Principal Issues: Can a post-doctoral fellow at a university outside Canada qualify under paragraph 56(3)(a) for a full scholarship exemption for his fellowship income?
Position: Depends on the facts, but most likely no.
Reasons: To qualify for a full scholarship exemption under paragraph 56(3)(a), the fellowship must be connected with an educational program that is eligible for the education tax credit in subsection 118.6(2). To qualify for the education tax credit the individual must be enrolled at a designated educational institution. For a university outside Canada to be a designated educational institution, the individual must be enrolled in a course leading to a degree. Generally, a post-doctoral fellowship does not lead to a degree and therefore a course taken by a post-doctoral fellow cannot be considered to lead to a degree.
2007-022887 XXXXXXXXXX Eliza Erskine (613) 274-3022 May 1, 2007
Dear XXXXXXXXXX:
Re: Fellowship Income and Exemption Under Subsection 56(3) of the Income Tax Act (the "Act")
This is in response to your electronic correspondence of March 27, 2007, asking whether the full amount of your XXXXXXXXXX post-doctoral fellowship is exempt from income tax under subsection 56(3)of the Act ("the scholarship exemption"). You indicate that you are a post-doctoral fellow at XXXXXXXXXX and that, as such, you are primarily involved in research, although you are also taking some courses. You state that you do not pay tuition and that your position as a post-doctoral fellow does not lead to a degree. We also acknowledge our telephone conversation with you of some weeks ago on this subject (Shields/XXXXXXXXXX).
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the Canada Revenue Agency ("CRA") website at www.cra-arc.gc.ca . Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Starting in 2006, paragraph 56(3)(a) applies to fully exempt income received as a "scholarship, fellowship or bursary" (as those terms are used for purposes of the Act), where the income is connected to the individual's enrolment in an educational program that is eligible for the education tax credit described in subsection 118.6(2) of the Act (the "ETC"). The ETC is available where an individual is enrolled in a "qualifying educational program" or a "specified educational program" at a "designated educational institution", as those terms are defined in subsection 118.6(1) of the Act.
In our telephone conversation with you, we raised the issues of
1) whether the amount you received from XXXXXXXXXX was a "fellowship" for purposes of the Act (as opposed to employment income or a research grant), and
2) whether you were in fact "enrolled" in an educational program.
However, you asked us to assume that these criteria were met for purposes of any further discussion. Therefore, although we are in no way confirming that these criteria are met in your situation, we will restrict our comments in this letter to whether a post-doctoral fellow at a university outside Canada is eligible for the ETC and, in particular, to whether a university outside Canada can be considered a "designated educational institution" for such an individual. Comments on the nature of an amount received as a "scholarship, fellowship or bursary" can be found in IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, available on the CRA website at www.cra-arc.gc.ca under "Publications". The meaning of enrolment and the ETC is discussed in IT-515R2, Education Tax Credit, similarly available on the CRA website.
For a university outside Canada to be a "designated educational institution", it must be
"a university ... at which the individual ... was enrolled in a course, of not less than 13 consecutive weeks duration, leading to a degree"
as set out in paragraph (b) of the definition of "designated educational institution" in subsection 118.6(1) of the Act. It is our understanding that the nature of a post-doctoral fellowship is such that, although a post-doctoral fellow might be "enrolled in a course", such a course would not usually lead to a degree (even though the same course might lead to a degree for a Masters or PhD student). Consequently, we are of the view that, generally, a post-doctoral fellow at a university outside Canada will not be eligible for the ETC and, therefore, a full exemption under paragraph 56(3)(a) of the Act would not be available for the amount of any related fellowship income. However, a limited scholarship exemption may be available under paragraph 56(3)(c) of the Act, equal to the lesser of $500, and the amount otherwise included in the fellow's income under paragraph 56(1)(n).
We trust these comments will be of assistance.
Yours truly,
Robin Maley
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch