IMPORTANT – As of March 4 and the 2010 budget, the Government of Canada has made the statement that post doctoral fellowships ARE taxable as they do not lead to a degree.
Also, see the more recent posts that we made concerning this budget announcement – 2012 Taxes for Postdocs: Dredging up the Past, Post Docs be careful what you wish for and 2011 Taxes for Post Docs: At least we know the rules this year for a summary of the implications of the announcement
As I outlined in one of myvery first blog entries, the waters are quite muddied when it comes to understanding the tax benefit regarding scholarships outlined in the 2006 budget:
Budget 2006 takes action in support of a more skilled and educated workforce by proposing:
• A new tax credit for the cost of textbooks, which will provide a tax reduction of about $80 per year for a typical full-time post-secondary student
• The elimination of the current $3,000 limit on the amount of scholarship, bursary and fellowship income a post-secondary student can receive without paying federal income tax
• Expanded eligibility for Canada Student Loans through a reduction in the expected parental contribution, starting in August 2007
~ 2006 Federal Budget
The middle statement is the one that provoked the most interest as it meant that all scholarship, bursary, and fellowship income could be received as non-taxable income. It became quickly apparent that things were a little more complicated though, especially when it came to post docs on fellowship or trainees paid from their supervisor’s grant. If you get the right forms (T2202 and T4a Code 05) you’re sailing… but even though people are in the exact same position (e.g.: graduate student at an off campus research hospital), the same forms are not always being issued.
Four years later and the waters are no clearer than they were for those first brave few who fought to claim this tax benefit in 2006. No ruling from the Canada Revenue Agency on the tax status of a post doctoral fellow, no consistency (even within the same university) with respect to tax forms issued to graduate students and/or PDFs, and no idea whether or not you should be saving some pretty sizeable chunks of money to ensure you’re in the black with the federal government.
In my Money, Money, Money… entry from October, I tried to outline the possibile situations that grad students or post docs might find themselves in and have some loose templates available for anyone who would be interested in filing a reassessment for previous years of miscalculated taxes or for the 2009 tax year. Feel free to email us to get these sent to you.
My own current situation is that of an international post doc on a Canadian merit based fellowship for which my funding agency will (in theory) be issuing a T4a Code 05. I have obtained a letter from my supervisor detailing the training/education nature of my current position and have drafted a letter in lieu of a T2202 based on the excellent work done by the UofT Post Doc Association some years back. Their site is certainly worth a visit when considering how you should proceed. Together, this has worked for others… my fingers are crossed.
Remember though… if you do successfully obtain get your scholarship/fellowship marked as non-taxable, the Canada Revenue Agency can reassess you and decide that you/they were wrong and in fact you owe them a pile of money. The lack of clarity makes PDF fellowships and positions filled from supervisor grants particularly subject to this possibility, so go in with your eyes open before making these tax filing choices.
The real problems with all of this lay in the long trail of inconsistencies… three examples:
1. Fellowship funded post doc (~$40,000)
University/Institute A issues the appropriate forms and no taxes are paid
University/Institue B refuses a T4A Code 05 and income is taxed – (~$6000-7000)
Result: PDF takes home several thousand dollars less strictly because they are working at a particular institute.
2. Graduate student funded off supervisor’s research grant
University/Institute A issues a T4A Code 05 to all graduate students irrespective of whether or not they get an external scholarship or are paid a stipend from the lab
University/Institute B issues a T4A Code 05 to those who get external scholarships and issues a T4A Code 04 to those who are paid off a grant.
Result: Graduate students in some labs get tax free status, others in exactly the same situation (i.e.: paid off the supervisor’s grant) do not.
3. The double whammy: Winning a fellowship decreases your income – HUH?
This just doesn’t make sense… but there it is, happening to the lucky folks who win a fellowship. Many institutes have benefits packages for “employee-like” post docs who are paid off grants (a $2000-3000 value usually), but as soon as you become a scholarship paid trainee, these benefits are revoked because you no longer “work for” the institute. If you then do not receive a T2202 or get the wrong coding on your T4a (or both), you get the privilege of having the income taxed and losing your benefits for nothing… the things one can suffer to get a tick box on the old CV!!
It is easy to see how this type of inconsistency could influence a student or post doc’s decision to enter a particular lab or university. So… if you happen to be in charge of such a place – wouldn’t it make sense to have clear procedures in place that maximally take advantange of this very progressive tax policy? In some cases it’s like giving your trainees a 15% raise without having to pay for it – how perfect is that?
In the long run though, a yearly ritual of such rigamarole hardly seems ideal… so what can be done and how can you help out?
• A clear ruling from the CRA on the tax status of the post doctoral fellow.
• Clear rules from each educational institution about which income receives which tax form – preferably made clear to each individual upon starting their new position. Many research hospitals or off campus institutes are unable to issue T2202 forms (these come from the university and sometimes the payroll/human resources departments are not the same) or unwilling to issue T4a Code 05 (because everyone is on the same payroll system and classed as an employee irrespective of where the money originally came from). This sort of red tape is really hard to cut around, especially for post docs.
• Inform students and post docs at your university of the UofT website, the CAPS site, this blog, and other such resources for helping them out in the short term. This includes your university’s graduate student caucus and/or post doc association(s).
• Join CAPS and help them fight this battle with a unified voice for all post docs (lobbying government officials, the CRA, etc) and influencing good policy decisions at universities and research institutes.
• Inform your own human resources department of how other groups are handling these matters and working with them to get the correct forms issued each year.
Good luck with filing 2009 returns and post your comments on previous and current successes/failures with respect to navigating through tax time!
Thanks for this blog…I’m finishing my PhD and I’ve had the same “fellowship” for two years now. Last year my T4A was coded as a scholarship/fellowship (05), but this year it’s coded as a research grant (04), which means that unless I can talk them into re-issuing a new T4A, I’ll be on the hook for a good chunk of tax money this year. The descriptions provided by CRA and my granting agency (another federal department) are so vague that I’m sure they’ll stick to their guns on this, despite the fact that the award is called a “fellowship” and I applied for it through the “Higher Education Scholarships” portal of the AUCC.
The worst part? I turned down OGS (a provincial government scholarship) in favour of this one, because it was worth more money. It’s given over two semesters instead of three (like the one I turned down), so I have to pay tuition for that third semester, but I thought it would be worth it, given the higher value…and now I’m going to have to pay tax on that fellowship, in one installment. Nice.
Any advice? At this point, I’ve just contacted AUCC and the fellowship admin at the gov’t to reconsider, but I’m not hopeful.
Thanks for the suggestions, Dave. My dealings with the program administrator in the past have been chilly, at best, but upon reading your message, I remembered that I had dealt with people in their finances department in the past, and they were very forthcoming. I found their contact information and have sent in a request for an amended T4A…and now, I wait.
Sounds like a series of bad events – sorry to hear about this!
The way to go is to get your dept. to issue the t4a, but that as you know is not trivial! If you end up filing without it, definitely take note of allowable research expenses (up to $3000 or something like this) that you might be able to claim.
But, if it’s a merit based scholarship, they really should be giving you a T4a Code 05 so best to try and figure out what precipitated the change in form issuance and try to get yours re-issued. It’s a pain, but most HR and payroll depts have great people who want to get the job done correctly and help people out – so try not to treat it as their fault or something that’s screwing you over!
Hope this helps a little!
Thanks for this great overview of the situation. I was a postdoc for two years during 2007-2008. I too had the T4A with the 05 codes for both of my postdoc income filings. I taught some undergrad courses at the time, and that income was recored on a separate T4. I’ve filed my postdoc income as if it were tax-free as well.
I’ve been in touch with CRA (I think it is their policy or their review office)trying to get clairity on how my filings will be resolved. The informal (over the phone, not in writing) advice I had been given was that postdoc income was never intended to be taxfree and that I should refile my taxes for 2007 and 2008. I’ve not done that because I am waiting for official notice before I act.
This informal advice, however, has made me wonder what the possibilities a class-action law suit on the issue if the rulings go against postdocs from 2006-2009. I know nothing about law or class action suits but am thinking this could be the most cost effective way for postdocs to deal with the situation (if the rulings go against us). I wonder what level of interest there would be in this?
I would definitely be interested in a class-action suit. If the CRA had been clear about this, I could have negotiated with my PI (I have an NSERC PDF in the US) an appropriate supplement to my salary so that I’m not effectively punished for receiving this award (it amounts to a $6000/year pay cut which is unbearable in the SF Bay Area when you’re supporting a family).