ATO Interpretative Decision

ATO ID 2005/154 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008-09 income year, provided that the income was derived on or after 1 July 2004 from which time the 2003 United Kingdom Convention applied.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the research fellowship award payments received by an Australian resident taxpayer from an Australian research institution while conducting research in the United Kingdom (UK) assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The research fellowship award payments received by an Australian resident taxpayer from an Australian research institution while conducting research in the UK are not assessable under subsection 6-5(2) of ITAA 1997 as they are exempt under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an Australian resident for income tax purposes and is employed by an Australian resident research institution as a Research Fellow.

The research institution provides a research fellowship award to the taxpayer for four years.

The taxpayer conducts research at a university in the UK for the first two years. The taxpayer conducts the research at an Australian institution for the remaining two years.

The taxpayer receives monthly research fellowship award payments which include an overseas accommodation allowance from the Australian resident research institution.

The taxpayer is not a full-time student.

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.

Research fellowship award payments are 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 it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the ITAA 1936 which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that, where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as of employee and 'foreign earnings' includes income consisting of earnings, salary, wages and allowances (subsection 23AG(7) of the ITAA 1936).

However subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed. One of the listed reasons is where the income earned by the resident in the foreign country is made exempt by the operation of a double tax agreement (paragraph 23AG(2)(b) of the ITAA 1936).

Therefore, 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 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one.

Schedule 1 to the Agreements Act contains the double tax convention and notes between Australia and the United Kingdom of Great Britain and Northern Ireland (the 2003 UK Convention). The 2003 UK Convention operates to avoid the double taxation of income received by Australian and UK residents.

Article 14(1) of the 2003 UK Convention provides that salaries, wages and other similar remuneration derived by a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in the UK. If the employment is exercised in the UK, such remuneration as is derived from that exercise may be taxed in the UK.

Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the research fellowship award payments received by the taxpayer are not exempt from tax in the UK under Article 14(1) of the 2003 UK Convention.

Subsection 23AG(1) of the ITAA 1936 will apply as the taxpayer is engaged in foreign service for a continuous period of not less than 91 days and is in receipt of foreign earnings.

Accordingly, the research fellowship award payments received by the taxpayer while conducting research in the UK will not be assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ending 30 June 2005 Year ending 30 June 2006 Year ending 30 June 2007

Legislative References:
Income Tax Assessment Act 1936
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(b)
   subsection 23AG(7)

Related ATO Interpretative Decisions
ATO ID 2001/218

Keywords
Double tax agreement
Exempt income
Foreign income
International tax
Scholarships, fellowships & bursaries
United Kingdom

Business Line:  Public Groups and International

Date of publication:  3 June 2005

ISSN: 1445-2782