ATO Interpretative Decision
ATO ID 2005/350
Income tax
Assessability of an education allowance received by an Australian resident from the Danish GovernmentFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 education allowance received by an Australian resident taxpayer from the Danish Government assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The education allowance received by an Australian resident taxpayer from the Danish Government is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt income under section 51-10 of the ITAA 1997.
Facts
The taxpayer is a Danish citizen.
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer is undertaking a full-time teaching degree course at a Danish University through the internet.
The taxpayer receives an educational allowance from the Danish Government.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
The educational allowance is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth Law.
Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 51-10 of the ITAA 1997, which deals with educational allowances.
Section 51-10 of the ITAA 1997 provides an exemption for certain education and training payments.
Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that a scholarship, bursary, educational allowance or educational assistance received by a full-time student at a school, college or university is exempt from tax unless the conditions in section 51-35 of the ITAA 1997 apply.
Section 51-35 of the ITAA 1997 sets out the various circumstances under which payments to students will not be exempt. None of these circumstances described in section 51-35 of the ITAA 1997 apply to the taxpayer.
In determining liability to Australian tax on income received by an Australian resident from a foreign country, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997, so that those Acts are read as one.
Schedule 18 to the Agreements Act contains the tax treaty between Australia and the Kingdom of Denmark (the Danish Agreement). The Danish Agreement operates to avoid the double taxation of income received by Australian and Danish residents.
Article 20 of the Danish Agreement provides that where a student who is a resident of Australia who is temporarily present in Demark solely for the purpose of their education, receives payments from sources outside Denmark for the purpose of maintenance or education, those payments shall be exempt from tax in Denmark.
Article 20 of the Danish Agreement does not apply to the taxpayer as the taxpayer is not temporarily present in Denmark.
Article 21 of the Danish Agreement provides that items of income of a resident of Australia which are not expressly mentioned in the Articles of the Danish Agreement shall be taxable only in Australia. However, if such income is derived by a resident of Australia from sources in Denmark, such income may also be taxed in Denmark.
As the taxpayer is a full-time student at a university, the educational allowance received by the taxpayer is exempt under section 51-10 of the ITAA 1997. Accordingly, the educational allowance received by the taxpayer is not assessable income under subsection 6-5(2) of the ITAA 1997.
Date of decision: 28 November 2005Year of income: Year ending 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
section 6-20
section 11-5
section 51-10
section 51-35
section 4
Schedule 18
Schedule 18, Article 20
Schedule 18, Article 21
Keywords
Denmark
Double tax agreements
Exempt income
Education payments
International tax
Scholarships, fellowships & bursaries
ISSN: 1445-2782