Edited version of your written advice

Authorisation Number: 1013087774111

Date of advice: 12 September 2016

Ruling

Subject: Research grant from Country A

1. Is the income you receive from Country A while you are a temporary resident of Australia considered assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

2. Is the income you received from Country A received while you are a temporary resident of Australia considered non-assessable non-exempt income under section 768-910 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

January 20XX

Relevant facts and circumstances

Your country of origin is Country A and you are a citizen of Country A.

You receive your salary from the University of X, Country A.

You are sponsored by an Australian University, as a visiting academic.

You are working as an Academy Research Fellow

The University provides you with an office, computer and internet access.

The university regards you as a visitor and not a student.

You arrived in Australia in early 20XX and intend to stay for the duration of the research project.

You were issued with the following visa:

Temporary Work (class GC) training and Research (subclass 402) visa

You are not an Australian resident within the meaning of the Social Security Act 1991.

You do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Relevant legislative provisions

Subsection 6-5(1) of the Income Tax Assessment Act 1997

Subsection 6-5(2) of the Income Tax Assessment Act 1997

Subdivision 768-R of the Income Tax Assessment Act 1997

Subsection 995-1(1) of the Income Tax Assessment Act 1997

International Tax Agreements Act 1953 Schedule 25

Reasons for decision

Income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes all the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Under subsection 6-5(3) of the ITAA 1997 a foreign resident is assessable on all ordinary income derived directly or indirectly from all Australian sources.

In determining whether an amount is ordinary income, the courts have established the following principles:

• whether the payment is the product of any employment, services rendered, or any business

• whether the payment is expected

• the character of the payment in the hands of the recipient

• whether the payment is received as a lump sum or periodically; and the motive of the person making the payment, although this is rarely decisive by itself.

In your case, the payments you were awarded and receiving on a regular basis is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 for the following reasons:

• The payments you are receiving are a product of the research-related activities and service you are providing at place A

• You will be receiving payments on an expected regular basis

• The payment is not considered a gift

• The payments to you are relied upon by yourself and your dependants while you are in Australia on the twelve month research project

Source of Income

The following three factors are taken into account when determining the source of salary and wage income:

• place of performance of the work;

• place of making the employment contract; and

• place of payment.

Usually, the source of salary and wage income is the place in which the work is performed. The leading authority is the High Court decision of FC of T v. French (1957) 98 CLR 398; 7 AITR 76; 11 ATD 288 in which Williams J made the following statement:

• The locality of the source of income derived from personal exertion in the capacity of employee or in relation to any service rendered surely must be where such personal exertion took place.

As the place in which your work is performed is in Australia, accordingly your salary has an Australian source.

International tax agreement between Australia and Country A

Salaries, wages and other similar remuneration derived by a resident of Country A in respect of employment shall be taxable in Country A and only, unless the employment is exercised in Australia. If the employment is exercised in Australia, the remuneration from employment in Australia may be taxed in Australia.

However, notwithstanding the above statement a resident of Country A shall be taxable in Country A only if:

(a) the recipient is present in the Australia for a period or periods not exceeding 183 days in total in any 12 month period commencing or ending in the year of income of Australia, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia, and

(c) the remuneration, is not borne by a permanent establishment which the employer has in Australia.

As you are present in Australia for more than 183 days, the international tax agreement between Australia and Country A does not prevent your salary from being taxed in Australia.

Temporary Residency

An individual will be a temporary resident of Australia as defined in subsection 995-1(1) of the ITAA 1997 if they:

• hold a temporary visa granted under the Migration Act 1958.

• are not an Australian resident within the meaning of the Social Security Act 1991, and

• do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder.

A temporary 402 visa is a visa granted under the Migration Act 1958.

As you meet all the criteria, you are a temporary resident.

Foreign source income exemption for temporary residents

The foreign source income exemption for temporary residents, contained in Subdivision 768-R of the ITAA 1997, provides for an exemption from income tax in Australia from 1 July 2006 for most foreign income derived by residents of Australia who also qualify as temporary residents.

Section 768-910 of the ITAA 1997 provides that a temporary resident of Australia is not assessable for Australian tax on foreign income, which is classed as non-assessable non-exempt income. However, 768-910(3) of the ITAA 1997 states that ordinary income derived directly or indirectly from a source other than an Australian source to the extent that it is remuneration for employment undertaken, or services provided, while you are a temporary resident is not classed as non-assessable non-exempt income.

The payments you are receiving are ordinary income (as discussed above) and remuneration for employment or services provided by you as a temporary resident. Therefore, the payments will not be exempt from income tax in Australia as the income is not considered to be non-assessable non-exempt income and therefore is assessable income in Australia.

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