Question about income source from NSERC postdoctoral fellowship

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oakweather
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Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Thu Oct 15, 2020 1:09 pm

I am a U.S. resident (dual U.S./Canada citizen) receiving a Canadian federal (e.g. SSHRC/NSERC/etc.) postdoctoral fellowship. I will be performing the work associated with the fellowship while living in the U.S. (I do not plan to move to Canada, or at least not in the initial phase of the fellowship before this tax year is over.)

Is this fellowship considered a Canadian-source income, because it comes from Canada?
Or is it considered a U.S.-source income, since I am performing the work almost entirely in the U.S. and do not otherwise have a permanent establishment in Canada?

Another wrinkle is that the agency only issues T4A to me, whereas it really should have been a T4A-NR (they simply do not do T4A-NRs or withhold taxes, according to past fellows with similar experiences).

Thank you for your help!

nelsona
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Re: Question about income source from NSERC postdoctoral fellowship

Post by nelsona » Fri Oct 16, 2020 12:56 pm

Research grants are considered employment income. As you noted, to the extent that this is work performed in US, it should be reported there.

To be safe, you would report the income on a Cdn non-resident return and then deduct it on the treaty line (25600) with the explanation that you are working in US. I assume you have no other reason to file a Cdn return?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

oakweather
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Re: Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Fri Oct 16, 2020 4:38 pm

Thank you for the clarification.

One further question - I believe that this postdoctoral fellowship is specifically reported on Box 105 of T4A (which goes on line 13010 - scholarships, fellowships, bursaries, and study grants) rather than on Box 104 (which would otherwise go on line 10400 - research grants).

Does this designation impact the discussion above at all, regarding the source of the income?

Thank you!

Ron.Henderson
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Re: Question about income source from NSERC postdoctoral fellowship

Post by Ron.Henderson » Fri Oct 16, 2020 5:25 pm

It was several decades ago but when I had a SSHRC doctoral fellowship while studying in the US, I was told by someone that it was Canadian-source, and since I had a T-4, I filed a Canadian return and paid Canadian tax on it. I kept my life uncomplicated by not filing a US return.

That may or may not be useful.

Ron.Henderson
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Re: Question about income source from NSERC postdoctoral fellowship

Post by Ron.Henderson » Sat Oct 17, 2020 12:47 am

I don't remember in great detail but I think also that I was not able to claim non-resident status because my main source of income was the Canadian government.

Bubba Gums
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Re: Question about income source from NSERC postdoctoral fellowship

Post by Bubba Gums » Sat Oct 17, 2020 11:13 am

I think it is clear that this is CDN source income.
Check out article XX of the treaty, it may be helpful. Note you may still be on the hook for state income taxes.
Would Governmental service XIX apply here?
Are you paid directly by Canada, or does this flow through your University?

I do not think that you have an employee-employer relationship. Your "mentor" in the US or the university has no say over whether the govt of Canada pays you. Your income will likely not be subject to Self-Employment tax as your fellowship income is not from a trade or business (non-qualified income). You can read more about it here:
https://www.sciencemag.org/careers/2002 ... -employees

Even if you are not an employee, the fellowship is likely income and subject to income tax (Canada, state, federal). You may be required to make estimated tax payments.

So start with the international aspect, then treat this like an NRSA fellowship in the US?

nelsona
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Re: Question about income source from NSERC postdoctoral fellowship

Post by nelsona » Sat Oct 17, 2020 5:51 pm

Since the poster is a USC, there is no doubt that US tax applies, including state. Article XX, even if it applied to this income, is not available to USCs, by the savings clause.

I'm not sure that it would be considered Govt service.

From his further comments, it is not employment income, and is therefore CDn-sourced. It is merely grant income, reported as such on a Cdn non-resident return. He may use any deductions or credits normally available to non-residents (but not the personal amount, unless this income is 90% or more of his world income).
Whatever tax that is determined on your Cdn return can be used on your US return on form 1116.
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oakweather
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Re: Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Sun Oct 18, 2020 7:26 am

Thank you for all the lively discussion above!

Based on the discussion, is it fair to state the follows:

If the postdoctoral fellowship income appears on Box 104 of T4A, then it is categorically considered employment income? (which in my case would be U.S.-source)
And if it appears on Box 105 of T4A, then it is categorically considered non-employment income? (which in my case would be Canadian-source)

Thank you!

nelsona
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Re: Question about income source from NSERC postdoctoral fellowship

Post by nelsona » Sun Oct 18, 2020 5:49 pm

Correct. In either case you would report it in your Cdn return, If it is employment income, you would then exclude it.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Bubba Gums
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Re: Question about income source from NSERC postdoctoral fellowship

Post by Bubba Gums » Sun Oct 18, 2020 6:17 pm

You might also take a look at 3.88 and 3.89:

Your fellowship will be taxable as though it were received by a resident of Canada.

oakweather
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Re: Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Sun Oct 18, 2020 10:06 pm

Thanks. As per Bubba Gum's suggestion, I studied 3.88-3.89 (S1-F2-C3), as well as the original legal language in Subsection 115(2). If I understand the language correctly, I don't think it's saying much in my case. The non-resident of Canada receiving the income source from a Canada person would, by virtue of 115(2)(c)(iii), only be considered as having received Canadian-source income to the extent that such income were exempt from income tax in another treaty country (which would not be my case in the U.S., as I would be subject to tax on worldwide income in the U.S.).

I also browsed through the other sections of S1-F2-C3, and noticed that the CRA defines academic post-doctoral fellows (PDFs) as follows:

3.37 Post-doctoral fellows, such as Academic PDFs and Clinical Fellows, are primarily considered to receive employment income for purposes of subsection 5(1). In certain limited circumstances, however, amounts received by a post-doctoral fellow may be considered a research grant for purposes of paragraph 56(1)(o) (discussed further at ¶3.58).

These texts above seem to suggest PDFs (which is what both NSERC and my university unambiguously call me) are considered employment income. But I'm no lawyer, and it is entirely possible that my reading could be wrong, if you could point out other texts that would contradict my thinking above.

Bubba Gums
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Re: Question about income source from NSERC postdoctoral fellowship

Post by Bubba Gums » Mon Oct 19, 2020 10:48 am

PDF's can receive employment income, research grant income or both. A simple test is: who pays you? If NSERC pays you directly, it would not be an employment income. If your PI/university also paid you in addition (which would be fair) that component would be employment income.

nelsona
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Re: Question about income source from NSERC postdoctoral fellowship

Post by nelsona » Mon Oct 19, 2020 12:33 pm

As I said, your safest baet is to report the income. I f it ios employemnt income (wherever the insructions tell you to out it based on the box it is in, it is defintely excludable by treatty.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

oakweather
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Re: Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Mon Oct 19, 2020 4:46 pm

Thanks all for your helpful feedback!

oakweather
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Re: Question about income source from NSERC postdoctoral fellowship

Post by oakweather » Tue Oct 20, 2020 7:16 am

Just for the sake of completeness of this discussion based on additional research (though again, I'm no tax lawyer) -

Non-residents of Canada are taxable on the various incomes as listed in the Canadian Income Tax Act Subsection 115(1). Of this list, neither research grants (56(1)(n)) nor scholarships/bursaries/fellowships (56(1)(o)) are listed. The only exception to this is described in Subsection 115(2)(b.1), as pointed out by Bubba Gums in 3.88-3.89 of the circular S1-F2-C3, where if a person in carrying out the activities related to the research grant ceases to be a Canadian resident, then that income will be considered Canadian-source. If the recipient of the fellowship/bursaries/grants is already a non-resident to start with, then 115(2)(b.1) does not seem to apply.

If, however, the PDF is neither a research grant nor a scholarship/bursary type income, but rather is considered employment income, then it is indeed listed under 115(1)(a)(i) as subject to tax by a non-resident. In that case, the U.S.-Canadian tax treaty will apply dependent on where the employment takes place.

In either scenario above, as Nelsona pointed out, filing some sort of non-resident tax return may still be prudent in this case so as not to confuse the CRA about the extra T4A filed under my SIN number.

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