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. Whether a postdoctoral fellowship is exempt from tax (scholarship exemption s.56(3)). 2. Whether a postdoctoral fellowship is considered employment income.
Position: 1. Generally, no. 2. Maybe, determined on a case-by-case basis.
Reasons: See discussion in letter.
Signed June 16, 2010
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on April 20, 2010, concerning the tax treatment of amounts received by post-doctoral fellows.
Canada's income tax system is broad-based and, as a general principle, all income an individual receives, regardless of the source, is included in income for tax purposes. The system does, however, provide some exemptions to recognize specific taxpayer circumstances.
The 2006 federal budget exempted post-secondary scholarship, fellowship, and bursary income from tax if the student receives the scholarship, fellowship, or bursary in connection with his or her enrolment in a program for which he or she can claim the education tax credit. For more information about the education tax credit, please see Interpretation Bulletin IT-515R2, Education Tax Credit, and Pamphlet P105, Students and Income Tax, both of which are available on the Canada Revenue Agency (CRA) Web site at www.cra.gc.ca/forms.
For the purpose of the Income Tax Act, the CRA has consistently viewed post-doctoral fellows as being similar to other individuals who are required to undertake a period of paid training after completing their studies but prior to pursuing an independent professional career. As with the compensation received by these other professionals (for example, doctors, lawyers, and accountants), the compensation received by post-doctoral fellows is generally taxable. The amendments announced in the 2010 federal budget regarding the scholarship exemption clarified the intent of the legislation and confirmed the CRA's existing position. These amendments did not indicate a change in tax policy or interpretation.
The nature of the income received by an individual must be determined on a case-by-case basis, taking into account all of the relevant facts of the individual's situation. Amounts received by post-doctoral fellows will likely be considered employment income, research grants, scholarship income, or some combination of these. In the past, the CRA has generally considered the income received by post-doctoral fellows to be either employment income or research grants. Both employment income and research grants qualify as earned income for purposes of contributing to a registered retirement savings plan.
In your correspondence, you suggest that post-doctoral fellows should either be treated as students with tax-exempt scholarship income or as employees with Canada Pension Plan (CPP) and Employment Insurance (EI) benefits. You also refer to a CPP/EI Tax Court of Canada decision (Bekhor v. M.N.R.). Although the CRA administers the Canada Pension Plan and the Employment Insurance Act, these statutes are separate from the Income Tax Act. Each statute must be interpreted based on its own wording and within its own policy context. For the purpose of administering the Income Tax Act, the CRA must refer to the provisions of that statute and the court decisions that have specifically considered those provisions.
This government is committed to supporting post-secondary education and to building on the significant investments made since 2006. The 2010 budget commits $45 million over five years to establish a post-doctoral fellowship program that will attract talent from around the world. This program will be designed to be internationally competitive and, at maturity, will fund 140 fellowships annually, each with a value of $70,000.
I trust that the information I have provided clarifies the CRA's position on this matter.
Yours sincerely,
Keith Ashfield
Lori Merrigan
613.957.8979
May 27, 2010
2010-036465
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