Are Payments to Research Assistants Tax-Free?

A common tax-planning strategy employed by universities in the last several years has been to treat payments to students holding research assistantships as tax-exempt scholarship income rather than as taxable research grants or employment income. However, this strategy has not been directly tested in court, and the CRA's opinion is ambiguous. The CRA's current views are described in a folio (the successor to interpretation bulletins, information circulars, and other documents) released for public consultation on March 28, 2013 (Income Tax Folio S1-F2-C3, "Scholarships, Research Grants and Other Education Assistance"). Consultations are to last for three months.

Unlike employment income and research grants, scholarship income may be fully exempt from personal income tax pursuant to subsection 56(3), provided that it is considered to be received in connection with the recipient's enrolment in an educational program in respect of which an education tax credit can be claimed under subsection 118.6(2). Generally, if the student is enrolled on a full-time basis at a university or college in a program that either leads to a diploma or degree or does not consist primarily of research, the exemption will be available.

The CRA's view is that an award involving a research component should be classified as follows:

  1. if the primary purpose of the award is to further the education and training of the recipient, the award will be considered a fellowship (scholarship) (paragraph 3.31);

  2. if the primary purpose of the award is to enable the recipient to carry out research for its own sake, the award will be considered a research grant (paragraph 3.32); and

  3. if the research is conducted in the context of a traditional employment relationship as determined by the usual factors, the award will be employment income (paragraph 3.29).

This guidance seems to provide universities with some flexibility to classify research assistantships in programs with a thesis requirement (especially PhD programs, but also some master's programs) as scholarships, since the research can be viewed as integral to the completion of the educational program.

The CRA's statements seem relatively clear, if open to interpretation. However, paragraph 3.72 (restating Interpretation Bulletin IT-75R4, paragraph 30) suggests that when the funds for a research assistantship are paid out of a research grant--presumably received by the supervising faculty member from a source such as NSERC or SSHRC (as opposed to general university monies)--the payment should be classified as either a research grant or employment income to the student. This implies that such payments cannot be classified as scholarships, and hence should not be eligible for the corresponding exemption from tax. Finally, in commenting on the tax treatment of amounts paid to exceptional international students in their capacity as research assistants under a program offered by a university, the CRA did not refer to the source of the funds involved, but nevertheless indicated that the amounts could potentially qualify as either scholarships or research grants (2011-0427891E5). It is hoped that the final version of the folio will provide some clarity concerning this issue.

The case law is similarly unclear. The Queen v. Amyot (76 DTC 6217 (FCTD)) indicates that the purpose of the payment is determinative. DiMaria v. The Queen (2008 TCC 114) stands for the proposition that an amount need not be awarded on the basis of academic achievement in order to be classified as a scholarship; nevertheless, it leaves open the possibility that some selection process or criteria may be necessary, notwithstanding that the payer is free to establish such criteria. In Okonski v. The Queen (2008 TCC 142), decided under the informal procedure, payments were found to be scholarships, notwithstanding that an unlimited number were available. In summary, it is not clear whether payments can be treated as scholarships if they are provided to all or most students in an academic program, as might occur in PhD programs.

For reference purposes, the following links provide examples of policies adopted by a variety of Canadian universities regarding payments for research assistantships.

  • University of British Columbia (

  • University of Waterloo (

  • University of Windsor (

Mark Dumalski
Deloitte LLP, Ottawa

Dimitri Sarabalos
Tim Hortons Inc., Oakville

Canadian Tax Focus
Volume 3, Number 2, May 2013
©2013, Canadian Tax Foundation