27 June 2011 Ministerial Correspondence 2011-0404751M4 - Post-doctoral Fellowship

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 a post-doctoral fellowship is exempt from tax under 56(3).

Position: Generally, no.

Reasons: See discussion in letter.

XXXXXXXXXX

Dear XXXXXXXXXX :

I am writing in response to your correspondence addressed to my predecessor, the Honourable Keith Ashfield, concerning the tax treatment of an amount you received as a post-doctoral fellow. Please accept my apology for the delay in replying.

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. Individuals who are engaged in post-doctoral fellowship programs generally do not qualify for the education tax credit because they are not usually enrolled as students pursuing a program of courses. Consequently, most post-doctoral fellows did not qualify for the full scholarship exemption when it became available in 2006.

For the purposes of the Income Tax Act, the Canada Revenue Agency (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 before 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 proposed amendment announced in the 2010 federal budget restricting the education tax credit with respect to programs that do not lead to a degree clarified the intent of the legislation and confirmed the CRA's existing position. This amendment did not indicate a change in tax policy or interpretation and it is not being applied retroactively. Generally, post-doctoral fellows were not eligible for the full scholarship exemption even before the 2010 amendment.

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. If a post-doctoral fellowship is considered to be scholarship income, a $500 scholarship exemption is available; however, the fellowship does not qualify as earned income.

This government is committed to supporting post-secondary education and to building on the significant investments made since 2006. The 2010 budget committed $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 appreciate the opportunity to respond to your concerns and trust that the information
I have provided is helpful.

Yours sincerely,

Gail Shea, P.C., M.P.

Pamela Burnley
613-957-2100
May 3, 2011
Income Tax Rulings #2011-040475