Draft Taxation Determination

TD 92/D187

Income tax: are overseas students who are in Australia on short-term vocational experience entitled to a tax-free threshold?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 93/223.

FOI status:

draft only - for comment

Preamble

1. As non-residents, overseas students who are in Australia on short-term vocational experience are not entitled to a tax-free threshold. Although each case must be decided on its merits these students are almost always non-residents. Only rarely would a vocational experience student meet the tests of residency set out in subsection 6(1) of the Income Tax Assessment Act 1936. Guidelines on applying these residency tests are set out in IT 2607.

2. Some of Australia's international tax agreements have provisions that specifically relate to students, but these provisions only refer to income derived outside of Australia. There are no provisions in Australia's international tax agreements that provide vocational experience students with a tax-free threshold.

3. As non-residents the vocational experience students have no tax-free threshold and are taxed from the first dollar of income derived in Australia. (Income Tax Rates Act 1986)

Note 1: In this Determination the phrase 'short-term vocational experience' refers to overseas students who are in Australia for periods of 12 months or less on work experience that is related to their overseas course of study. This may also be combined with a holiday in Australia.

Note 2: IT 2268 sets out a general rule to be applied to students attending courses in Australia that extend beyond six months. Although they are studying overseas, these vocational experience students are not studying in Australia. Therefore IT 2268 cannot be applied. Accordingly, even if their stay extends beyond six months these students could not be considered to be residing in Australia under the general rule set out in IT 2268.

Example

Kim, a UK geology student, is in Australia on a vocational exchange scheme. Kim is working in paid employment for three months at a large mine. At the end of this period, Kim spends a further four months holidaying in Australia before going home. As Kim is not residing in Australia in the ordinary sense, Kim is not an Australian resident. Accordingly, Kim will be taxed at non-resident rates from the first dollar of income derived in Australia, i.e. no tax-free threshold applies.

Commissioner of Taxation
29/10/92

References

ATO references:
NO TOW 6

Related Rulings/Determinations:

IT 2268
IT 2607

Subject References:
short-term vocational experience
overseas students
non-residents
tax-free threshold

Legislative References:
ITAA 6(1)
Income Tax Rates Act 1986 Schedule 7, Part II