ATO Interpretative Decision

ATO ID 2001/552

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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.

Legislative References:
Income Tax Assessment Act 1936
   section 170
   subsection 170(3)

Case References:
Case J20
   (1958) 9 TBRD 109

Related Public Rulings (including Determinations)
IT 2623

Related ATO Interpretative Decisions
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

Business Line:  Small Business/Individual Taxpayers

Date of publication:  26 October 2001

ISSN: 1445-2782