Edited version of your private ruling

Authorisation Number: 1012610728217

Ruling

Subject: Foreign income

Question 1

As an Australian resident engaged on a Postdoctoral Fellowship overseas, are you required to lodge your tax return in Australia by your usual due date and include the allowances you will receive while overseas in your assessable income at Question 20?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2014

Relevant facts and circumstances

You were born in Country Z and immigrated to Australia as an adult.

You are currently holding a permanent resident visa and will apply for citizenship in the near future.

You are currently renting accommodation and plan to buy your own home in Australia within the next few months.

You are a full-time lecturer at an Australian university.

You have been awarded an overseas fellowship for a two-year period but you plan to take up the position for only one year.

You will be on leave from your Australian employment during your time overseas but still affiliated with your Australian employer.

Once the overseas fellowship finishes you will come back to resume your Australian employment.

You will remain an Australian resident for taxation purposes while overseas.

During your stay overseas you will receive stipends and allowances from the organisation that offered the fellowship.

The organisation does not deduct tax from stipends and allowances as they do not consider the money to be 'earned income'. This is confirmed in the documentation provided to you by the associated Australian organisation through which you applied for the fellowship.

The research to be carried out overseas will be purely academic without commercial components. This is a cooperative research project that contributes to the advancement of research in the overseas country and Australia.

The documentation also states that fellows may not engage in other work, neither paid nor unpaid, during their tenure.

As a fellow you will receive:

• a round-trip air ticket (based on the organisation's regulations);

• a monthly maintenance allowance;

• a settling-in allowance; and

• overseas travel accident and sickness insurance coverage.

To be eligible to apply for the fellowships you must be an Australian citizen or Australian permanent resident at the time of applying. If you were not born in Australia you were to provide proof of Australian citizenship or Australian permanent residency.

The fellowship awardees (fellows) and their host researchers must submit two research reports: an interim report at the 12-month juncture of the fellow's tenure, and a final report within one month of completion of the tenure and provide a copy to the Australian associated organisation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 960-50

Reasons for decision

Assessable income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that the assessable income of a resident of Australia includes ordinary income derived directly or indirectly from all sources in or out of Australia.

Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation but the courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts.

The main characteristics that have evolved from case law include receipts that are:

• received periodically and regularly

• relied upon or expected

• earned, and

• for the replacement of income

Research grants are generally assessable. For example, amounts paid under a postgraduate research scholarship granted to a PhD student by a university out of funds provided by the Asthma Foundation were not exempt as the Foundation financed the scholarship on the condition that the student would analyse, collate and prepare for publication the findings of a respiratory survey conducted on behalf of the Foundation (Federal Commissioner of Taxation v. Hall 75 ATC 4156).

You will be receiving monthly 'stipends'. The meaning of stipend in the Macquarie Online Dictionary is fixed or regular pay; periodic payment; salary.

This regular payment that you will be receiving while on leave from your regular employment in Australia falls within the meaning of ordinary income and must be included in your Australian tax return.

As an Australian resident you are required to lodge your tax return by your due date and you remain entitled to the full tax-free threshold.

All income must be translated to Australian dollars

Under the general translation rule, all tax-relevant amounts that are denominated in a foreign currency must be translated into Australian currency. The general translation rule applies regardless of whether the foreign income is remitted to Australia or not.

You can translate an amount into Australian currency using an exchange rate that is an average of the exchange rates applicable during a period (which may be less than, but not exceeding, 12 months) chosen by you.

However, an average rate cannot be used unless the average rate is a reasonable approximation of the exchange rates that would otherwise be applicable if you had used spot rates each time you receive your monthly foreign income. You should consider whether the use of an average rate is reasonably likely to approximate the use of spot rates. For example:

1. Maria is an Australian resident who receives a foreign age pension from Italy. The pension is paid to her fortnightly in Euros. Maria may translate her total assessable Italian pension amounts for the income year by using an average annual exchange rate. She does not have to translate the pension into Australian dollars at the exchange rate prevailing at each time the pension payment is received.

2. Veronica receives a fortnightly British age pension. While the pension is paid in pounds sterling, the Australian bank into which her pension is paid converts her pension payments into Australian dollars at the time of each payment. Veronica chooses to translate her assessable British pension into Australian dollars using the rate applied by her Australian bank. That is, Veronica adds up the Australian dollar value of her pension as converted by her bank, rather than choosing to use an average annual exchange rate.

Average rates are published to the Australian Tax Office (ATO) website. Alternatively, you can use appropriate exchange rates provided by a banking institution operating in Australia including, where relevant, the banking institution through which your foreign income is received. You can also use rates published by another reliable external source. The rate used and the source of rates should be kept with your records.

Lodging tax returns from outside Australia

As you will be overseas during the lodgment period, but continue to be an Australian resident for taxation purposes, you should make the following lodgment arrangements:

• lodge online using e-tax;

• download the Tax return for individuals from our website and send your tax return to us by post from overseas to:

Australian Taxation Office

GPO Box 9845

SYDNEY  NSW  2001

Australia

• have an Australian tax agent lodge your tax return; or

have a friend or family member lodge a tax return on your behalf. You need to complete a Power of Attorney if the friend or family member signs the tax return on your behalf.

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