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: Whether living, accommodation and car rental expenses, while on sabbatical leave outside of Canada, are allowable research expenses when computing income under 56(1)(o) from research grant.
Position: Question of fact.
Reasons: Personal and living expenses are not allowable expenses for the purpose of computing income under subparagraph 56(1)(o)(i). If a taxpayer conducts research work in a temporary place, away from his permanent home, the taxpayer may be considered to be sojourning rather than travelling. Car rental expenses incurred for travel between the taxpayer's permanent home and the temporary place while engaged in research work may be deductible in computing income from research grants.
May 11, 2010
Dear XXXXXXXXXX :
Re: Sabbatical Leave Research Expenses
This is in reply to your correspondence dated November 1, 2009, requesting information relating to the above noted subject matter.
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 tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. 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.
It is a question of fact whether amounts received by a taxpayer during a sabbatical leave are amounts received from an office or employment, payments received as research grants or amounts received in the course of business. Generally, the salary, wages and other remuneration, including gratuities, received by a taxpayer in a taxation year will be included in the taxpayer's income from an office or employment by virtue of subsection 5(1) of the Income Tax Act ("the Act"). Where a taxpayer receives a grant in the year to enable the taxpayer to carry on research or any similar work, the amount of the grant received, in excess of the total allowable research expenses incurred by the taxpayer in the year for the purpose of carrying on the work, is included in a taxpayer's income under paragraph 56(1)(o) of the Act. If there is no employer-employee relationship between the payer and the recipient of an amount and it can be established that the amount is a business receipt, the amount is included in income under subsection 9(1) of the Act.
Where a taxpayer has received amounts that are included in income under paragraph 56(1)(o) certain allowable research expenses, to the extent that they are not otherwise deductible under another provision of the Act, may be deducted against the research grant. Subparagraph 56(1)(o)(i) considers travelling expenses as allowable research expenses if they are incurred for:
- travel between a taxpayer's permanent home and the temporary location where the taxpayer resides while engaged in the research work;
- travel from one temporary location to another; and
- travel on field trips connected with the research work.
You have asked whether living, accommodation and car rental expenses, while on sabbatical leave outside of Canada, are allowable expenses for the purpose of computing income. We understand that you plan to conduct research activities during three stays in Europe. Two stays will each cover a one-month period. A third stay will cover a two-week period. It is our view that if you establish a temporary base in a place other than your home, then you may be considered to be temporarily residing in that place (sojourning) rather than travelling. If this is the case, amounts paid for meals and lodging in that place would be considered to be personal or living expenses rather than travelling expenses and would not be deductible as research expenses. Whether you are travelling or sojourning is a factual determination which can only be made after considering factors such as the type of accommodation, the length of stay, the existence of a permanent home elsewhere and the location of the taxpayer's family.
From the limited information you have provided, car rental expenses may qualify as allowable research expenses deductible in computing income from research grants under subparagraph 56(1)(o)(i), but it will be a question of fact.
For further information on research grants please refer to our Interpretation Bulletin IT-75R4 - Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance which can be found on our website at www.cra-arc.gc.ca.
We trust the above comments address your question.
Lita Krantz, C.A.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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