29 June 2011 External T.I. 2011-0394491E5 - research grant

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: Is a postdoctoral grant received from the federal government to conduct research at a University in the United States taxable?

Position: It depends on the facts, but they are generally taxable.

Reasons: 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.

XXXXXXXXXX
								2011-039449
								N. Shea-Farrow

June 29, 2011

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Postdoctoral Grants

We are writing in response to your e-mail of February 1, 2011 requesting our position on whether a postdoctoral grant received by your son is taxable.

The facts provided by you are the following:

1. Your son has received a grant of $40,000 a year for each of the last two years from the federal government.

2. The grant was given to your son to pursue research at the postdoctoral level at XXXXXXXXXX (the "University") in the State of XXXXXXXXXX in the United States.

In addition, we have assumed for the purpose of our comments that your son is a Canadian resident and that the funding was from the Canadian federal government.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.

Our Comments

You have provided a very limited amount of information. 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 including any contracts or agreements between the individual, the government and the University.

Generally speaking, amounts of this type could potentially be characterized as employment income, a research grant or a fellowship. The CRA would need to consider all relevant facts and information in order to determine this with any certainty. We are not in a position to provide a conclusive determination but can offer the following information.

Research Grant

A research grant is generally a sum of money given to enable the recipient to pay expenses necessary to carry out a research project. It is the nature and terms of the grant, rather than the name given to it, that determine whether it is included in income under paragraph 56(1)(o) of the Income Tax Act (the "Act"). According to paragraphs 11 and 12 of IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, the primary purpose of the award is used to determine if the amount received is a research grant or a fellowship. This is determined according to the terms and conditions for granting the award. If the primary purpose of the award 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. We note that research grants need only be included in income to the extent that the grant exceeds allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work.

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.

As noted above, if the amount is not taxable as a research grant it might be included in income of the individual as salary or wages under section 5 of the Act or as a fellowship under subparagraph 56(1)(n)(i)of the Act.

Employment Income

Employment income is taxed as salary or wages under section 5 of the Income Tax Act (the "Act"). It should also be noted that subsection 6(3) of the Act is worded in such a way that if the recipient of an amount from an employer of the payment is to not pay tax on it and not have it included as remuneration under section 5 of the Act, he or she has the burden of establishing that it cannot reasonably be regarded as having been received for any of the three reasons contained in paragraphs (c), (d) or (e) of subsection 6(3) of the Act.

Normally, when an employer-employee relationship exists, the employer expects work to be done, dictates how and when it should be done and remuneration is provided for such services.

While not an exhaustive list, in the context of the amounts paid, some of the factors that might indicate the existence of an employment relationship would be:

1. intention of the worker and the payer when they entered into the arrangement, such as in a written agreement that indicates that the worker is an employee or an offer letter of employment;
2. the payer has the right to exercise control over the worker, such as what research or clinical activities will be done and how and when it will be conducted ;
3. the payer assign tasks to be done, such as, rotations, on-call duties, teaching, resident coaching, etc.;
4. the payer determines and controls the method and amount of pay to the worker;
5. the payer provides benefit plans which are normally provided to employees, such as registered pension plans, and group accident, health and dental insurance plans;
6. the payer provides paid vacation leave and other work related paid leave; and
7. the worker must do the work, not subcontract the work or hire assistants.

Fellowship

Scholarship awards 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. Fellowships are similar to scholarships in the sense that these sums are awarded to individuals to enable them to continue their studies. However, the recipient of a fellowship award is usually a graduate student and the payer is generally a university, a charity or a similar organization.

Whereas the primary purpose of a research grant is research, we would consider an award to be a fellowship if its main purpose is to further the personal education and training of the recipient. It is understood that research might be conducted in pursuing this goal, but unless research is the primary objective, this would not preclude the amount from being considered a fellowship for purposes of subparagraph 56(1)(n)(i) of the Act. The main or primary purpose of an award is a question of fact to be determined by reference to all of the circumstances.

Scholarship Exemption

As of 2006, paragraph 56(3)(a) of the Act applies to fully exempt an amount that would otherwise be included in an individual's income under subparagraph 56(1)(n)(i) of the Act where the amount is received in connection with the individual's enrolment as a student in an educational program that is eligible for the education tax credit described in subsection 118.6(2) of the Act (the "ETC"). The ETC is available where an individual is enrolled as a student at a "designated educational institution," in a "qualifying educational program" or a "specified educational program," as those terms are defined in subsection 118.6(1) of the Act. These concepts are discussed in more detail in the CRA Guide P105, "Students and Income Tax."

However, it is the CRA's position that a postdoctoral fellow is generally not a student and therefore not eligible for the full scholarship exemption and therefore would be limited to a maximum scholarship exemption of $500. The amendments announced in the 2010 federal budget regarding the scholarship exemption clarified the intent of the legislation and confirmed the existing CRA position. These amendments did not indicate a change in tax policy or interpretation.

In summary, for the purpose of the 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.

We trust that these comments will be of assistance. However, as explained in paragraph 22 of Information Circular 70-6R5, Advance Income Tax Ruling, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.

We trust our comments will be of assistance.

Yours truly,

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