| 19(1) | 5-7543 |
| J.A. Szeszycki | |
| 957-2130 |
July 17, 1989
Dear Madam:
Re: Salary Reductions and Research Grants
This is in response to your letter of February 6, 1989, with additional information provided by 19(1) in his letter of June 12, 1989, and in a subsequent telephone conversation 19(1) (Szeszycki). In your correspondence you describe the manner in which research grants awarded to faculty members at the 19(1) ("University") are administered. Included in this discussion is a description of a program designed, as we understand it, to supplement (where necessary) existing grant funding.
The collective agreement between the 24(1)
24(1)
With respect to the administration of grant funds, it is the University's policy to administer the grants awarded to its faculty members. Detailed policies and procedures are in place to ensure that grant funds are expended for valid research expenditures, The individual researcher does not receive any grant funds for his own personal use and research expenditures are made directly to third party suppliers upon presentation of acceptable vouchers. Consequently, since research grants provided never exceed valid expenses incurred, no amount is reported on T4A information slips or included in income as research grants.
Our comments
You have asked the Department to provide general comments concerning the manner in which the University administers grants awarded to its faculty members and specifically the grants being provided by way of salary reduction to the researcher himself.
Insofar as the administration of the grants themselves is concerned the Department is satisfied that the level of control exercised over the grant funds ensures that no additional monetary benefit accrues to the faculty member. The four criteria set out in paragraph 20 of Interpretation Bulletin IT-75R2 appear to have been met which would lead us to conclude that a research grant has not, in fact, been "received" by the faculty member for purposes of paragraph 56(1)(o) of the Income Tax Act.
The Department's primary concern with the program for voluntary reduction in faculty member salaries is the implication of a resultant reduction in employment income for tax purposes. In reviewing research grant programs at various institutions we have expressed the view that in order for any portion of a faculty member's salary to converted to in order for any portion of a faculty member's salary to be converted to a research grant or some other characterization of income there must be a corresponding decrease in the level of activity for which the salary was being received. The same principle applies to a voluntary reduction in salary for the purposes of contribution to a research grant fund. As noted earlier, the employment activities for which the salary is being received by the faculty member includes research activity. It is our understanding that the research projects being undertaken, in respect of which application for research grants are being undertaken, in respect of which application for research grants are being made, are those necessary to fulfill the faculty member's obligations under the employment duties. Consequently, the Department does not view the voluntary withholding of salary under the program described in your submission as a reduction in salary for tax purposes. The arrangement has the characteristics of a voluntary contribution, through salary withholding, to a research grant fund administered by the employer. Such a contribution is viewed as a personal expenditure of the faculty member. The contribution cannot be viewed as a charitable donation for purposes of section 118.1 of the Income Tax Act since the contribution is being made primarily for the benefit of the donor (to fund all or a portion of his research project).
We hope our comments clarify the Department's position on the subject.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch