ATO Interpretative Decision

ATO ID 2004/274

Income Tax

Assessable income: repayment arrangement - amounts not yet repaid
FOI status: may be released
Status of this decision: Decision Current

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 an amount received by a taxpayer which is subject to a repayment arrangement, but has not yet been repaid, treated as 'not assessable income' under section 59-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. An amount received by a taxpayer which is subject to a repayment arrangement, but has not yet been repaid, is not treated as 'not assessable income' under section 59-30 of the ITAA 1997.

Facts

The taxpayer received a grant to assist them in studying full time. The grant formed part of their assessable income in the income year the payment was received.

The grant was paid subject to certain conditions, one of which was that upon completion of their studies the taxpayer was required to complete a further two years of service with their employer. Failure to satisfy this condition would result in the taxpayer being required to repay the grant.

The taxpayer's circumstances changed and they decided not to return to complete the two years further service.

The taxpayer has agreed to repay the grant in monthly instalments over a period of two years. The taxpayer has made some of these instalment payments in the income year following the year in which the grant was received. The remainder of the amount remains unpaid.

The taxpayer is not entitled to a deduction for any of the amounts repaid or to be repaid.

Reasons for Decision

Subsection 59-30(1) of the ITAA 1997 states that:

An amount you receive is not assessable income, and is not exempt income, for an income year if:

(a): you must repay it; and
(b): you repay it in a later income year; and
(c): you cannot deduct the repayment for any income year.

The first requirement is that the taxpayer must 'repay' the grant. The term repay is not defined in income tax legislation. It is appropriate therefore to look at the ordinary meaning of the term repay.

The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, defines the term as 'pay back (money) ... make payment (to a person) ... make payment'. It follows that the term requires the actual transfer of money rather than merely a promise or requirement to make a payment in the future.

The taxpayer will only satisfy this requirement that they repay the amount, in relation to the amount of the instalments actually paid. For any amounts that are required to be paid, but as yet have not been, the requirement is not satisfied. Therefore these amounts are not treated as 'not assessable income' under section 59-30 of the ITAA 1997.

Note: Section 59-30 of the ITAA 1997 replaced section 22-5 of the ITAA 1997. As the terms of section 22-5 of the ITAA 1997 were identical to those in section 59-30 of the ITAA 1997 this ATO ID has equal application to the operation of section 22-5 of the ITAA 1997.

Date of decision: 20 February 2004

Year of income: Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 22-5
   section 59-30
   subsection 59-30(1)

Other References:
The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne

Keywords
repayments

Siebel/TDMS Reference Number: 3811109

Business Line: Small Business/Individual Taxpayers

Date of publication: 26 March 2004

ISSN: 1445-2782

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).