxable under paragraph 56(1)(n) of the Act, or is income from an office employment that is taxable under subsection 5(1).
In order to determine if the Assistance represents fellowship or employment income, the relationship between the parties and the nature of the agreements that may be in place must be reviewed. It will be the nature of the payment, rather than the name given to it, that determines whether an amount is included in income under paragraph 56(1)(n) of the Act as income from a fellowship, or under subsection 5(1) as income from an office or employment.
In general terms, a fellowship is an amount paid or a benefit given to persons to enable them to advance their education. It is normally awarded for doctoral studies or postdoctoral work. Income from an office or employment, on the other hand, results from a contract of service between an employee and employer. In such cases, the services are rendered primarily for the benefit of the employer and the payments represent consideration for the services, usually based on the time spent providing the services or the value or volume of these services. Paragraph 56(1)(n) of the Act specifically excludes amounts received in the course of an office or employment from fellowship income.
Often there is difficulty in delineating the nature of the relationship between the parties, since the conditions of the fellowship award can resemble the conditions of employment. As noted above, the best source of information to assist in this determination is the agreement in place between the parties and the actual circumstances surrounding the arrangement. The information sent to us did not contain any particulars on the agreement the Payee entered into with the Payer and/or Grantor (whether verbal or written). You also indicated that few details were available on the day-to-day duties of the Payee and the nature of the reporting relationship in place with superiors. The Document, however, does contain information on the general nature of the terms and conditions governing the Grantor's fellowship awards program. In the absence of particulars, it appears to be the best source of information that can assist in determining the nature of the relationship between the Payee and the Payer and/or Grantor. For example, it indicates the following:
? The purpose of the fellowship awards offered by the Grantor is for XXXXXXXXXX.
? Eligible individuals must hold a XXXXXXXXXX.
? Fellowship awards are for a term of XXXXXXXXXX years, with a XXXXXXXXXX-year renewal.
? Fellowship awards are made on the basis of the demonstrated merit and potential of the applicant, taking into consideration the applicant's academic record, research ability, and references.
? Applicants must be supervised, and applications are considered the joint effort of the applicant and the supervisor with whom he or she intends to study.
? The Grantor's fellowships are "salary awards", and the payment together with any benefits to its fellows is a matter of host institutional policy. (Emphasis added)
? An individual at the host institution must supervise the beneficiary of a fellowship award made by the Grantor.
? The beneficiary of a fellowship award made by the Grantor:
o is entitled to increases to the amount paid, in accordance with an established scale,
o must devote his or her fulltime attention to the research on XXXXXXXXXX
o may not be remunerated for other work,
o may be required to submit reports on their activities at intervals, on request from the Grantor.
While the Document is by no means a substitute for the actual terms and conditions of the arrangement with the Payee, the general guidelines therein when taken into consideration with the specific information noted above, indicate the existence of an employee-employer relationship. Further, even though the Assistance is described as a fellowship award, it is clear that the Grantor regards it as employment income - as noted in the Document, which states that the fellowship is a "salary award". Also, it is apparent that the Payer regards the payments as employment income given that it deducts CPP and EI at source from the XXXXXXXXXX payments to the Payee. In our view, in the absence of specific information or documentation indicating otherwise, it is reasonable to conclude that the Assistance received by the Payee from the Payer is income from an office or employment, which is taxable under subsection 5(1) of the Act.
We trust our comments are of assistance.
Marc Vanasse, CA
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 3 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content