As you know, the legal/tax status of post-docoral fellows has been undetermined for some time. Recently, the 2010 Federal Budget clarified the tax status of PDF wages as employment income (taxable). On April 30 we receive notice from the CRA informing us of their ruling as to our status, which, unsurprisingly, agreed with the government's position as stated in the Budget. The UTPDA has been following this matter closely, and has been advising members that the liklihood of income being considered taxable by the CRA was high. It is now confirmed. Please consider this when preparing your taxes. The letter from the CRA is attached here.
(on behalf of the UTPDA Council)
Information re income tax filing for tax year 2009 by PDFs of University of Toronto
Dr. Michael Drescher, Ph.D., Chair, Taxation Committee, University of Toronto Post-Doctoral Association, 2010.04.20
Dear colleagues, income tax filing period is again upon us. Some of you may have filed your taxes already while others might have waited for word from us about the most recent developments. For this second group, I apologize that it took so long to get this info out to you. The reason for this delay is that we expected to get official word from the Canada Revenue Agency (CRA) a week ago at the latest about our taxation. But unfortunately this didn’t happen.
The current situation is that we are told to expect the official CRA ruling to be issued by the end of next week, possibly just before tax filing deadline of April 30. It will therefore probably be too late for anybody to wait for the contents of the ruling to file their taxes, so I wanted to let you know the latest unofficial information that I have from CRA. Please keep in mind that this is indeed still unofficial and has not been sanctioned by the CRA. This means that in principal things might still change, though the likelihood of this happening might be small. I would also like to point out that I supply this information in good faith, however I cannot take any responsibility for its content or reliability.
According to my discussions with the CRA, the basic contents of the ruling will likely say the following: Scholarship incomes of Postdoctoral Fellows (PDF) are taxable and have always been so. This is what I have heard repeatedly from several decision makers at CRA, and it is in line with the contents of the Federal Budget 2010 (1), and also agrees with statements of Federal Government members during debates in the House of Commons (2).
Many of us will not be all too happy with the contents of this ruling. The only advantage for Postdoctoral Fellows is that this ruling is meant to clarify the situation and to remove a considerable amount of uncertainty about the financial realities of a Postdoctoral Fellowship. Once the ruling has been officially issued, we can finally move forward with any other actions that we might want to take in response to it. I cannot go here into the details of what kind of actions these might be, but I would advise you to take steps protecting your legal rights in case the legal situation is re-assessed in the future. If you want to follow this course, there are two different procedures that you have to follow depending on the tax year in question:
For tax years 2008 and 2009, you should file a notice of objection (3) against your income tax assessment within one year of the filing deadline. This means that for tax year 2008, you can file this objection until April 30, 2010 and for tax year 2009, you can file this objection until April 30, 2011. In this objection you might want to refer to the Income Tax Act (4) section 56(1)(n)(iii). Further information can be found in the Income Tax Act Information Bulletins IT-75R4 (5) and IT-515R2 (6) and in the CRA information brochure (7). In response to this objection, CRA will probably ask you to provide evidence for the reason why you should be tax exempt. Since most of you will not be in possession of T2202A form, which normally entitles you to claim the education tax credit, you would have to argue otherwise that you should not be taxed. For more on this approach, please see the form letter and other information from the previous year’s information on this webpage.
For tax years pre-2008, you should contact your respective tax center and file a ‘taxpayer requested adjustment’ for these tax years, claiming that you should have been tax exempt for these years. This will probably not prompt any immediate action from CRA. However, it is your self-identification toward the tax center meant to ensure that the center will notify you if in the future if it would turn out that the CRA was wrong in taxing PDFs.
Regardless of whether you are immediately successful or not, it is helpful to have a record at the CRA that you have objected to the way your taxes were calculated for a given year, as this can result in substantial extension of the period in which you can try to have them revised retroactively at some future date.
We will do our best to keep you informed about any progress in this matter. Meanwhile, I hope the information provided here helps you in your current tax filing. We recognize that the uncertainty around this issue is a problem when you have to provide hard numbers on your tax filing, but until the CRA provides more clarity on this issue we cannot provide anything concrete (and it is possible the ruling itself may not be the last word on this matter either).
To contact the Taxation Committee, University of Toronto Post-Doctoral Association, send email to email@example.com.
Dr. Michael Drescher, Ph.D., Chair, Taxation Committee, University of Toronto Post-Doctoral Association, 2009.04.24
I would like to inform you about a few issues re the current tax-filing situation for the tax year 2008. The info that I am providing here is based on discussions that I had recently with the Canadian Revenue Agency (CRA) officer who is in charge of our case. Please keep in mind that I am no tax professional and that CRA does not provide tax advice. The info here is provided in good faith but I cannot take responsibility for any erroneous statements. Nevertheless, I am sure that most PDFs would like to know about this since the deadline for filing is almost upon us (30 April).
(i) You may know that The Canadian Association of Postdoctoral Scholars has requested a ruling from the CRA re the tax exemption status of PDF Scholarship/Fellowship income. This request was put forward three months ago, but up to now CRA was not able to make a decision about this request. Further, we cannot expect anymore that CRA will make a decision before the filing deadline. Consequently, UofT PFDs will have to file their 2008 taxes with ongoing uncertainty about the exemption status of their Scholarship/Fellowship income.
(ii) The T2202/A form is a provision for claiming tax exemption for Scholarship/Fellowship income. Since UofT has not issued T2202/A forms to any PDFs, officially we cannot claim exemption. UofT PDFs could follow now two different courses of action (keep in mind that I am not advising to follow either one, but that I am only providing information):
1.) PDFs can treat their income as if it was tax exempt and not pay taxes despite not having been issued a T2202/A. This course of action means that if CRA finally decides against tax exemption, the taxes will still have to be paid and CRA can demand late payment fees and a penalty to be paid. Whether CRA would actually insist on this in the PDF situation is unclear.
2.) PDFs can treat their income as if it was not tax exempt, pay taxes, and file an objection. This course of action means that if CRA finally decides for tax exemption, it will have to repay the filed taxes. It is best to file an objection at the same time as filing the taxes, though this can also be done later (within the limits of certain deadlines). The objection can be a letter (see http://torontopostdoc.googlepages.com/taxes for a form letter) or a form (see http://www.cra-arc.gc.ca/E/pbg/tf/t400a/README.html for form T400A) or both. It is good to include as much information as possible and to refer to the rulings request for tax exemption that is currently with the Tax Rulings Directorate of the CRA in Ottawa. For more information re notices of objection such as the deadlines for objection filing see the CRA info (see http://www.cra-arc.gc.ca/E/pub/tg/p148/README.html for information guide P148).
In either case of action it would be good for PDFs to explain the full situation to CRA in an accompanying letter.
(iii) If a PDF wants to ensure the right for asking back taxes for tax years pre-2008, a notice of objection should be filed separately for these tax years. Provided that the CRA finally decides for tax exemption, taxes may be repaid for these years. However, deadlines apply for filing the objection: 1.) One year after the tax filing return deadline; or 2.) 90 days after the CRA mailed the notice of assessment. The later of both applies. For details see http://www.cra-arc.gc.ca/E/pub/tg/p148/README.html.
I hope this information helps you deciding what to do re your tax filing. To contact the Taxation Committee, University of Toronto Post-Doctoral Association, send email to firstname.lastname@example.org.
Last April 2009 update
We received the following messages from the CRA
"Unfortunately, we will be unable to provide a response regarding the issue of PDFs claiming the subs.56(3) scholarship exemption by April 30."
We do appreciate the difficulties this creates.
April 2009 update: We are awaiting a Ruling from the CRA regarding the tax status of PDF income. Unfortunately until that happens we are not in a position to suggest how individual PDF might proceed in filing their taxes. The U of T has indicated they will not be issuing T2202 forms to PDF until they have heard from the CRA that they may do so. We are hopeful the CRA will issue this ruling in time for this year's tax filing deadline, but this may or may not happen - we will post any further information as it becomes available. The form letter we have previously posted is available (the form letter), however the advisability of using it this year will depend entirely on the contents of the CRA ruling. We may be able to provide an updated version depending on how much time there is between the issuance of the Ruling and the tax filing deadline. Please note that the Ruling will likely apply retroactively - that is, if no Ruling is immediately made, you claim the exemption and it is accepted, that can still be reversed when the Ruling comes out. Thus, if the CRA has not clarified the situation by the end of April, you may wish to file your taxes as if your full income was taxable, along with a note to the effect that you believe your T4A code 05 income should be tax exempt, but are awaiting the results of the CRA Ruling process to make that claim in order to avoid any potential interest payments.
January 2009 update: The University of Toronto has put up the following webpage detailing their correspondence with the Canadian Revenue Agency regarding the issuance of T2202A forms to postdoctoral fellows. To summarize: The CRA is undergoing a broad internal review of their policies with regards to postdoctoral fellows, and is not ready to make a binding ruling as to whether they would accept the forms from postdoctoral fellows until that review is complete. They have apparently completed their review, but have asked for clarifiation on some points by the Ministry of Finance, prior to releasing their decision. The CRA has also asked deans at Quebec institutions to stop issuing T2202 forms until this issue is resolved. In response, postdocs at those institutions have put up the following petition asking for recognition of postdocs as a training position by the CRA. The Canadian Association of Postdoctoral Scholars (CAPS), a national advocacy organization for PDF's, has prepared the following informational letter detailing the purpose and role of a postdoctoral position and how it falls within the intent of the education exemption, with the hope to provide our perspective on the issue. The letter was submitted to representatives at the CRA and the Ministry of Finance. CAPS representatives have also had an in-person consultation with CRA and Ministry of Finance members in which they provided the postdoctoral perspective on this issue to those representatives. We will update this page as more information becomes available.
As of right now, it appears that the University of Toronto will not be issuing T2202A forms for the 2008 tax year, and the position of the CRA is unclear due to the lack of published statements from them as of this time.