R.B. Day (613)957-2136
Dear XXXX
Re: Calculation of Fringe Benefits for Professors, Research Grants in Lieu of Salary
We are writing in reply to your letter of June 30, 1987, wherein you requested our views regarding the above noted subject as it relates to the three hypothetical situations set out below. With respect to these three situations you interpret the term "fringe benefit" to normally include Canada Pension Plan premiums, Unemployment Insurance contributions and Registered Pension Plan contributions, among others.
Situation 1
A university professor (the employee) normally receives a salary of $50,000 per year. In a given year, the university (the employer) permits the employee to reduce his teaching duties in order to do research. During this year, the employee receives 60% of his normal salary; $30,000. The employee does not receive any financial assistance or research grants.
Situation 2
The facts, as in situation 1, are the same except that the employee receives a $20,000 research grant from the employer. The research meets the requirements of paragraph 56(1)(o) of the Income Tax Act (the "Act") and Interpretation Bulletin 75R2. In the course of the research project, the employee incurs direct research expenses of $5,000.
Situation 3
The employer and the employee contractually agree that the employee is to undertake certain teaching responsibilities and is to perform certain research. It is agreed that the employee will receive a salary of $30,000 and a research grant of $20,000. The research meets the requirements of paragraph 56(1)(o) of the Act and Interpretation Bulletin 75R2. In the course of the research project, the employee incurs direct research expenses of $5,000.
We will respond to the questions posed, in your letter, in the order in which they appear.
Question 1
With respect to situations 1 and 2, it is our view that the university's Canada Pension Plan premiums and Unemployment Insurance contributions should be based on the professor's actual salary of $30,000. Other fringe benefit contributions may continue to be based on the professor's full notional salary. However, no fringe benefit should relate to, or be based on, the amount of any research grant.
With respect to situation 3, it is our view that the university would base its fringe benefit contributions on the professor's actual salary of $30,000 because no fringe benefit should be based on, or relate to, the amount of the research grant.
Question 2
It is our opinion that the amount of an employee's contribution to a Registered Retirement Savings Plan (RRSP) would be limited to an amount based on an earned income of $30,000, in accordance with subsection 146(5) of the Act, in each of the three situations described.
Until such time as the proposed legislation set out in the Notice of Ways and Means Motion of October 9, 1986, is enacted into law, the definition of earned income in paragraph 146(l)(c) of the Act remains the same and no additional contributions would be allowable under subsection 146(5) of the Act.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch