ATO Interpretative Decision
ATO ID 2001/552 (Withdrawn)
Income Tax
Repayment of an assessed study grantFOI status: may be released
-
Since the enactment of section 59-30 of the ITAA 1997, this ATO ID no longer reflects the ATO view on this matter.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the repayment of a study grant by a taxpayer to their employer, excised from the taxpayer's assessable income under section 170 of the Income Tax Assessment Act 1936 (ITAA 1936) in the year that the study grant was assessed?
Decision
Yes, the repayment of a study grant by a taxpayer to their employer is excised from the taxpayer's assessable income under section 170 of the ITAA 1936 in the year that the study grant was assessed.
Facts
The taxpayer was employed as a marketing consultant. The taxpayer was offered a grant by their employer to study overseas. The taxpayer undertook the study and the grant was included in the taxpayer's assessable income in the income year in which it was received. Under the terms of the grant the taxpayer was required to complete 12 months service upon return from the overseas study or they would have to repay the grant. During the subsequent income year the taxpayer was offered a job 'too good to refuse' and resigned their employment prior to the expiration of the 12 month period. The taxpayer entered into an arrangement with the former employer to repay the amount due.
Reasons for Decision
The study grant is assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) in the year in which it is received ((1958) 9 TBRD Case J20; 7 CTBR (NS) Case 130; and (1958) 9 TBRD Case J60; 8 CTBR (NS) Case 50). The fact that the receipt may have to be repaid if certain events subsequently occur does not affect the character of the receipt (Case A59 69 ATC 334; 15 CTBR (NS) Case 34).
The repayment of the study grant is not an allowable deduction under the general deductions provisions in section 8-1 of the ITAA 1997 as it is not incurred in the course of earning or deriving assessable income ((1958) 9 TBRD Case J20; 7 CTBR (NS) Case 130; and (1958) 9 TBRD Case J60; 8 CTBR (NS) Case 50). The repayment is an amount paid for breach of contract ((1958) 9 TBRD Case J60; 8 CTBR (NS) Case 50; and (1963) 14 TBRD Case P20; 11 CTBR (NS) Case 58).
The study grant was therefore correctly assessed in the year of receipt, and the taxpayer is not entitled to claim a deduction in the year of repayment of the grant.
However, the Assistant Treasurer announced on 1 August 2001 a proposed amendment to the taxation law to allow a taxpayer who has to repay assessable income to seek an amended assessment for the year in which that income was originally included in their tax return. The amendment will not apply to repayments that are an allowable deduction or where the recipient is otherwise compensated for the amount to be repaid (for example, where the person receives a personal injury compensation amount from which sickness benefits have to be repaid). The amendment applies to the 1996-97 and later years of income.
The Commissioner will exercise his administrative powers to give immediate effect to the Government's announcement.
Taxation Ruling IT 2623 gives effect to the Commissioner's decision by allowing the amount of study grant which is repayable to be excluded from the assessable income of the year in which the grant was originally assessed. This is subject to meeting the requirement of IT 2623A (an addendum to IT 2623) that the amount has been repaid, or an arrangement is in place to repay it.
A taxpayer may seek an amendment of the tax assessment in which the study grant was assessed, subject to the 4 year time limit for amendments set by subsection 170(3) of the ITAA 1936. For the 2000-01 and future income years, the time limit is 2 years if the taxpayer is a shorter period of review taxpayer.
The taxpayer has entered an arrangement to repay the amount due and is therefore able, subject to the statutory time limits, to excise the amount from the assessable income of the year in which it was assessed.
Date of decision: 5 October 2001
Legislative References:
Income Tax Assessment Act 1936
section 170
subsection 170(3)
section 6-5
section 8-1
Case References:
Case J20
(1958) 9 TBRD 109
7 CTBR (NS) 838 Case J60
(1958) 9 TBRD 308 Case 50
8 CTBR (NS) 250 Case P20
(1963) 14 TBRD 97 Case 58
11 CTBR (NS) 355 Case A59
69 ATC 334 Case 34
15 CTBR (NS) 219
Related Public Rulings (including Determinations)
IT 2623
ATO ID 2001/38 ATO ID 2001/548
Other References:
Assistant Treasurer's Press Release No.34, 1 August 2001
Keywords
Amendment of assessments
Deductions and expenses
Employee allowances
Employee bonuses
Employment contracts
Salary & wages income
Repayment
ISSN: 1445-2782
| Date: | Version: | |
| 5 October 2001 | Original statement | |
| You are here | 1 December 2003 | Archived |