Caropresco v The Queen, 2012 TCC 212

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What is the Nature of Payments Made to Post-Doctoral Fellows, and When Are They Taxable?

Caropresco v The Queen, 2012 TCC 212

The issue was whether  payments made to a post-doctoral fellow by the Ottawa Research Institute for research conducted is properly included in the income of the fellow.

The taxpayer was engaged by the University of Ottawa and the Ottawa Research Institute, and was paid amounts by them in furtherance of her research.  The amounts for the latter, but not the former, engagement were included in her income.

The court stated that the inclusion of one payment and not the other doesn’t impact the proper tax treatment of the payments under consideration, as the proper tax treatment depends on the legislation and relevant jurisprudence not the actions of the minister.

The court referred to the recent decision of the TCC in Huang v The Queen, 2012 TCC 81, where similar facts resulted in a decision in favour of the taxpayers.  The consideration was whether payments were received on account of a fellowship pursuant to s 56(1)(n) or on account of research grant within the meaning of s 56(1)(o). It was decided that the payments were not on account of a grant. The issue remains whether the payments are subject to the scholarship exemption in s 56(1)(n)(ii), which the court concluded they did.

In this case, unlike the one previous to it, the Minister was arguing that the payments were employment income, and as such expressly excluded from 56(1)(n).  The court refereed to Chabaud v The Queen, 2011 TCC 438, where the issue was raised and the court held that the fellowship payments were taxable as employment income.

The court stated that paragraph 65(1)(n) distinguished between (1) payments made in the course of business or employment, and (2) payments made to provide financial assistance to further the recipient’s education.  Only the latter type of payments are potentially eligible for the exemption under 56(1)(n)(ii) and 56(3).

The court stated that since the Minister did not argue that the taxpayer was an independent contractor (thus payment received in the course of business), it must show that (a) the taxpayer was an employee of the entity from which the payment was received, and (b) the payments were not assistance for education.

With regards to payments for education assistance, the case law is divided.  The court referred to Chabaud, supra, and the decision in Bekhor v MNR, 2005 TCC 443, where it was decided that a post-doctoral fellow was not an employee for purposes of the Employment Insurance Act and Canada Pension Plan because the payments were in the nature of financial assistance for education.

The root of the problem with the payment is that in relation to post-doctoral research fellows they have dual elements.  They both further the education of research fellows and they provide compensation for work performed.  One needs to consider the dominant purpose of the payments.

In this case, the court concluded that the primary aspect is compensation for work performed, as with respect to the Ottawa Research Institute the educational element was subsidiary.  This was because the course of the funding provided was research and not post-doctoral education.

The next issue was whether the taxpayer was an employee, and held that there was an employee relationship.  This issue would not need to be decided as the Crown argued on the basis of both contract of  Or contract for services.

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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