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 the award classified as a research grant or a scholarship/fellowship for the issuance of T4As?
Position: Depends
Reasons: The treatment depends upon the primary purpose for which the fellowship was granted as determined by reference to the terms and conditions attached to the award.
XXXXXXXXXX
2010-035909
George A. Robertson, CMA
January 10, 2011
Dear XXXXXXXXXX :
Re: Fellowships -T4As
This is in response to your electronic request of March 3, 2010 requesting our views on issuing T4As for a Research Fellowship.
The situation outlined in your letter appears to relate to a factual one, involving specific taxpayers. 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 submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of assistance.
Distinguishing between a fellowship and a research grant is not always easy. Based on the documentation provided in your previous submission, two of the eligibility requirements for this research fellowship are:
- Candidates must intend to use the fellowship to assist them in completing a graduate degree (preferable a doctorate) that includes a thesis on a topic to the above-noted fields of study.
- The work that the recipients do while in receipt of the fellowship must be carried out at an accredited university in Canada or abroad.
The treatment will depend on the primary purpose for which the award amount was granted. 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 Income Tax Act (the "Act"). We note that research grants need only be included in income to the extent that the grant exceeds allowable expenses, such as salary or wages paid to assistants; the cost of minor equipment and supplies; laboratory charges; and travelling 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.
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. If the particular student is eligible to claim the education tax credit under subsection 118.6(2) of the Act, the entire amount may be exempt from tax pursuant to subsection 56(3) of the Act.
Whereas the primary purpose of a research grant is research, we would consider an award to be a scholarship or 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 scholarship or 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. We refer you to Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance for further information.
While the first noted eligibility requirement tends to support the scholarship or fellowship with the reference to "completing a graduate degree. . ."; the second eligibility requirement tends to support the research grant with the reference to "the work that the recipients do..." [Emphasis added]. Therefore, it could be possible that this Research Fellowship might be a research grant, or a scholarship/fellowship, or both. However, based on the information provided and given the purpose of the research fellowship (provided the amount is not received in connection with employment) we are of the view that the payment could be viewed as scholarship or fellowship income of the recipient.
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. Budget 2010 clarified that a post-secondary program that consists principally of research will be eligible for the Education Tax Credit, and the scholarship exemption, only if it leads to a college or CEGEP diploma, or a bachelor, masters or doctoral degree (or an equivalent degree).
The instructions for Box 28-Other Income of the T4As relating to this issue are located at
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4a/slps/cmpltng/bx28-eng.html [applicable sections copied below]
Research grants - In the footnotes area, enter "Box 28, Research grants $________". In box 38, enter 04.
Scholarships, fellowships, bursaries, artists' project grants, and prizes - In the footnotes area, enter "Box 28, Scholarships, bursaries, or fellowships $________". In box 38, enter 05.
The footnote codes are itemized at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/slps/t4a/bx38-eng.html
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
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