Principal Issues: [TaxInterpretations translation] Are scholarships that are awarded to postdoctoral fellows eligible for the full tax exemption for scholarships and fellowships?
Position: No.
Reasons: Postdoctoral fellows are not students who are eligible for the education tax credit.
XXXXXXXXXX 2008-030295
October 6, 2010
Dear Sir,
Subject: Postdoctoral Fellows
This is further to your letter of November 28, 2008, regarding the taxation of scholarships received by postdoctoral fellows and the potential for a full tax exemption for such scholarships. We apologize for the delay in responding.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
In particular, you describe postdoctoral fellows as individuals who have received PhDs in a wide variety of disciplines. These individuals choose to continue their training in Canadian research laboratories. Postdoctoral fellows must be registered at a university and are paid through scholarships. The amount of remuneration paid to postdoctoral fellows is largely related to the amount paid by the government granting agencies.
You wish to confirm that scholarships and fellowships received by postdoctoral fellows are tax-exempt under subsection 56(3).
Our Comments
It appears to us that the situation described in your email could constitute an actual situation involving taxpayers. As explained in paragraph 22 of Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than through advance income tax rulings. 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.
The general principle of Canada's tax system is that all income received by an individual, regardless of its source, must be included in income for tax purposes. The system, however, provides certain exemptions that take into account the particular circumstances of taxpayers.
The Act does not define the term "postdoctoral fellow". The Canada Revenue Agency ("CRA") is of the view that this term refers to individuals who have recently completed their doctoral studies at the graduate level and who, through a scholarship, are pursuing advanced research activities at a university aimed at expanding their training such that they can occupy a faculty position at the university level.
Paragraph 56(1)(n) provides for the inclusion in income of scholarships, fellowships and bursaries received by a taxpayer. Paragraph 56(1)(n) reads as follows:
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 total of all amounts (other than amounts described in paragraph 56(1)(q), amounts received in the course of business, and amounts received in respect of, in the course of or by virtue of an office or employment) received by the taxpayer in the year, each of which is an amount received by the taxpayer 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, other than a prescribed prize,
exceeds
(ii) the taxpayer’s scholarship exemption for the year computed under subsection (3);
Subsection 56(3) provides an exemption with a $500 base that can attain the full amount of a scholarship received by a taxpayer to the extent that it is received in respect of the taxpayer's enrolment in an educational program for which an amount is deductible as an education tax credit.
To be eligible for the education tax credit, a taxpayer must meet the requirements set out in section 118.6:
- The taxpayer must be a student;
- The taxpayer must be enrolled in a qualifying educational program at a designated educational institution;
- The taxpayer must obtain form T2202A, Tuition and Enrolment Certificate, tuition, education, and textbook amounts, from the designated educational institution.
The CRA does not consider postdoctoral fellows to be students for purposes of the education tax credit. Prima facie, the fellows will not meet all the requirements for claiming the full scholarship exemption.
However, should the CRA accept the contention that a postdoctoral fellow receives a scholarship and can claim the education tax credit, it would still be of the view that the postdoctoral fellow could not claim the scholarship exemption unless the amount so received was sufficiently related to the qualifying educational program for which the education tax credit is claimed. In most cases, a postdoctoral fellow's income is not sufficiently related to a qualifying educational program.
For more information on the education tax credit, please refer to Income Tax Interpretation Bulletin IT515R2, Education Tax Credit, and Pamphlet P105, Students and Income Tax, which are available on the CRA Web site at www.arc.gc.ca/forms.
Thus, for the postdoctoral fellow, the income received will likely be considered employment income, scholarship income, research grant income, or a combination of these. In the past, the CRA has generally treated the income received by the holder of a post-doctoral fellowship as employment income or research grant income. In this regard, letters received by the CRA from postdoctoral fellowship holders, academics, and universities refer to income paid to postdoctoral fellowship holders as salary.
We note that the changes announced in the 2010 Federal Budget regarding the scholarship exemption clarified the intent of the Act and confirmed the CRA's current position.
In your letter, you raised a 2005 decision of the Tax Court of Canada in support of your contention that postdoctoral fellows should be eligible for the scholarship tax exemption. In that decision, which we believe to be the decision in Bekhor v. M.N.R. 2005 TCC 443, the Court had to determine whether the taxpayer was employed in pensionable or insurable employment. Any comments made by the Court with respect to the Act were not part of its reasons for its decision. Whether a postdoctoral fellow is a student who qualifies for the scholarship exemption has never been subject to scrutiny by the Canadian courts.
In closing, the CRA is responsible for the administration of its programs and the application of tax legislation as passed by Parliament. Any proposed changes to current policy or legislation must be reviewed by the Department of Finance Canada and approved by Parliament. The question of whether a postdoctoral fellow is eligible for the full exemption for scholarships and fellowships for the purposes of the Act is a matter of tax policy.
It is my hope that the above information clarifies the CRA's position on this matter.
Best regards.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.