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: Whether financial support received by a Canadian resident under a post-doctoral fellowship is taxable in Canada.
Position: Yes.
Reasons: Assuming the amount received is not employment income, it is taxable either as a fellowship or a research grant.
2007-025265
XXXXXXXXXX D. Zhang
(613) 957-2104
November 8, 2007
Dear XXXXXXXXXX:
Re: Foreign post-doctoral fellowship
We are writing in response to your electronic message of September 18, 2007 in which you requested our comments on the income tax treatment of a foreign post-doctoral fellowship received by Canadian residents.
Based on information at the website to which you directed us, we understand that the recipients of the fellowship will pursue collaborative research under the leadership of a host researcher in a university or research institute of a foreign country. The financial support provided under the fellowship may include airfare to and from the foreign country, a maintenance allowance to cover living expenses related to the stay in the foreign country, a settling-in allowance, domestic travel allowances, and insurance coverage.
You indicated that the recipients would continue to be residents of Canada during their stay in the foreign country. In addition, we understand that the amounts received under the fellowship would not constitute wage or salary for foreign tax purposes and would not be taxable in the foreign country. In addition, you stated that the recipients are not students.
For purposes of responding to your query, we assume that the amount of the financial support received under the fellowship would not constitute employment income for Canadian tax purposes.
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 submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other
Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.
The amount of any financial support provided to a Canadian resident under a foreign post-doctoral fellowship in the circumstances described above would be included in the income of the recipient (subject to certain exemptions and deductions), either under paragraph 56(1)(n) of the Income Tax Act (the "Act") (as a fellowship), or under paragraph 56(1)(o) of the Act (as a research grant). Since the exemption or deduction that applies to a fellowship and a research grant may differ, it is important to determine the proper characterization of the amount. The difference between a fellowship and a research grant for the purposes of the Act is discussed in paragraphs 11 to 13 of Interpretation Bulletin IT-75R4, "Scholarships, Fellowships, Bursaries, Prizes, and Research Grants", available on the CRA website under "Forms and Publications".
Fellowship
If the amount is determined to be a fellowship, a "scholarship exemption" is available that, depending on the circumstances, may be an amount between $500 and the amount of the fellowship.
Starting in 2006, income received as a fellowship is fully exempt from taxation, provided that the income is connected to the taxpayer's enrolment in an educational program that is eligible for the education tax credit ("ETC"). To be eligible for the ETC, the taxpayer must be enrolled at a "designated educational institution", in a "qualifying educational program" or a "specified educational program", as those terms are defined in the Act. In particular, for an educational institution outside Canada to be a "designated educational institution", it must be "a university ... at which the individual ... was enrolled in a course, of not less than 13 consecutive weeks duration, leading to a degree". Based on the information provided, the recipients would not be enrolled in a course, and therefore, they would not be eligible for the full exemption.
However, the recipients may claim an exemption for the total of all amounts each of which is an expense incurred by them in the taxation year for the purposes of fulfilling the conditions under which the fellowship was received, other than expenses in respect of:
(i) personal or living expenses (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 fellowship relates);
(ii) expenses for which the taxpayer is entitled to be reimbursed; and
(iii) expenses that are otherwise deductible in computing the taxpayer's income.
Where the fellowship income is in excess of the exemption as described, an additional exemption equal to the lesser of $500 and the amount of such excess may be claimed.
Research Grant
If the financial support is properly characterized as a research grant, it is included in income to the extent that it exceeds the total of the allowable expenses. For a discussion on allowable expenses, we refer you to paragraphs 31 to 36 of IT-75R4.
The above comments regarding fellowships and research grants would apply regardless of whether the financial support is received as a fixed sum, as an allowance, or as a fixed sum plus additional allowances.
We trust that these comments are of assistance.
Yours truly,
Daryl Boychuk
Manager
International Section I
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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