ATO Interpretative Decision

ATO ID 2007/10 (Withdrawn)

Income Tax

Assessability of foreign income received by an Australian resident performing research in the USA
FOI status: may be released

This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.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 ATOID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008/2009 income year.

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

Status of this decision: Decision Withdrawn 25 March 2011

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the income received by an Australian resident taxpayer from an Australian research institution while conducting research in the United States of America (USA) assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The income received by an Australian resident taxpayer from an Australian research institution while conducting research in the USA is not assessable under subsection 6-5(2) of the ITAA 1997 as the income would be exempt under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is a resident of Australia for tax purposes.

The taxpayer is the recipient of a four year fellowship offered by an Australian resident research institution.

The taxpayer will be working on research projects in the USA for the first two years and the remaining two years in Australia.

The taxpayer will receive a salary from the research institution including an accommodation and cost of living allowance whilst in the USA.

The taxpayer is not considered to be a student for the purpose of the fellowship.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and allowances for the research fellowship award are ordinary income for the purpose 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 an 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 2 and 2A of the Agreements Act contain the Double Tax Convention (the US Convention) and Protocol respectively between Australia and the United States of America. The US Convention and Protocol operates to avoid the double taxation of income received by Australian and US residents.

Article 15(1) of the US Convention provides that salary and wages derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in the USA. If the employment is exercised in the USA then the income may be taxed in the USA.

Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the salary received by the taxpayer is not exempt from tax in the USA under Article 15(1) of the US 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, income (including the accommodation and cost of living allowance) received whilst performing research in the USA will not be assessable under subsection 6-5(2) of the ITAA 1997. However income received performing research in Australia will be assessable under subsection 6-5(2) of the ITAA 1997.

Date of decision: 16 January 2007

Year of income: Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010

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

Income Tax Assessment Act 1997
   section 11-15
   subsection 6-5(2)
   subsection 6-15(2)

International Tax Agreements Act 1953
   section 4
   Schedule 2
   Schedule 2A
   Schedule 2, Article 15(1)

Related ATO Interpretative Decisions
ATO ID 2005/154
ATO ID 2005/258

Keywords
Double tax agreement
Exempt income
Foreign income
International tax
Scholarships, fellowships & bursaries
United States of America

Business Line: International Centre of Expertise

Date of publication: 19 January 2007

ISSN: 1445-2782

history

	Date:	Version:
	16 January 2007	Original statement
You are here →	25 March 2011	Archived

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