22 September 2010 External T.I. 2008-0302591E5 - clinical fellow- fellowships

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: Are amounts paid to a radiation oncologist, clinical fellow included in income as employment income, research grant or fellowship?

Position: It is a question of fact. The CRA would likely consider that the amounts paid would be taxable as employment income.

Reasons: The CRA would likely consider that the amounts paid to the radiation oncologist, clinical fellow would be taxable as employment income but we do not have all the facts.

XXXXXXXXXX
									2008-030259
									N. Shea-Farrow

September 22, 2010

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Clinical Fellow

This is a response to your fax of December 3, 2008, concerning the taxation under the Income Tax Act (the "Act") of amounts that are paid including benefits (the "Payments") by the XXXXXXXXXX to an individual hired as a radiation oncologist clinical fellow.

The following is our understanding of the facts as provided by you:

1. XXXXXXXXXX hired an individual as an employee in XXXXXXXXXX . The employee offer letter confirms the offer as a full time radiation oncologist clinical fellow to work in the department of Radiation Oncology for 1 year.

2. The individual must maintain license to practice that is issued by the College of Physicians and Surgeons.

3. The individual is expected to contribute to the academic mission of the XXXXXXXXXX which is a commitment of XXXXXXXXXX % to clinical research and XXXXXXXXXX % to clinical activities.

4. The salary and benefits that are paid to the individual are funded XXXXXXXXXX % from XXXXXXXXXX 's operating funds and XXXXXXXXXX % by a grant from the XXXXXXXXXX .

5. Salary rate is determined by the salary scale of the XXXXXXXXXX .

6. Benefits are paid on the entire amount of her salary and are in accordance to Management and Out of Scope staff of the XXXXXXXXXX .

7. The professor that hired the individual confirmed that XXXXXXXXXX % of her activities are directed at conducting a research project entitled, "XXXXXXXXXX."

8. The XXXXXXXXXX believes that the individual would be deemed a graduate student.

9. The XXXXXXXXXX does not know if the individual is enrolled at the XXXXXXXXXX for period of fellowship.

10. Individual has requested the XXXXXXXXXX stop withholding income tax and deducting CPP and EI and provide her a T4A slip and indicate that she is receiving a fellowship from the XXXXXXXXXX .

11. Individual is registered with the XXXXXXXXXX and has paid tuition for the XXXXXXXXXX /XXXXXXXXXX year. The individual is registered in the post graduate medical education (PGME) 912, Twelve-Month Medical Traineeship.

Although the Payments are being reported as employment income, you ask whether the Payments could qualify as fellowship income under subparagraph 56(1)(n)(i) or as a research grant under paragraph 56(1)(o) of the Act.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. To obtain the Canada Revenue Agency's ("CRA") views on completed transactions involving specific taxpayers you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA's website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

Comments

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.

Employment Income

Employment income is taxed as salary or wages under section 5 of 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. Thus if the XXXXXXXXXX believed that its payments to the individual were in respect of employment income, the onus of proving that the individual was receiving something other than employment income would be placed on that individual.

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 Payments, some of the factors that might indicate the existence of an employment relationship would be:

• 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;
• 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 ;
• the payer assign tasks to be done, such as, rotations, on-call duties, teaching, resident coaching, etc.;
• the payer determines and controls the method and amount of pay to the worker;
• the payer provides benefit plans which are normally provided to employees, such as registered pension plans, and group accident, health and dental insurance plans;
• the payer provides paid vacation leave and other work related paid leave; and
• the worker must do the work, not subcontract the work or hire assistants.

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

Research Grant

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. We also note that it is not clear who the research grant from the XXXXXXXXXX was received by and what are the terms and conditions of the grant.

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.

Paragraph 23 of IT-75R4, states that, individuals, such as university faculty members, whose duties of employment include research responsibilities are not entitled to treat a portion of their regular salaries as a research grant when they engage in the type of research work ordinarily expected of them under their terms of employment. This applies to the teaching staff at the university but could include others, since the phrase "such as" is not all inclusive, if the individual's duties of employment include research responsibilities. In this case, the individual was hired as a radiation oncologist, clinical fellow and is expected to contribute to the academic mission of the XXXXXXXXXX which is an XXXXXXXXXX % commitment to clinical research and a XXXXXXXXXX % commitment to clinical activities. The professor that made the decision to hire the individual confirmed that XXXXXXXXXX % of her activities are directed at conducting a research project entitled, "XXXXXXXXXX ." Thus it seems that the individual is doing research as per the expectation of the XXXXXXXXXX that hired her. So it appears that the individual's duties of employment, if in fact an employer/employee relationship exits, included an XXXXXXXXXX % commitment to clinical research and that she is doing the type of research, cancer research, ordinarily expected of her under the terms of her employment.

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."

If the institution offering the program satisfies itself that it meets the definition of a "designated educational institution" and that the individual is enrolled as a student in a program that meets the criteria for either a "qualifying educational program" or a "specified educational program" then the educational institution may issue a T2202 or T2202A form to the student. However, the receipt of such a form from an educational institution does not guarantee that an individual will qualify for the ETC. Eligibility for the ETC is determined on a case-by-case basis. An individual must satisfy all the conditions of subsection 118.6(2) in order to qualify. The CRA can only determine whether an individual has met these requirements after the individual's specific fact situation is reviewed.

Although we do not have all the necessary facts, it appears possible that the relationship in your fact situation may be one of employment such that the Payments would be taxable as salary or wages. If as a result of a review of all the facts the indicators point to the existence of both a professor-student relationship and an employment relationship, the CRA would likely consider that the Payments would be taxable as salary or wages because subparagraph 56(1)(n)(i) of the Act contains broad wording that would specifically exclude any amounts received in respect of, in the course of or by virtue of an office or employment. For information about requesting a determination as to whether an employment relationship exists, you may refer to the CPP/EI Rulings page of the CRA website at http://www.cra-arc.gc.ca/tx/hm/cppwrks-eng.html.

We trust our comments will be of assistance.

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