Controversial tax decision risks triggering a post-doctoral brain drain in Canada

By Debbie Lawes

Ottawa should delay a controversial tax ruling that will put Canadian universities, particularly those in Quebec, at a competitive disadvantage in attracting top-level postdoctoral researchers, warn graduate groups and opposition MPs. At issue is a line item in Budget 2010 that will result in Quebec's postdoc scholars or fellows (PDFs), and a minority elsewhere in the country, paying income tax on fellowships and research grants that had been previously tax exempt.

The Canadian Association of Postdoctoral Scholars (CAPS) and the Canadian Association for Graduate Studies want the government to postpone the tax for two years, and grandfather current PDF awards so that only future stipends are taxed.

"There's been this perception, particularly in Parliament, that a postdoc makes $70,000 a year so why are we complaining. The reality is that we make closer to half that, and with most of us in our early 30s with massive student loans and often married with children it's just not a feasible life," says Dr Marianne Stanford, chair of CAPS and a postdoc fellow at the Ottawa Health Research Institute.

CAPS also wants PDF stipends raised to compensate for the tax implications, as well as a base deduction for all postdoc income of about $20,000.

The Budget announcement is the result of an internal review conducted over the past two years by Canada Revenue Agency (CRA) to determine how PDF incomes should be treated. Prior to 2006, all scholarships were tax exempt and there was a minimum exemption for fellowships. New rules introduced by the previous Liberal administration and implemented by the Conservatives in 2006 ushered in the Scholarship Exemption and Educational Tax Credit. The credit never stated explicitly that PDFs weren't eligible. Part of the problem was a lack of clarity on whether PDFs are students, trainees or employees.

That confusion led most universities across Canada, including the University of Toronto, to play it safe and not issue T2202/A forms which allowed PDFs to claim a tax exemption for scholarship/fellowship income. Universities in Quebec, as well as Dalhousie Univ and some other universities, continued to issue the tax forms.

CRA clarified its policy in Budget 2010: only scholarships and fellowships for students enrolled in programs which lead to a degree or diploma are eligible for the Education Tax Credit and scholarship exemption. Fellowships for postdocs are excluded and are therefore taxable beginning January 1, 2010.

"I agree that not having it consistently applied was a huge issue and it was one of the reasons we were lobbying CRA for clarification over a year ago," says Stanford. "But we also say if you're going to tax us all there needs to be fundamental changes in how we're paid — otherwise we'll be making less than the average graduate student."

The Budget announcement appears to have caught many universities and PDFs off guard. The issue attracted record numbers to the AGM of McGill Univ's Association of Post-doctoral Researchers on April 14.

"We probably had our best turnout ever and this was the issue that was discussed," says society president Daniel Simeone. "People are really worried about how they will be able to make ends meet."

The tax change will affect about 25% of PDFs in Canada, or about 1,500 people, many of whom are from other countries. Of those 1,500, Simeone says some 23%, are located in Quebec. At McGill, where the average fellowship is worth $38,000, this means a $4,100 tax increase.

"The sudden imposition of this tax hit will be detrimental to individuals who are working as postdocs, but also to the research innovation strategy that the government has been trying to follow," says Simeone. "Postdocs do some of the most important basic research that takes place in Canadian universities. This is a very poorly thought through change."

He adds that Canada needs a "clear national research strategy in which postgrad research, graduate research and university research are viewed as important for driving Canada's knowledge economy forward."

Graduate student associations from the country's 13 most research-intensive universities will be discussing the issue when they meet at Laval Univ April 22-24. Simeone says they will also work with the Fédération étudiante universitaire du Québec to lobby at the provincial and federal levels for more support for postdoctoral research.

Opposition MPs have also entered the debate, accusing the government of giving with one hand — with $45 million over five years for 140 new PDFs valued at $70,000 each — and taking away by ending the tax exemption.

"We are supposed to be encouraging research and innovation," Dartmouth Liberal MP Michael Savage told Parliament April 13. "In this move, we are telling post-doctoral fellowship students to go look at the United States where the tax regime is better and the funding is stronger."

Nicolas Dufour, the Bloc MP from Repentigny, told the House March 23 that, "This decision runs the risk of creating a brain drain as well as discouraging leading-edge research."

A postdoctoral crisis in Canada?

A national survey of 1,192 PDFs released last year by CAPS describes postdocs in Canada as poorly defined apprentice scientists who have "slipped between the cracks" of the scientific workforce.

"As such, PDFs generally do not have well defined expectations of employment, appropriate employment rights and responsibilities, commensurate or even normalized pay scales, performance evaluations, employment benefits such as proper health care, pensions, occupational health insurance, or procedures for resolving conflict. To date, the treatment of PDFs within Canada is inconsistent at best, and largely ignored, at worst," states the report, A postdoctoral crisis in Canada: From the "Ivory Tower" to the Academic "Parking Lot".

The CRA decision comes at a time when Canada needs to increase its number of PhD graduates and postdoc fellows. A recent Conference Board of Canada report on Canada's education and skills performance gave the country a "D" grade for producing relatively few "high-end" graduates with PhDs compared with 16 other developed countries.

The debate over adequate compensation for postdoc scholars has raged for years in the US. President Barack Obama's 2011 budget proposes a 6% increase to postdoc base stipends received from the National Institutes of Health, from $37,740 to $45,000.

"Yet here in Canada, the budget gave a 15-20% pay cut to 25% of all postdocs," says Stanford.

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