5 October 2012 External T.I. 2011-0427891E5 - Summer Undergraduate Research Program

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: Taxability of proposed payments to be made by a Canadian university to international undergraduate students participating in a summer undergraduate research program.

Position: The international students would generally be considered to be non-residents of Canada, whom are not in full time attendance at a Canadian university. The amounts received by the students in this case would be classified as scholarships, bursaries or research grants rather than as employment income, and would not be taxable under the ITA.

Reasons: The international students are present in Canada for only three months in the summer, before returning to their home universities in the foreign countries in which they ordinarily reside, and would therefore generally be considered to be non-residents of Canada. As non-residents, the students are taxable on "taxable income earned in Canada" under subsection 2(3), which under subsections 115(1) and (2) includes: employment income earned in Canada; as well as scholarships, bursaries and research grants received from a Canadian source providing the student is in full time attendance at a Canadian post-secondary institution. The students are not full time students of the Canadian university in this case. The primary purpose behind the proposed voluntary payments is to encourage exceptional students to participate in the summer research program, not only those with the means to do so. The primary objective of the students is to acquire new knowledge and to obtain expertise in their field by acting as research assistants, as opposed to a primary motivation of financial gain that would be present under an employer-employee relationship. The amounts received by the students would therefore be considered to be scholarships, bursaries or research grants as opposed to employment income. Since the students are non-residents of Canada and are not in full time attendance at a Canadian post-secondary institution, the amounts are not taxed under the ITA.

XXXXXXXXXX 2011-042789
M. Allan
October 5, 2012

Dear XXXXXXXXXX :

Re: Summer Undergraduate Research Program

We are writing in response to your email of November 10, 2011, in which you requested whether proposed payments by a Canadian university to international undergraduate students participating in a summer undergraduate research program are taxable to the student, and whether SIN numbers and student or work visas would be required.

In the situation you described, the Canadian university holds a “Summer Undergraduate Research Program” of three months duration, in which international undergraduate students from foreign universities are invited to participate. The international students are selected based upon merit. The students conduct research with faculty members in the university laboratories, attend weekly seminars, and complete a culminating project. They serve as research interns or assistants to the faculty. Their participation is research based rather than course based. The students do not pay tuition, nor do they have student numbers designated by the university. You advise that the students are not considered to be full time students of the Canadian university, but are full time students of their foreign home country universities.

The Canadian university provides the students housing, and their foreign home university provides their airfare, travel costs, and insurance. The university would like to provide a stipend to the students for the research they do. The university wants to encourage exceptional students to participate in the program, not only those who have the means to do so. That is the motivation for providing a stipend payment for their research assistance.

Our Comments

In order to determine the taxability of the proposed amounts to be paid to the international students under the Income Tax Act (ITA), various factors must be considered, including the residency of the students, their status as full-time students or otherwise, and the classification of the proposed amounts to be paid.

In our view, the international students would in this case generally be considered to be non-residents of Canada under the ITA, providing they spend only three months of a year conducting research at a Canadian university, before returning to their foreign home universities in countries in which they ordinarily reside. You may refer to IT-221R3, Determination of an Individual’s Residence Status” for more information in this regard at http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.pdf.

As non-residents of Canada, the students would be taxable under subsection 2(3) of the ITA upon their “taxable income earned in Canada”. Taxable income earned in Canada is determined under section 115 of the ITA, as modified by international tax treaties entered into between Canada and the foreign home countries of the students.

Generally, the amounts proposed to be paid to the non-resident students may potentially be includable in taxable income earned in Canada as either:

-Scholarships bursaries or research grants (of the type described under paragraphs 56(1)(n) or (o) of the ITA) where received from a Canadian source, if the students are in full-time attendance at a post-secondary institution in Canada, in accordance with paragraph 115(2)(a) and subparagraph 115(2)(e)(ii) of the ITA. If the non-resident students are not in full-time attendance at a post-secondary institution in Canada, then amounts received as scholarships, bursaries or research grants from a Canadian source are not taxed under the ITA.

-Employment income earned in Canada, if an employer-employee relationship is established between the Canadian university and the international student, in accordance with subparagraphs 115(1)(a)(i) and 115(2)(e)(i) of the ITA, as modified by tax treaties between Canada and the country in which the student is a resident. For example, Canada exempts from tax a non-resident’s employment income under a certain dollar limit that is earned in Canada, under various international tax treaties.

The classification of the proposed amounts to be paid to the international students, and the students’ status as full-time or otherwise of the Canadian university, are therefore important considerations in determining the taxability of the amounts.

You advise that the international students participating in the summer research program are not considered by the Canadian university to be full time students of the university. Generally, the status of a student as determined by a post-secondary institution that is reasonable in the circumstances is accepted by the CRA. In this case, based upon the description of the three month summer undergraduate research program provided by you, it would appear reasonable to conclude that the international students participating in the program, who are full time students of their foreign home country universities, are not also in full time attendance at the Canadian university.

It is the primary purpose of the proposed payments to the international students that determines whether the amounts would be classified as a scholarships, bursaries, research grants or employment income under the ITA. If the primary purpose of the payments is to further the education and training of the recipient, then the amount may be considered to be scholarship or bursary. If the primary purpose of the payment is to carry out research, then the amount may be considered to be a research grant. The payment may also be considered to be employment income where the services are performed in return for remuneration to compensate the recipient for services rendered under an employer-employee relationship.

Based on the description provided by you, the international students are participating in the research program primarily to acquire new knowledge, and to obtain expertise in their field by assisting faculty members as research assistants, rather than primarily for financial gain. The proposed payments to the students are amounts being voluntarily made by the Canadian university to the students, with the motivation being to encourage exceptional students, not only those with the means to do so, to be able to participate in the program. The payments do not therefore have the characteristics of remuneration paid under an employer-employee relationship in this case.

In this context, the proposed payments to the students appear to best fit into the “student to professor” category described under paragraph 30, entitled “research assistants”, of IT-75R4, Scholarships, Fellowships, Bursaries, Prizes and Research Grants available at http://www.cra-arc.gc.ca/E/pub/tp/it75r4/it75r4-e.pdf. The amounts would generally be classified as research grants, rather than as employment income. Alternately, the amounts may be considered as amounts paid to the students to enable them to pursue their education, i.e. as scholarships or bursaries. In either case, since scholarship, bursaries and research grants fall under the descriptions of paragraphs 56(1)(n) and 56(1)(o) of the ITA, the amounts would not be taxable to the non-resident students, since they are not in full time attendance at a Canadian university, as required for taxability under subparagraph 115(2)(e)(ii).

A SIN number is required under subsection 150(1.1) of the ITA where an individual, including a non-resident, is required to file an income tax return. An income tax return is not required unless income tax is payable for the year. A SIN number is also required under subsection 237(1.1) of the ITA, in order to be provided to the issuer of income tax slips such as T4As. Under regulation 200(2) of the ITA, the issuer of a scholarship, bursary or research grant (the Canadian university in this case) must make T4A filings in respect to the amounts, regardless of whether the amounts are taxable to the recipients, including non-residents. Therefore, the international students participating in the summer research program in this case will require a SIN number in order to meet the latter requirement under subsection 237(1.1) of the ITA. If an international student is not eligible for a SIN, then the student may complete Form T1261, Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents available at http://www.cra-arc.gc.ca/E/pbg/tf/t1261/t1261e.pdf, and the ITN issued may be used in place of a SIN.

Citizenship and Immigration Canada is responsible for visa and work permit requirements for non-residents. Their website may be consulted at www.cic-gc.ca for information in this regard, which also includes contact information for any further clarification required.

We trust these comments will be of assistance.

Sharmini Ratnasingham
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch