23 June 2004 Internal T.I. 2004-0070541I7 - Fellowship Income

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: Is income received by a postdoctoral fellow taxable under 5(1) or 56(1)(n)

Position: 5(1)

Reasons: Based on the facts, the individual was an employee.

		June 23, 2004

Mr. Paul Rémillard	HEADQUARTERS
	Director	Terry Young, CA
	CPP/EI Eligibility Division	613-952-1506
	Revenue Collections Directorate

	ATTN: Don Fry
		2004-007054

Postdoctoral Fellowship

We are writing in response to your request of April 6, 2004, for our opinion on the taxable status of amounts paid to XXXXXXXXXX (the "Payee") by XXXXXXXXXX (the "University"). The source of funds used by the University to make the payments was grants from the XXXXXXXXXX. We also acknowledge additional information obtained in a recent telephone conversation between Don Fry and Terry Young.

Facts

Based on the information provided, our understanding of the facts is as follows:

1. The University advertised an opening for a postdoctoral fellowship for the period of XXXXXXXXXX to XXXXXXXXXX. The Payee accepted a term appointment with the University for this period and worked as a "Postdoctoral Fellow in XXXXXXXXXX, a grant-funded position."

2. The letter confirming the appointment of the Payee (the "Agreement") states that the Payee is entitled to:

• Biweekly pay based on a XXXXXXXXXX-hour week;
• The University's "XXXXXXXXXX";
• XXXXXXXXXX days of vacation, calculated at a rate of XXXXXXXXXX days per month; and
• Overtime, provided it is pre-approved in writing.

3. In accordance with the terms of the Agreement, the University deducted income tax, Canada Pension Plan contributions and Employment Insurance premiums from the Payee's biweekly pay and remitted this amount to the Receiver General.

4. The Payee's duties were performed under the mentorship of a professor of the University.

5. The Payee's contract could be terminated upon two weeks' notice if the Payee's performance was unsatisfactory, or if the work was no longer available or funding was discontinued.

6. The Payee completed a doctorate degree prior to accepting the position and was previously employed with another institution.

7. The Payee accepted the research position to receive specialized training in the Payee's field.

8. The University permits all workers to share in any intellectual and scientific exchanges and results, although the University is the principal benefactor of the research.

9. The work took place in the University's facilities and the University provided all the necessary tools and equipment.

You requested our views on whether the income received by the Payee from the University represents fellowship income under paragraph 56(1)(n) of the Income Tax Act (the "Act") or income from an office employment under subsection 5(1). In your view, the Payee's actual day-to-day activities were performed under a contract of service. However, you are concerned because the position appears to have provided advanced training and research opportunities to the Payee.

Our Comments

In order to determine if income received by an individual 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 or under subsection 5(1).

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 the services. Paragraph 56(1)(n) of the Act specifically excludes from fellowship income amounts received in the course of an office or employment.

In our view, it is apparent that the University viewed the relationship with the Payee as one of employment, as evidenced by the fact that the Payee received a salary that was subject to statutory deductions, worked a XXXXXXXXXX-hour week, received employment benefits, was entitled to overtime and could be terminated for poor performance. We also note that the University has a fellowship policy that is posted on its web site. The document entitled "XXXXXXXXXX" is indicative of the University's view of its relationship with the Payee. We note that under the heading "XXXXXXXXXX", it states, "XXXXXXXXXX" In our view, this document indicates that the University regards Postdoctoral Fellows as either students or employees. Since the Payee is regarded by the University as a Postdoctoral Fellow and there is no indication that the Payee was a student, this further corroborates that the University regarded the Payee as an employee.

In view of the above, we are of the opinion that the Payee was an employee of the University during the period covered by the Agreement.

We trust our comments are of assistance.

John Oulton, CA
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch