G Grant Amyot v. Minister of National Revenue, [1976] CTC 2006

A W Prociuk (orally: April 7, 1975):—The appellant appeals from the respondent’s Notice of Reassessment dated September 19, 1974, in relation to the 1972 taxation year, wherein expenses in the amount of $1,252.50 were disallowed as deductions from an award totalling $4,725.30 granted to him by the Canada Council.

In 1969 the appellant was in the process of completing his graduate studies in political science when he applied for, and was awarded, a Doctoral Fellowship by the Canada Council to enable him to undertake certain political studies and research in Italy on the subject of “Intra-Party Democracy in the Italian Communist Party”.

This award, on application, was again renewed in 1972, for the basic sum of $4,500 (see Exhibit A-7 entitled “Application for a Doctoral Fellowship (Renewal) 1972-73”, and Exhibit A-8 entitled “Notification of Award” and dated March 22, 1972).

The basic sum of $4,500 was payable in three instalments (see Exhibit A-2).

In addition to the said basic award, the appellant was granted a further sum of $225.30 to cover the cost of travel in Italy, from Rome to other cities therein, for research purposes. This sum of $225.30 was to cover travel fare alone.

The appellant states that this was a specific research project and its satisfactory completion was the only requirement he needed to qualify for a PhD degree from the University of Reading, England, where he was enrolled with that purpose in mind. At all material times he was neither present at nor employed by the said University. He was, however, accountable to the Canada Council by way of progress reports and certificates from the University, in order to obtain renewals of the award.

The appellant further stated that this particular doctoral award was for an original research project as distinct from assimilation or absorption of past knowledge. The publication of parts of his research is his original contribution to knowledge.

With further reference to Exhibit A-7, entitled “Application for a Doctoral Fellowship (Renewal)”, paragraph (a) of Clause 18 reads:

STATEMENT OF PROGRAM OF WORK

a) State specific area of research interest, including thesis title if known. and in the space immediately below the appellant inserted the following statement:

Internal debates and internal democracy in the Italian Communist Party since 1943, with particular reference to the period 1956-66.

Paragraph (b) of Clause 18 reads:

b) Outline briefly your doctoral program, explaining any major change in the program approved previously. Do not refer simply to statement of program provided in Confidential Report.

Below this heading, the appellant had typed the following outline:

The object of my work is to study and explain the development of political debate in the Italian Communist Party. The study of internal democracy in the abstract is much less profitable; even Michels was really concerned with the evolution of the political line of the parties he studied (chiefly the SPD), and sought to explain this evolution by the lack of intra-party democracy. I have decided to narrow the study to the period 1956-66 (with a long introduction on the period 1943-56) because this is the period in which the most important moments of internal debate occur:

1) the reaction to the XX Congress of the CPSU and the invasion of Hungary, the debate around the VIII Congress of the PCI, and the supposed “déstalinisation” which followed in the PCI organization.

2) the formation of the so-called ‘‘Ingraian left” within the party (from 1959 on). This tendency was defeated at the XI Congress (1966).

Paragraph 18(c) asks the question: “What do you hope to accomplish during the period applied for?” to which the appellant gave the following answers:

1) Finish a series of local studies of the evolution of selected provincial federations of the PCI, which I have already begun (in Perugia and Naples).

2) Complete my study of the debate at the national level with interviews with some of the participants and further reading at the Gramsci Institute.

3) Write a good part at least of the thesis.

Under paragraph (d) “Indicate the stages that lie beyond” appellant had typed the words: “Finishing the writing of the thesis”.

Mr Jules Pelletier, Assistant Director of the Canada Council and Chief of Awards Services, was called as a witness by counsel for the respondent. I consider his evidence eminently impartial as well as a substantial contribution by way of background information to assist the Board in the determination of the issue herein.

He stated that the basis of academic achievement by the candidate is considered by the Council’s Academic Bureau. However, marks alone do not necessarily generate a condition for granting the given award, as all candidates are within the acceptable academic range.

The candidate’s outline of his proposed work program is, in most cases, the major consideration, and the selection of successful applicants is therefore on a competitive basis. The amount of money available for a given field also determines the number of successful applicants.

In filing his income tax return for the taxation year 1972, the appellant sought to deduct $1,447.80 pursuant to paragraph 56(1)(o) of the revised Income Tax Act as research expenses of which $225.30 was for travel fares incurred outside the City of Rome. For the purposes of his project he regarded Rome as his home base. His claim is broken down as follows:

There is no dispute as to the quantum of the expenses involved.

In addition he sought to deduct an “employment expense deduction” of $97.43, being three per cent of the net amount, which deduction was also disallowed on the ground that he was not employed by anyone in 1972. The Minister’s position on this item was admitted by the appellant at the hearing and no objection to the disallowance of the amount of $97.43 was raised in his Notice of Appeal or at the hearing.

The respondent reassessed the appellant originally on November 16, 1973, and disallowed all the expenses referred to above in excess of the $500 exemption permitted by the provisions of paragraph 56(1 )(n), on the ground that this was an award that fell within the meaning of that paragraph and not a research grant within the meaning of paragraph 56(1 )(o).

I will now, for the sake of convenience, quote both paragraph (n) and paragraph (o) of subsection 56(1):

56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(n) the amount, if any by which

i) the aggregate of all amounts received by the taxpayer in the year, each of which is an amount received by him as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer,

exceeds

(ii) $500; and

(o) the amount, if any by which any grant received by the taxpayer in the year to enable him to carry on research or any similar work exceeds the aggregate of expenses incurred by him in the year for the purpose of carrying on the work, other than

(i) personal or living expenses of the taxpayer except travelling expenses (including the entire amount expended for meals and lodging) incurred by him while away from home in the course of carrying on the work,

(ii) expenses in respect of which he has been reimbursed, or

(iii) expenses that are otherwise deductible in computing his income for the year.

As already noted the respondent, in assessing the appellant’s award under paragraph 56(1)(n), reduced it by the sum of $500 as permitted by the provisions thereof.

After the appellant filed his Notice of Objection to that assessment, the respondent again reassessed on September 19, 1974, and allowed the travel fares in the sum of $225.30 on the basis that only this extra travel allowance awarded by the Canada Council was a research grant within the meaning of paragraph 56(1 )(o).

It is agreed that the terms “Scholarship”, “Bursary”, “Awards”, “Research Grants’, etc that appear in the marginal notes beside paragraphs 56(1 )(n) and (o) have not been as yet defined with any degree of accuracy for income tax purposes. Dictionary definitions leave much room for generalities and wide interpretation. The public, in general, uses the terms loosely, and sometimes interchangeably, without due regard for subtle distinctions of meaning. Mr Pelletier, Chief of Awards Services and Assistant Director of the Canada Council, distinguishes the first three terms as follows (and here I paraphrase his evidence): (1) “Fellowship” is usually reserved for doctoral and post-doctoral fellowships; (2) “Scholarship” is usually reserved for competition at the master’s level where excellence is of prime importance; and (3) the term “Bursaries” is reserved for undergraduate studies.

Interpretation Bulletin IT-75, dated November 3, 1972, gives some indication of the view taken by the Department of National Revenue and, in particular, I refer to paragraphs 1, 2, 3, 4 and 5 which I now quote as follows:

1. For 1972 and subsequent taxation years, all amounts received by a taxpayer in a year as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, will be included in income by virtue of paragraph 56(1)(n) of the Act to the extent that the total of these amounts received in the year exceeds $500. Such amounts will be included in income in the year received notwithstanding the fact that they may have been awarded in a year prior to 1972.

2. Where a grant is received by a taxpayer in a taxation year after 1971 to enable him to carry on research or any similar work, the amount so received, to the extent that it exceeds the aggregate of allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work, will be included in income by virtue of paragraph 56(1)(o) of the Act. The allowable expenses include travelling expenses, including all amounts expended for meals and lodging, incurred by the taxpayer while away from home in the course of carrying on the work. However, the allowable expenses do not Include

(a) personal or living expenses of the taxpayer (other than the travelling expenses mentioned above),

(b) expenses in respect of which he has been reimbursed (except to the extent they are considered to be part of a grant received), or

(c) expenses that are otherwise deductible in computing his income for the year.

It should be noted that there is no $500 exemption for research grants received.

3. Where a taxpayer receives, as a scholarship, fellowship, bursary, prize for achievement or a research grant, a fixed sum plus additional amounts as allowances for expenses such as equipment, travel, accommodation, conferences or other expenses, these amounts are considered to be part of the scholarship, fellowship, bursary, prize or research grant, as the case may be. Where such expenses are incurred for the purpose of carrying on research or any similar work, they may be deducted from research grants received in that year (to the extent they qualify as described in paragraph 2 above).

MEANING OF TERMS

4. Scholarships and bursaries may be defined as amounts paid or benefits given to students to enable them to continue their education, usually at a university, college or similar educational institution, and to proceed towards obtaining a certificate of graduation or degree. Normally, a student is not expected to do specific work for the payer in exchange for such amounts. Where a student Is or was employed, and he receives a scholarship or bursary from his employer (sic) on condition that he returns to that employment, the amount is income of the student under subsection 5(1) pursuant to subsection 6(3).

5. Fellowships are similar to scholarships and bursaries in that they are amounts paid or benefits given to persons to enable them to pursue their education. However, the recipient Is generally a graduate student and the payer is generally a university, charitable organization, or similar body, In some cases the recipient of a fellowship may receive remuneration from the payer in addition to the fellowship. For example, in addition to pursuing his studies, a graduate student may agree, as a condition of receiving a fellowship, to do some teaching, marking of examination papers, demonstration of work, or research as a member of the staff of the university. In these circumstances, the amount received as a fellowship will be subject to paragraph 56(1)(n) of the Act and the amount received for services rendered as an employee will be included in income under subsection 5(1).

The application of the relevant paragraphs of subsection 56(1) rests, in my opinion, on the particular facts of the case.

In the instant appeal I find that: (1) the appellant applied for, and was awarded, a doctoral fellowship for the purposes of carrying out a special research project in Italy; (2) that the appellant did, in fact, conduct a special research project in Italy in the taxation year 1972 and, in so doing, incurred research expenses in the sum of $1,477.80 Within the meaning of paragraph 56(1 )(o) and is, therefore, entitled to a deduction of that sum from the total award of $4,725.30. In other words, the award that he received, in my opinion, comes within the purview of paragraph 56(1)(o).

This being the case, there is no $500 exemption therefrom such as has been permitted by the respondent under paragraph 56(1)(n). However, as the respondent has already allowed, in the reassessment of September 19, 1974, under appeal, a deduction of $225.30 in respect of the travel allowance included in the Canada Council award, this leaves a balance of $1,252.50 to be allowed as a deduction for research expenses within the meaning of paragraph 56(1 )(o).

In the result, the appeal is allowed and the matter is referred back to the respondent for reassessment accordingly.

Appeal allowed.