Principal Issues: [TaxInterpretations translation] Can medical residents claim the scholarship or fellowship exemption for amounts received from the health care institution where they work?
Position: Question of fact. In this case, probably not.
Reasons: Medical residents appear to be employees of the health care facility where they work.
XXXXXXXXXX 2008-029930
November 26, 2010
Dear Madam,
Subject: Scholarships for Medical Residents
This is further to your letter of October 22, 2008, in which you discussed the tax treatment of medical scholarships. We apologize for the delay in responding to your letter, but the Canada Revenue Agency ("CRA") has carried out a full analysis of its position on the taxation of scholarships and fellowships.
In particular, you wish to know whether scholarships or fellowships paid to medical residents should be included in computing their income and whether they can claim the exemption for scholarships or fellowships under subsection 56(3) of the Income Tax Act (the "Act"). You also wish to know whether, in respect of such scholarships, you must make the applicable deductions at source.
You indicated that medical residents are paid by the health care facility where they do their residency. In addition, according to the Fédération des médecins résidents du Québec website, medical residents have dual status as trainees and employees in the health care institutions where they do their residency. In addition to providing services to the population throughout their residency, medical residents also carry out research and teaching.
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As stated in Information Circular 70-6R5, it is not the practice of the Directorate to provide comments on proposed transactions 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 can offer the following general comments that may be helpful to you.
The term "postdoctoral fellow" is not defined in the Act and there appears to be a difference of opinion in Canada as to its meaning. Nevertheless, the term can be used to describe an individual who has completed his or her education and a practicum to work in a particular field and who has received a grant that allows him or her to pursue more advanced training. For example, the medical residents you described in your letter may be referred to as "postdoctoral fellows".
The tax treatment of an amount under the Act does not depend on how it is described but rather on its nature. For example, in determining whether an amount qualifies for the scholarship or fellowship exemption, we must first determine whether the amount, for purposes of the Act, is scholarship, fellowship, income from employment, or income from a business.
To determine whether the amount received by medical residents represents an amount from employment, it is necessary to determine whether there is a relationship of subordination between the employer and the medical resident. To that end, it is necessary to look for the presence of a certain number of supervisory indicators, which may vary depending on the context, including the following: mandatory presence at a workplace, more or less regular work assignment, imposition of rules of conduct or behaviour, requirement for progress reports and control of the quantity or quality of work performed.
It is only where an amount is not included in computing a taxpayer's income as employment income that the analysis of whether the amount is received as scholarship or fellowship can be undertaken.
Although we do not have all the relevant facts at our disposal, it would appear that the relationship between the medical residents and the health care facility is one of employer-employee. If this were the case, we are of the view that amounts received by residents should be included in computing the income of residents as income from an office or employment under section 5. Similarly, if residents have both trainee and employee status, we are of the view that amounts received should be included as income from an office or employment. However, we reiterate that those remain questions of fact that should be reviewed by one of the Canada Revenue Agency's Tax Services Offices.
In light of our conclusion stated above, we confirm that applicable source deductions will be required on amounts paid to medical residents.
Best regards,
François Bordeleau
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.