Principal Issues: [TaxInterpretations translation] Can a graduate student deduct the costs associated with acquiring a paramotor that is necessary for the continuation of the student’s research?
Position: Question of fact. In this case, no. The student does not appear to receive research grants but rather scholarships or fellowships.
Reasons: The Income Tax Act.
XXXXXXXXXX 2010-038235
March 23, 2011
Dear Sir,
Subject: Expenses incurred in the context of doctoral studies
This is in response to your letter of August 25th, in which you requested our opinion on the above subject.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you indicated that you are pursuing doctoral studies in the Department of XXXXXXXXXX at the University of XXXXXXXXXX and, in the course of your studies, you are receiving various scholarships. You also hold a research assistant position at XXXXXXXXXX and a position with the federal government.
As part of your studies, you are conducting a research project aimed at XXXXXXXXXX. To do this, you purchased a paramotor at a cost of $16,500: $13,500 for equipment and $3,000 for training. You wish to know if the costs associated with acquiring this aircraft are deductible in computing your income as a doctoral student.
Our Comments
It appears to us that the situation described in your letter and summarized above could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we are able to offer the following general comments that may be helpful to you.
In order to answer the question of whether you can deduct the costs associated with acquiring a paramotor, it is necessary to understand the nature of the money you receive while pursuing your PhD.
Paragraph 56(1)(n) provides that a taxpayer must include, in computing the taxpayer’s income, any scholarship, fellowship or bursary that the taxpayer receives as well as any prize for achievement in a field of endeavour ordinarily carried on by the taxpayer.
Scholarships and fellowships are sums or benefits awarded to students to enable them to continue their studies. For their part, scholarships are usually intended to allow a student to pursue post-secondary or higher education, usually at a university, college, technical institute or similar educational institution. On the other hand, with respect to fellowships, the recipient is usually a graduate student, and the payer, a university, a charity or a similar organization. In general, fellowships are awarded for doctoral studies or for postdoctoral work.
Where a taxpayer receives an amount that is included in computing the taxpayer’s income under paragraph 56(1)(n), the taxpayer may claim the scholarship exemption for the scholarships received if requirements under subsection 56(3) are satisfied. For more information on this exemption, please refer to Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance on the Canada Revenue Agency website: http://www.cra-arc.gc.ca/E/pub/tp/it75r4/READ-ME.html.
Where a taxpayer continues the taxpayer’s studies and receives scholarships or fellowships, the taxpayer will not be able to deduct the expenses incurred for the studies for which the scholarships were paid to the taxpayer.
Furthermore, paragraph 56(1)(o) provides that a taxpayer must include in computing income any research grant paid to the taxpayer. It should be noted that paragraph 56(1)(o) permits a taxpayer to deduct expenses incurred in a taxation year for the purpose of continuing the taxpayer’s research. Thus, the taxpayer is only required to include in the taxpayer’s income the excess of the research grant over the total qualifying expenses incurred by the taxpayer during the year.
An amount received as a fellowship is usually included under subparagraph 56(1)(n)(i), but may be received as a research grant under paragraph 56(1)(o). The treatment depends on the principal purpose for which the award was granted, which is determined by the terms and conditions of the award. If the principal purpose of the award is pursuing the recipient's education and training for the recipient (for example, if the recipient is studying for a PhD), the scholarship is included in accordance with subparagraph 56(1)(n)(i), even though research is being done to achieve that objective.
On the other hand, if the principal purpose of an award is to perform research for its own sake (for example, to deepen knowledge in a particular field by making a discovery or finding a new interpretation of known facts), the award is considered to be a research grant and is included pursuant to paragraph 56(1)(o). Where such research allows the recipient to continue the recipient’s education and training, such a benefit does not negate the principal purpose of the grant provided that such benefit could be considered to be a secondary purpose of the grant or an inevitable but incidental benefit.
In your situation, the expenses associated with the acquisition of a paramotor would only be deductible from amounts that could qualify as research grants. In your situation, the scholarships you receive seem to be scholarships or fellowships, not research grants, because, according to the facts you have described, the research you are currently conducting is focused on obtaining a postgraduate degree. As such, we do not believe that the Act allows a deduction for the expenses associated with the acquisition of a paramotor, including training costs.
With respect to the amounts you receive as a research assistant at XXXXXXXXXX and as a federal government employee, they must be included in computing your income for the year in which you receive them and as income from an office or employment under section 5.
These comments do not constitute an advance income tax ruling and are not binding on the CRA with respect to a particular factual situation.
We hope that these comments are of assistance and that they answer your questions.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.