26 June 2002 External T.I. 2002-0148015 - RESEARCH ACCOUNTS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Follow-up inquiry re research accounts in lieu of honoraria - whether entitled to a deduction under section 8.

Position:

Requirements of the provision must be met.

Reasons:

Section 8.

XXXXXXXXXX 2002-014801
R. Hewlett, B.Comm
June 26, 2002

Dear XXXXXXXXXX:

Re: Research Accounts in Lieu of Honoraria - University of XXXXXXXXXX

We are writing concerning your letter of June 19, 2002, which outlines your understanding of our views on the above-noted issue, discussed in our meeting of June 5, 2002. You make several statements in your letter, which we wish to clarify.

In the second paragraph you state that:

It was common ground between us that the University's Procedures and Regulations require that the academic staff member incur expenditures of the kind described therein in order to properly qualify for a payment from the University out of the research account.

We do not agree with this statement. In our view, the arrangement is voluntary and at the discretion of the Professor. The Professors choose to direct honoraria to the research accounts so that they can pay for expenses incurred on their own behalf. There is no apparent requirement by the University that the Professors incur these expenses during the course of their employment.

In the fourth paragraph, point (iii), you indicate that any amount paid from the research account directly to "third parties (e.g. amounts paid directly to research assistants engaged by an academic staff member)" would not be included in the Professors income under subsection 5(1) of the Income Tax Act (the Act). In our view, once the amount is paid by the University to a third party for expenses that the Professor chooses to incur under this arrangement, the amount is employment income received under subsection 5(1) of the Act.

In the fourth paragraph, point (iv), you state that "to the extent that the expenditures incurred directly by the academic staff member as a condition of payment from the research account, as described above, met the requirements for deduction set out in subsection 8(1), such expenditures would be properly deductible in the computation of the academic staff member's income from employment, such a determination being a question of fact in each case." It should also be noted that:

(a) In accordance with subsection 8(2) "no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment" unless expressly provided under section 8;

(b) For many of the expenses enumerated under subsection 8(1) of the Act, a predominant requirement is that the employee must be required under the contract of employment to pay for such expenses; and

(c) Subsection 8(10) of the Act requires that "an amount otherwise deductible for a taxation year under paragraph (1)(c), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form, signed by the taxpayer's employer certifying that the conditions set out in the applicable provision were met in the year in respect of the taxpayer, is filed with the taxpayer's return of income for the year."

We also briefly discussed the question of deductibility of expenses under section 8 of the Act. Our response was general in nature, in that we agreed that where any employee is required by the employer to incur expenses in the normal course of his or her employment, provided the requirements under section 8 of the Act are otherwise met, he or she would be entitled to a deduction. This statement should not be taken as confirmation that Professors at the University of XXXXXXXXXX are entitled to a deduction for amounts paid out of the research account. In this regard, we suggest that you discuss what amounts you feel may be deductible with Audit officials in the XXXXXXXXXX Tax Services Office, taking into account the principles outlined above.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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