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The CRA response to CAPS: Implications and where should we go from here?

BY CARL | MAY 11 2010

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The Black Hole team is thrilled to welcome its first guest blogger to the site. Carl Wonders is a post doctoral fellow at the University of Toronto and one of the founding members of the UofT Post Doc Association. We are always open to ideas for guest blog entries on a one time or regular basis, so please do not hesitate to get in touch with us. Great article Carl, we’ll look forward to our readers’ responses!

The CRA response to CAPS: Implications and where should we go from here?
Last year, in response to the growing controversy over the taxation of postdocs in Canada, the Canadian Association of Postdoctoral Scholars (“CAPS”) submitted a formal letter to the Canadian Revenue Agency (CRA). The letter specifically addressed the lack of uniformity over what a “postdoctoral fellow” is and how their income should be treated. On April 28, 2010, the CRA responded:

“The CRA has never [emphasis mine] accepted that Academic PDFs [postdoctoral fellows] are generally students with exempt scholarship income for purposes of income tax. We have written several letters to this effect, both prior to and after 2006, when most scholarship income became fully tax-exempt. The focus of the letters has varied between the nature of the income (as scholarship income, employment income, or research grants), and the role of postdoctoral fellows (as students, employees, or something else), however, the answer has generally been consistent.”

The CRA took things farther:
“Generally, the CRA does not consider Academic PDFs to be “students” as that term is used in the Act. Rather, the CRA views Academic PDFs to be the same as other individuals who are required to undertake a period of paid training after completing their studies prior to pursuing an independent professional career. In our view, Academic PDFs are most similar to apprentices, articling students, and medical residents.”
While the consistency of the CRA can certainly be debated, it is now clear that the CRA does not view postdocs as students for the purposes of taxation, at least as far as the scholarship exemption goes. Lumping us in with apprentices, articling students, and medical residents is curious, but probably done to put us in a category of individuals receiving training en route to an independent career. Unfortunately, this shared categorization is not recognized by most universities. Medical residents in Ontario (and I believe throughout Canada) particularly are in a far better position than postdocs at the same institution. To use the situation at the University of Toronto as an example (http://www.pgme.utoronto.ca/tax.htm), medical residents:
• Are paid on a T4
• Receive a T2202A (they’re not eligible for tax exemption as they aren’t on scholarship, but they do get tuition/education credits)
• Are eligible to receive a T2200 and thus claim employment expenses (something that only salaried or commission-based employees can do)
• Get full employee benefits (supplementary health insurance, life insurance, etc.)
• Get topped up to 75% salary when they go on maternity leave
• Have their salary scaled according to how many years they have worked (http://www.pairo.org/Content/Default.aspx?pg=1094)

In other words, medical residents are employees who are also receiving training. Thus, U of T, and indeed the majority of universities throughout Canada, is treating two groups of “training professionals” (medical residents and postdocs) completely differently, despite the fact that the CRA is now on record as considering them to be in the same category! I would suggest using this fact as Argument 1 as to why postdocs should be considered employees. Consider that employee status would provide:

• The ability to pay into CPP and EI. This is especially important for postdocs looking to take parental leave, as you must work 13 consecutive weeks at an insurable (EI-paying) job to be eligible.

• The ability to contribute to RRSPs. Fellowship income does not count as “earned income” for the calculation of RRSP deduction room (although, see quotation below)

• Improved benefits including supplementary health insurance. While some universities do have a plan to buy into (e.g. U of T), it’s certainly not ideal. Some institutions have begun to remedy this situation, as the University of British Columbia in April 2010, started to allow postdocs to buy into the staff plan. Hopefully other universities will follow this example in the future.

• The potential for scheduled wage increases. Unless you receive a higher-paying fellowship, chances are you haven’t received much of a raise since starting. I know I’m making the same amount of money as when I started three years ago. Employee status would go a long way towards preventing this from happening, and open the door to potential unionization. In the UK, postdoc wages are scaled based on experience, and this scaling is also included in the NIH guidelines for postdoc salaries in the US.

One final point. The CRA makes a curious statement towards the end of their letter, which may prove somewhat useful (emphasis mine):
“…Academic PDFs often asked for amounts to be classified as research grants, rather than employment income or scholarship income, as research grants were allowed deductions for certain expenses (unlike employment income), while still qualifying as eared income for purposes of contributions to registered retirement savings plans (“RRSPs”) (unlike scholarship income)….In some cases, the income received by an Academic PDF could be properly included in income under paragraph 56(1)(n); in most cases, we would expect either section 5 (for employment income) or paragraph 56(1)(0) (for research grants) to apply.”

My interpretation of this is that the CRA is saying that postdocs have the option of treating their income, which is reported as a scholarship/fellowship (T4A, Code 05) as a research grant (Code 04) even if it is not reported that way on the postdoc’s own T4A. Indeed, the tax code does include a provision that would allow someone receiving a fellowship to report it as a research grant if the money was received “solely for the purpose of conducting research.” This is something that I had advocated two years ago to the University of Toronto Postdoctoral Association. At the time, the concern was that, should the CRA rule in our favor regarding the tax exemption, switching back to a scholarship might be problematic. Now that that door is officially closed, I see no reason to not re-classify fellowships as research grants in the future and perhaps to go back and do the same for prior years.

In summary, I feel that the best course of action to take is to begin lobbying for employment status for postdoctoral fellows across Canada. The fact that the 2010 Budget says in no uncertain terms that postdoctoral fellowships are not tax exempt should put to rest any ideas of fighting for classification as students for tax purposes. Furthermore, I believe that the long-term benefit to employee status (EI, scaled salary, better benefit packages, etc.) far outweigh the shorter-term benefits of tax exemption. I would strongly urge CAPS and the rest of the postdoctoral community to consider this as they continue to move forward.

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  1. SubC / May 14, 2010 at 17:01

    I have always suggested that the best course for us postdocs was to become “regular” employess (similar to technicians) rather than trying to hold on to ‘student’ status. We are prefssionals with several university degrees and we are compensated for our work. We are not studyingh for a particular degree at the end of the postdoctoral period. All this factoirs should have made us realize the futility of the quest for eternal studenthood! I am glad that we can now definitely look towards the day when we would be recognized as employeees instead of wallowing in the current no-man’s land between graduate students and contract staff.
    Thanks for posting the CRA response and keep up teh good work ! 🙂

  2. Physics PhD / May 17, 2010 at 19:23

    I agree, it’s about time we started working toward employment status for PDFs. Below I paste the link to an interesting webpage which clearly calls for employee status. This would result in an immediate $1,000-$2,000 raise thanks to vacation pay, which is mandated for all bonifide employees.
    http://sites.google.com/site/protectcanadianpostdocs/Home/post-doc-pay

  3. PDF / May 18, 2010 at 04:30

    One thing that is very interesting about this reply is the idea that PDFs are somehow like apprentices, and should therefore fall under the guidelines for those in training programs – and be employees. Which is fine i think in its broad argumentation that we’re working junior professionals. What is odd, however, is that the justification for it is grounded in the practice of the individual, not in how that individual relates to an institution fostering that training.
    In the tax act there are two types of institutions – those defined by provincial charter, and those not – it’s as if the CRA is applying the regulations pertaining to the latter in situations regarding the former. In essence – can a University ‘have an apprentice’ – and if so, is that ‘apprentice’ (ie a PDF), a student even if they are also an employee?
    It’s all nice and messy, but the CRA is opening up a can of worms here that treads on Constitutional jursidictions on education. in doing so, Canadian universities and provinces would do well to pay attention as they’re trying to enact a policy decision that would in the long run remove the rights of canadian universities to define who their students actually are.

  4. Physics PhD / May 18, 2010 at 12:35

    I hardly think that the province is at risk of loosing its jurisdiction over colleges and universities, or else I’d expect them to raise some concerns here. The federal government has overlapping jurisdiction on campuses which include: funding (e.g. research and infrastructure), employment standards, taxation, etc. So they are within their rights.
    Wouldn’t it be even crazier if universities had the right to declare the tax status of workers on campuses?!
    Federalists should appreciate this role of the federal government. Besides, the only time that the CRA is going to tell the universities who ISN’T a student is when universities are trying to skirt their responsibilities to properly fund workers on campus at the expense of the tax payer.