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: What are the tax consequences of a research allowance that is made available to a senior administrator at a University?
Position: It depends on the facts.
Reasons: Given the facts, that no amount is received by the faculty member other than reimbursements for expenses the University has determined to be bona fide research expenses paid to third parties, no amount would need to be reported on a T4A.
XXXXXXXXXX 2009-033389
N. Shea-Farrow
February 3, 2011
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Senior Administration Research Allowance
We are writing in response to your letter of July 10, 2009 requesting our position on the tax consequences of a research allowance that is provided to a Senior Administrator at the XXXXXXXXXX (the "University"). Specifically you want to know:
1) Is the research allowance, taxable to the faculty member given the facts in your letter? If yes:
a) Why is it taxable and is it a remuneration or a taxable benefit?
b) Would it be non taxable, if the faculty member had a project plan and budget created prior to receiving any of the funding?
2) If the research allowance was only used to hire research assistances to help with the research project during the faculty member's term in senior administration, would it be taxable to the faculty member?
3) If the research allowance was administered by a committee and based on approved research proposals, would it be taxable to the faculty member?
4) If the research allowance was dispersed annually rather than in one lump sum payment, would it be taxable to the faculty member?
The information provided by you states the following:
1) When a faculty member accepts a term as a Senior Administrator at the University they are eligible to negotiate a research allowance that will allow their research activities to continue while they hold an administrative position, that reduces their time to devote to new research work, complete existing research activities or attracting external funding for their research activities.
2) A faculty member receives the research allowance based on their position and negotiations. The amount of the allowance is written into the term contract and obligates the University as long as the faculty member holds the administrative position. Funding is not based on a specific research activity.
3) The employment contract for every faculty member stipulates that they must teach and conduct research activities.
4) The research allowance is lost if the faculty member leaves their administrative position before their term is completed.
5) If the faculty member completes their term in the administrative position they are allowed to carry the funding for the research allowance over to their research activities in their faculty positions.
6) The research allowance is a lump sum or annual amount that is segregated in the University's accounting system. The faculty member who has received the allowance has control over the funds but uses existing accounts payable or employee expense reimbursements systems. Reimbursements for expenses that the faculty member pays for requires a senior signing authority to approve the expenditure, but the faculty member can approve invoice payments to third parties and payroll expenses for research assistants.
7) The research allowance is used to pay for research expenses including materials, salary, travel and equipment that relate to research activities for the faculty member's discipline. The allowance can only be used for research purposes and be compliant with the University's policies and procedures.
8) The research allowance is intended to be a substitute for potentially lost external funding for research that is generally provided to the University for specific research activities based on proposals faculty members submit to granting agencies and in your opinion is not taxable to the individual faculty member. The allowance is not intended to be compensation.
9) The funding research allowance benefits the faculty member as it allows them to continue their research. The funding of the allowance also benefits the University and the community in the same way as the funding of other research activities that are funded through operations or by grants. The funding also benefits the University because it allows the faculty members research to continue while they hold an administrative position in order to meet employment contract requirements and to attract external funding when the faculty member goes back to their regular faculty position.
10) External funding for research is generally provided to the University for specific research activities based on proposals faculty members submit to granting agencies and in your opinion it is not taxable to the individual.
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
Generally speaking, grants received in a taxation year to enable a taxpayer to carry on research or any similar work are included in income under paragraph 56(1)(o) of the Income Tax Act (the "Act"). However, such research grants are only included in income to the extent that they exceed the total of the allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work. 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 Act.
Amounts paid to reimburse a faculty member's research activities from the research allowance are considered to be a reimbursement as discussed in paragraph 27 of Interpretation Bulletin-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants. Reimbursements or direct payments to pay for reasonable costs of a research project are only included in income to the extent that the expenses reimbursed or paid for represent personal or living expenses of the recipient.
In our opinion, given the facts, that no amount is received by the faculty member other than reimbursements for expenses the University has determined to be bona fide research expenses paid to third parties, no amount would need to be reported on a T4A, Statement of Pension, Retirement, Annuity and Other Income.
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.
Yours truly,
Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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