ATO Interpretative Decision
ATO ID 2002/815
Income Tax
Assessable income - non resident taxpayer - visiting scholar's grantFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 visiting scholar's grant paid to the taxpayer to assist with living and other expenses on their appointment as an honorary fellow, assessable income pursuant to subsection 6-10(5) of the Income Tax Assessment Act 1997 ('ITAA 1997')?
Decision
Yes. The visiting scholar's grant paid to the taxpayer to assist with living and other expenses on their appointment as an honorary fellow is assessable income pursuant to subsection 6-10(5) of the ITAA 1997.
Facts
The taxpayer is a resident of a foreign country and is a non resident of Australia for taxation purposes.
Australia does not have a double tax agreement with the foreign country.
The taxpayer was appointed as an honorary fellow with an Australian University.
As part of the appointment, the taxpayer was provided with a visiting scholar's grant of a set amount paid fortnightly. This amount was paid to assist the taxpayer with their living and other expenses.
The taxpayer's role at the Australian University was training and research.
The taxpayer was not a full time student at the Australian University.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes ordinary income derived directly or indirectly from all Australian sources during the income year.
Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Paragraph 3 of Taxation Ruling IT 2639 defines income from personal services as:
'... income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour.'
Other characteristics of income that have evolved from case law include receipts that:
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- are earned;
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- are expected;
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- are relied upon; and
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- have an element of periodicity, recurrence or regularity.
The taxpayer was provided with a visiting scholar's grant of a set amount paid fortnightly in order to assist the taxpayer with living and other expenses.
The payments are not 'earned', as they do not directly relate to any services performed. Although the payments have the element of regularity this is not sufficient to characterise the payments as income according to ordinary concepts. Therefore, the payments are not assessable as ordinary income under section 6-5 of the ITAA 1997.
However, section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income are also included in assessable income. These amounts are called statutory income and are included as assessable income under provisions in relation to assessable income.
Paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the value of all allowances, gratuities, compensation, benefits etc. given or granted in respect of employment or services rendered are included in assessable income.
Therefore, an allowance under paragraph 26(e) of the ITAA 1936 is included in assessable income under section 6-10 of the ITAA 1997.
Paragraph 2 of Taxation Ruling TR 92/15 states that:
'A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.'
The taxpayer was paid a fortnightly payment to assist them with their living and other expenses. The amount was not paid to reimburse the taxpayer for expenses actually incurred. Therefore, the amount is an allowance under paragraph 26(e) of the ITAA 1936 and is included in assessable income under section 6-10 of the ITAA 1997.
In determining the liability to tax on Australian sourced income received by a non-resident, it is necessary to consider not only the income tax laws, but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).
The Agreements Act contains agreements that Australia has with other countries for the prevention of double taxation. The provisions of the Agreements Act will generally override the Australian domestic law, to the extent that there is an inconsistency between the two. In many cases, these agreements provide that income is exempt from tax in the country of source if the taxpayer's visit is for teaching or research and does not exceed 2 years.
However, as Australia does not have a double tax agreement with the taxpayer's country of residence, no such exemption is provided.
Therefore, the visiting scholar's grant given to assist the taxpayer to meet living and other expenses associated with the taxpayer's appointment as an honorary fellow is assessable under subsection 6-10(5) of the ITAA 1997.
Date of decision: 23 May 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 6-5(3)
section 6-10
subsection 6-10(5)
paragraph 26(e) International Tax Agreements Act 1953
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Related Public Rulings (including Determinations)
Taxation Ruling TR 92/15
Taxation Ruling IT 2639
ATO ID 2002/447
ATO ID 2002/206
Keywords
Foreign income
Non resident individuals
Scholarships, fellowships & bursaries
ISSN: 1445-2782