Citation: 2012 TCC 81
Date: 20120312
Docket: 2011-2650(IT)I
BETWEEN:
EN HUANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2011-2660(IT)I
AND BETWEEN:
DIANBO QU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The issue in these
appeals is whether funding provided to postdoctoral research fellows must be
included in their income for purposes of the Income Tax Act. En Huang and Dianbo Qu appeal assessments for the 2009
taxation year in which such funding, less $500, was included in their income.
[2]
The appellants take the position
that the funding is not taxable based on advice provided to them and other
postdoctoral fellows by the Ottawa Hospital Research Institute (OHRI).
[3]
A recent decision of this
Court (Archambault J.) suggests that the taxation of postdoctoral fellowship funding
has been an ongoing battle between the Canada Revenue Agency (CRA) and some
universities: Chabaud v The Queen, 2011 TCC 438.
[4]
A recent legislative
change has made this issue irrelevant for 2010 and subsequent years. An
amendment has been made to the definition of “qualifying educational program”
in s. 118.6(1) which makes it clear that funding for a program consisting
primarily of research will be taxable unless the program leads to a degree or
diploma.
[5]
With the appellants’ consent, the
appeals were heard together on common evidence. Each appellant testified on his
own behalf.
[6]
Evidence on behalf of the
respondent was provided by three witnesses: (1) Kim Adams, Director,
Research Administration at OHRI, (2) Martin Hicks, Director, Post-Secondary
Accountability Branch, Ontario Ministry of Training, Colleges and Universities,
and (3) Martin Bouchard, Associate Dean, Faculty of Graduate and Postdoctoral
Studies, University of Ottawa.
Factual
background
[7]
Each of the appellants had
received basic research fellowships from Parkinson Society Canada (PSC) to
conduct research under the supervision of Dr. David Park. The fellowships
were first awarded to Dr. Huang in 2006 and to Dr. Qu in 2008.
[8]
In 2009, the appellants worked at
Dr. Park’s laboratory at the University of Ottawa (the “University”) where Dr. Park was a professor. The
appellants had an arrangement with Dr. Park to work in his lab at the University
on a full-time basis.
[9]
Dr. Qu determined his area of
research jointly with Dr. Park. Dr. Huang’s area of research was determined in
advance by Dr. Park.
[10]
Both of the appellants were registered in the postdoctoral fellowship
program at the University. It was explained by Mr. Bouchard that one can become
a postdoctoral fellow at the University if one has an agreement with a
researcher and a minimum amount of funding, approximately $33,000. One must
also have a work visa for Canada.
[11]
With respect to Dr. Huang, PSC’s
funding terminated in June 2009. Dr. Park paid Dr. Huang for the rest of
the year out of his own research grant. The total amount of funding received by
Dr. Huang in 2009 was approximately $51,000.
[12]
In relation to Dr. Qu, PSC funding
in 2009 was reduced by $12,500 and Dr. Park compensated for the reduction
out of his own research grant. The total amount paid to Dr. Qu for 2009 was
approximately $57,000.
[13]
As often happens in appeals heard
under the informal procedure, the facts are slightly different from what the
Minister had assumed. The Minister assumed that the appellants received funding
from the Ottawa Hospital as well as from the University. The evidence
was not entirely satisfactory to explain the role that the hospital played. I
conclude, based on the limited evidence before me, that in 2009 the appellants’
relationship was with the University and not with the Ottawa Hospital. This institution acted in an administrative role
only.
Discussion
[14]
The respondent submits that the postdoctoral
funding received by the appellants is taxable as fellowship income pursuant to s.
56(1)(n), or alternatively as research income pursuant to s. 56(1)(o). The
former provision applies specifically to amounts received on account of a
scholarship, fellowship or bursary, whereas the latter provision applies to a
grant received to carry on research.
[15]
In the further alternative,
the respondent submitted in closing argument that the portion of the funding
that came from Dr. Park’s research grant is income from employment and should
be taxed as such. The argument is based on Chabaud, above.
[16]
The problem that I have
with this argument is that it was raised too late. It was not in the pleadings
and was first raised during closing argument. Since the appellants did not have
an appropriate opportunity to present evidence that would be relevant, the
argument will not be considered.
Fellowship or
grant
[17]
The first question is
whether the amounts received are properly characterized as income from a
fellowship under s. 56(1)(n) or as a research grant under s. 56(1)(o). The
relevance of this issue is that income under s. 56(1)(n) may be excluded in
full if the conditions in s. 56(1)(n)(ii) are satisfied.
[18]
Paragraphs 56(1)(n) and (o) are
reproduced below.
56. (1) Amounts to be
included in income for year. Without restricting the generality of section
3, there shall be included in computing the income of a taxpayer for a taxation
year,
[…]
(n) Scholarships,
bursaries, etc. - the amount, if any, by which
(i)
the total of all amounts (other than amounts described in paragraph 56(1)(q),
amounts received in the course of business, and amounts received in respect of,
in the course of or by virtue of an office or employment) received by the
taxpayer in the year, each of which is an amount received by the taxpayer as or
on account of a scholarship, fellowship or bursary, or a prize for achievement
in a field of endeavour ordinarily carried on by the taxpayer, other than a
prescribed prize,
exceeds
(ii) the
taxpayer’s scholarship exemption for the year computed under subsection (3);
[…]
(o) Research
grants - the
amount, if any, by which any grant received by the taxpayer in the year to
enable the taxpayer to carry on research or any similar work exceeds the total
of expenses incurred by the taxpayer in the year for the purpose of carrying on
the work, other than
(i)
personal or living expenses of the taxpayer except travel expenses (including
the entire amount expended for meals and lodging) incurred by the taxpayer
while away from home in the course of carrying on the work,
(ii) expenses
in respect of which the taxpayer has been reimbursed, or
(iii) expenses
that are otherwise deductible in computing the taxpayer’s income for the year;
[19]
Although a research grant under s.
56(1)(o) is characterized by it having the feature of enabling the recipient to
carry out research, the same will also be true of a fellowship under s.
56(1)(o).
[20]
In one judicial decision, the
distinction between the two provisions was described as to whether the payment
was made to support the research or to further education: The Queen v Amyot,
[1977] 1 FC 43, 77 DTC 6217. I would have thought that if Parliament had
intended that research fellowships be included in s. 56(1)(o) and not s.
56(1)(n), the legislation would have specifically provided for it.
[21]
There is limited evidence before
me that is relevant to this question. It would have been helpful to have
evidence from the two sources of the funding – PSC and Dr. Park.
[22]
Based on the limited evidence
before me, I would conclude that all the funding received by the appellants in
2009 is more properly described in s. 56(1)(n) than in s. 56(1)(o).
[23]
As for the part of the funding
from PSC, the only document from that organization that was introduced into
evidence suggests that PSC differentiates between grants and fellowships. It is
clear that PSC intended to award fellowship funding to Dr. Huang and Dr. Qu. In
light of this, and because the income tax legislation differentiates between a
grant and a fellowship, I would conclude that the amounts received from PSC are
fellowship income within the meaning of s. 56(1)(n).
[24]
As for the part of the funding
from Dr. Park, the evidence revealed that this funding came from a grant that
was awarded to Dr. Park. In my view, these amounts are also within s. 56(1)(n)
as being “on account of” a fellowship and are not a grant.
[25]
I would conclude, then, s.
56(1)(o) has no application and the amounts received by the appellants are
within s. 56(1)(n).
Scholarship exemption
[26]
The next issue is whether
the full amount received by the appellants qualifies for the scholarship
exemption in s. 56(1)(n)(ii). This provision provides for a full exemption if a
taxpayer is a full-time student at a university. If the full exemption does not
apply, the taxpayer is entitled to a limited exemption of $500.
[27]
The relevant
provisions, as they were in force in 2009, are reproduced below.
56(3) Exemption
for scholarships, fellowships, bursaries and prizes. For the purpose of subparagraph (1)(n)(ii), a taxpayer's
scholarship exemption for a taxation year is the total of
(a) the total of all amounts each of which is the amount included
under subparagraph (1)(n)(i) in computing the taxpayer's income for the
taxation year in respect of a scholarship, fellowship or bursary received in
connection with the taxpayer's enrolment
(i) in an educational program in respect
of which an amount may be deducted under subsection 118.6(2) in computing the
taxpayer's tax payable under this Part for the taxation year, for the
immediately preceding taxation year or for the following taxation year, or
(ii) in an elementary or
secondary school educational program,
[…]
(c) the lesser of $500 and the amount by which the total described
in subparagraph (1)(n)(i) for the taxation year exceeds the total of
the amounts determined under paragraphs (a) and (b).
118.6.(2) Education credit. There may be deducted in computing an
individual's tax payable under this Part for a taxation year the amount determined
by the formula
A x B
where
A is the appropriate percentage for the
year; and
B is the total of the products obtained
when
(a) $400 is multiplied by the
number of months in the year during which the individual is enrolled in a
qualifying educational program as a full-time student at a designated
educational institution, and
(b) $120 is multiplied by the
number of months in the year (other than months described in paragraph (a)),
each of which is a month during which the individual is enrolled at a
designated educational institution in a specified educational program that
provides that each student in the program spend not less than 12 hours in the
month on courses in the program,
if the enrolment is proven by filing
with the Minister a certificate in prescribed form issued by the designated educational
institution and containing prescribed information and, in respect of a
designated educational institution described in subparagraph (a)(ii) of
the definition "designated educational institution" in subsection
(1), the individual has attained the age of 16 years before the end of the year
and is enrolled in the program to obtain skills for, or improve the
individual's skills in, an occupation.
118.6.(1) Definitions. For the purposes of
sections 63 and 64 and this subdivision,
"designated educational
institution" - "designated educational institution" means
(a) an educational institution in
Canada that is
(i) a university, college or other
educational institution designated by the Lieutenant Governor in Council of a
province as a specified educational institution under the Canada Student
Loans Act, designated by an appropriate authority under the Canada
Student Financial Assistance Act, or designated by the Minister of Higher
Education and Science of the Province of Quebec for the purposes of An Act
respecting financial assistance for students of the Province of Quebec, […]
"qualifying educational program"
- "qualifying educational program" means a program of not less than
three consecutive weeks duration that provides that each student taking the
program spend not less than ten hours per week on courses or work in the
program and, in respect of a program at an institution described in the
definition "designated educational institution" (other than an
institution described in subparagraph (a)(ii) of that definition), that
is a program at a post-secondary school level but, in relation to any
particular student, does not include a program if the student receives, from a
person with whom the student is dealing at arm's length, any allowance,
benefit, grant or reimbursement for expenses in respect of the program other
than
(a) an amount received by the
student as or on account of a scholarship, fellowship or bursary, or a prize
for achievement in a field of endeavour ordinarily carried on by the student,
(b) a benefit, if any, received
by the student because of a loan made to the student in accordance with the
requirements of the Canada Student Loans Act or An Act respecting
financial assistance for education expenses, R.S.Q., c. A‑13.3, or
because of financial assistance given to the student in accordance with the
requirements of the Canada Student Financial Assistance Act, or
(c) an amount that is received
by the student in the year under a program referred to in subparagraph 56(1)(r)(ii)
or (iii), a program established under the authority of the Department of
Human Resources and Skills Development Act or a prescribed program;
[28]
Counsel for the respondent submits that the appellants do not satisfy
the requirements for a full exemption because they were not enrolled in an
educational program and they were not students.
[29]
It is necessary to focus on the
following legislative requirements:
(a)
the appellants must be
enrolled in a qualifying educational program at the University, meaning one in
which the student must spend at least ten hours per week on courses or work in
the program (s. 118.6(1) and (2)(B)(a));
(b)
the funding must be
received in connection with this enrolment (s. 56(3)(a)); and
(c)
the appellants must be
full-time students at the University (s. 118.6(2)(B)(a)).
[30]
I will first consider
whether the appellants were enrolled in a program at the University requiring
at least 10 hours per week of courses or work.
[31]
The appellants were enrolled in a
postdoctoral fellowship program at the University. Not many details of the
program were introduced into evidence, even though Mr. Bouchard testified that
the website has a section devoted to it.
[32]
There was some information concerning
the fellowship program provided in Dr. Huang’s notice of appeal, which quotes
from the University’s website. I will accept this statement as accurate in the
absence of evidence to the contrary. The relevant portion is reproduced below.
Definition
of a postdoctoral fellow
The University
defines a postdoctoral fellow as one who meets the following criteria:
The appointee
was recently (within five years) awarded a PhD or the equivalent;
The
appointment is of a limited duration;
The
appointment involves substantial full-time research or scholarship;
The
appointment is viewed a preparatory for a full-time academic and/or research
career and not as a source of continuing employment;
The appointee
works under the supervision of a faculty mentor at the University or one of its
affiliated institutes;
The appointee
has the freedom, and is expected, to publish the results of his or her research
or scholarship during the period of the appointment.
[33]
Mr. Bouchard testified that the
University issues a testimonial when the fellowship is successfully completed.
[34]
I would conclude from
this information that the appellants were enrolled in a program at the
University that required them to do full-time research for the purposes of
advancing their education. This satisfies the program requirement.
[35]
I will next consider
whether the funding was received in connection with enrolment at the
University. Based on the limited evidence before me, I would conclude that this
requirement is satisfied. It is relatively clear that PSC did not provide the
funding to the appellants in a vacuum but that the charity understood that the
appellants would be part of the postdoctoral fellowship program at either OHRI
or the University (Ex. A-1). Dr. Park and OHRI received a copy of the correspondence
from the PSC.
[36]
I now turn to the
requirement that the appellants be full-time students at the University.
[37]
The respondent relies
on the testimony of Mr. Hicks that the Ontario Ministry of Training, Colleges
and Universities does not count postdoctoral fellows as “students” for the
purpose of allocating government funding to the province’s universities.
[38]
In my view, this
testimony does not assist in deciding whether the appellants are enrolled as
students for purposes of the relevant provisions in the Income Tax Act. A
contextual and purposive interpretation is required.
[39]
The definition of “student”
that is used for purposes of government funding of universities may be quite
different than the ordinary meaning the term. Government funding of
universities will vary depending on the expenditures needed to operate the
university. In the case of the appellants, the expenditures are small because
no classrooms or formal lectures are required. Simply because the Ministry
allocates resources on the basis that postdoctoral fellows are not students
does not mean that postdoctoral fellows are not students within the ordinary
meaning of the word.
[40]
As for the ordinary
meaning of the term, dictionary definitions of “student” and “study” are quite
broad. The following definitions are from The Shorter Oxford English
Dictionary, 3d edition.
Student - A person who is engaged in or addicted to study.
Study - Application of mind to the acquisition of learning.
[41]
I see no reason that
these broad meanings should not be accepted in the relevant legislative
context. There is no contextual or purposive reason to apply a more restrictive
meaning.
[42]
The appellants were
students in 2009 within the above definitions. It is also clear that they were
full-time.
[43]
I would conclude that
the appellants have satisfied the legislative requirements to qualify for the full
scholarship exemption in s. 56(1)(n)(ii).
[44]
Finally, I would
comment that the conclusion in these appeals is based on the limited evidence
that was presented.
[45]
The appeals will be
allowed, with costs to the appellants, if any.
Signed at Ottawa, Ontario this 12th day of March 2012.
“J. M. Woods”
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