5 October 2004 External T.I. 2004-0072141E5 - fellowship versus research grant

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: 1. PhD student received amount as a fellowship and thinks part of the amount is a research grant.

Position: 1. No part of the amount received appears to be a research grant.

Reasons: 1.Amount appears to be given in order to further academic career- not to further research goal.

2004-007214
XXXXXXXXXX Lena Holloway, CA
613-957-2104
October 5, 2004

Dear XXXXXXXXXX:

Re: Ph.D. Program, XXXXXXXXXX

This is in response to your letter of March 31, 2004, concerning the tax treatment of the conditional financial assistance package you received from your acceptance into the doctoral program at the XXXXXXXXXX ("the School").

You have requested that we examine the nature of amounts paid to you by the XXXXXXXXXX School reported as Other Income on a T4A. In your opinion, a substantial portion (60%) of this income should be classified as a research grant given that a typical Ph.D. student spends at least 60 percent of their time on research.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

The correspondence from the School included with your letter, states the following:

"XXXXXXXXXX".

The School has described your award as a "fellowship" and we concur with this classification. As indicated in paragraphs 10 to 12 of Interpretation Bulletin IT-75R3 Scholarships, Fellowships, Bursaries, Prizes and Research Grants, a fellowship is an amount paid, or a benefit given to a student to enable him or her to advance his or her education. In addition, fellowships may be awarded for doctoral studies and post-doctoral work, including research. When the primary purpose of the payment is to further the education and training of the recipient in his or her individual capacity, such as studying for a doctoral degree, the amount (less the applicable exemption) will be included in income under paragraph 56(1)(n) of the Act as a fellowship.

Paragraphs 20-23 of IT-75R3 also provide guidance on what type of payments would constitute research grants. Grants received in a taxation year to enable a taxpayer to carry on research are included in income under paragraph 56(1)(o) of the Act to the extent that the grants exceed allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work. In order for a grant to be considered a research grant, the terms of the grant must establish that the primary purpose of the grant is to carry out research.

Your letter from the School does not indicate that any portion of the financial assistance you will receive is to be used primarily to undertake a particular research project. As stated by the Tax Review Board in Taylor v. MNR (79 DTC 331) "it is manifest that research is an essential element or ingredient or technique of study". Therefore, while every educational effort undertaken requires the student to do research as part of their studies, this does not automatically make a portion of any financial assistance received by that student a research grant. In the Queen v. Amyot (76 DTC 6217), Mahoney, J. commented that, where an amount is received in order to assist an individual in advancing his academic career, and the research undertaken was but a means, however essential, to carry out that purpose, then the assistance received is a bursary, scholarship or fellowship, and not a research grant. The object of an award must be to further a body of knowledge rather than to assist an individual in pursuing an education in order for it to be considered a research grant. Based on the information provided in your letter and accompanying attachments we cannot conclude that any part of your financial assistance should be classified as a research grant.

Finally as part of the Ph.D. program you are required to work as a research assistant or as a teaching assistant for a total of XXXXXXXXXX hours during the academic year. Any work you perform in excess of the XXXXXXXXXX hour requirement is classified by the School as employment income and reported on a T4. However, any amount included in the financial assistance with respect to the XXXXXXXXXX hour requirement is not distinguished as employment income. You were asking that income for which you must work be classified as employment income, not Other Income.

The characterization of the amounts paid to you is a question of fact to be determined after a review of all the relevant terms and conditions relating to the payment. If the primary purpose of the XXXXXXXXXX hour teaching/research assistant component of your award is to advance your education towards obtaining your doctorate degree, this amount is properly characterized as part of your fellowship. As the School distinguishes any hours worked over and above the XXXXXXXXXX hour requirement as employment income, it appears that they have considered the XXXXXXXXXX hour requirement as other than employment income. Any disagreement you may have with this classification should be discussed with the program administrators.

All publications referred to in this letter are available on our Web Site at www.cra.gc.ca

We trust our comments will be of some assistance.

Yours truly,

Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate