Edited version of your written advice

Authorisation Number: 1012719506988

Ruling

Subject: Fellowship

Question

Is the Global Fellowship assessable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You are a senior lecturer.

You applied for and were awarded a Fellowship.

Under the eligibility requirements, applicants must hold a position outside the country of the fellowship provider to which they were expected to return at the conclusion of the fellowship.

Fellowships are awarded to candidates who have already demonstrated outstanding scholarly achievement and exhibit unusual intellectual promise but are still at the beginning of their careers.

You and other faculty members associated with the program were expected to present and discuss your research at weekly seminars.

You received your full salary from your employer during this time.

You were not required to publish or disseminate your research. You were also not required to submit an official report at the end of the fellowship.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 51-10

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) includes amounts called ordinary income in the assessable income of a taxpayer. Pursuant to subsections 6-5(2) and (3) ordinary income is included in the assessable income of a taxpayer when it is derived by that taxpayer.

Ordinary income is generally considered to include:

• Amounts received in return for personal services, whether received in the capacity of an employee or otherwise;

• Amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540).

• Taxation Ruling IT 2612 deals with the assessability of fellowship monies received from an overseas university. Essentially this ruling embraces the principle that the assessable income includes all payments incidental to an employment, whether they come from the employer or from somebody else, and are obtained as a right or merely as a recognised incident of the employment or work. Where the payment is sufficiently connected with the income earning activities of the taxpayer, it is more correctly characterised as income.

The Commissioner issued IT 2612 in response to the decision in Case V135, 88 ATC 855 as the Commissioner considered that the decision in this case was incorrectly decided as the Tribunal did not make any reference in its reasons to the decision in Kelly v. FC of T 85 ATC 4283; 16 ATR 478 (Kelly's Case).  

In Kelly's Case, Franklyn J said that in his opinion the payment to the taxpayer was directly related to his employment by the club as a footballer. In considering the nexus between the employment and the benefit, his Honour referred to the joint judgment of Dixon CJ and Williams J in FC of T v. Dixon (1952) 86 CLR 540 at p.556 where it was said: 

'it is clear that if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognised incident of the employment or work.'

IT 2612 contends that the taxpayer in Case V135 was primarily able to apply for and to secure the fellowship because she was a member of the academic staff of her home university and, that as a result, the fellowship payments were incidental to that employment.  

Franklyn J said in Kelly's Case at p. 4288 

'The fact that it was open to any player in the league to win the medal and the money was obvious and recognised, and in my view was a fact incidental to the employment of such players.'

Other requirements were that applicants had to submit an application addressing specific selection criteria.

You received the Fellowship for the purpose of providing you financial support to allow you to focus on your research projects, unburdened by teaching and administrative duties. It is considered that you received the award as you satisfied all the criteria and not because of your personal qualities.

Although the payment of the Fellowship was not in return for your personal services, it is considered that the payment is 'income according to ordinary concepts' as it was intended to cover expenses incurred in undertaking the research study. The Fellowship payment is therefore assessable income.

The fellowship will therefore form part of your assessable income unless it is exempted by a provision of either the Income Tax Assessment Act 1936 or the ITAA 1997.

Section 51-10 of the ITAA 1997 provides, subject to some exceptions, that a scholarship, bursary education allowance or educational assistance payment is exempt from income tax if it is paid to a full time student at a school, college or university.

As the fellowship is not to be paid to you in your capacity as a full time student studying at a school, college or university, it will not be exempt under this provision.

No other exemption provision is relevant in your circumstances. Therefore, your fellowship amount is assessable income in the 2013-14 financial year.

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