22 November 2011 External T.I. 2011-0395881E5 - Research vs Scholarship for the issuance of T4As?

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: Should the T4As be issued on the basis of being a research or scholarship grant, for the study grants described?

Position: Depends

Reasons: A question of fact

XXXXXXXXXX
							2011-039588
							George A. Robertson, CMA
November 22, 2011

Dear XXXXXXXXXX :

Re: Research Grants vs Scholarship Grants

This is in response to your electronic request of February 14, 2011 requesting our views on Research Grants vs. Scholarship Grants when issuing T4As. We are prepared to offer the following general comments which may be of assistance.

Distinguishing between a research grant and a scholarship grant is not always easy. Based on the documentation provided the requirements for this grant are:

• The Institute will be applying for, and receiving, grants to further the education and training of a student in their area of study.
• The grant funding is to be used for research activities.
• The students are performing research that is working towards a credential.
• An agreement between the Institute and the student outlines, among other items;

• The funding proposal is entered into by the Institute on behalf of the Principal Investigator (PI) and the funding agency (Agency).
• The funds must be expended on the terms of the contract [between the Institute & Agency]
• The funds are under the control and responsibility of the PI.
• Funding for the research students is a scholarship grant, not salaries and wages. There is no employment contract between the Institute and the research students.
• The research student will receive a T4A at the end of the year for purposes of the Income Tax Act (the Act).

If the primary purpose of the grant is to carry out research for its own sake (for example, to further knowledge in a particular field by discovering new facts, or by reinterpreting existing knowledge), the award is considered to be a research grant and would be included in the recipient's income under paragraph 56(1)(o) of the Act. It may be that the recipient's education and training is also furthered by such research, but such a factor does not alter the primary purpose of the grant (i.e., its character does not change), provided the educational or training benefit could be considered to be a secondary purpose of the grant or an inevitable but incidental benefit.

Scholarship grants described in subparagraph 56(1)(n)(i) of the Act are a form of financial assistance that are intended to help students continue their studies for the purpose of obtaining a university degree, diploma or certificate. It is understood that research might be conducted in pursuing this goal, but unless research is the primary objective, this would not preclude the grant from being considered a scholarship for purposes of subparagraph 56(1)(n)(i) of the Act. We refer you to Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance for further information.

Most of the noted requirements indicate that the primary purpose of the grant is for research. Our view is that the grant would be classified as a research grant as the agreement is primarily for research activities.

While we trust that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Sharmini Ratnasingham
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch