Edited version of private ruling

Authorisation Number: 1011649308586

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Ruling

Subject: separate net income

Is any component of the scholarship received by your spouse included in their separate net income for the purpose of calculating your entitlement to a dependent spouse tax offset?

No.

This ruling applies for the following period:

Year ended 30 June 2009

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

Your spouse was a resident of Australia for tax purposes.

Your spouse was in receipt of a scholarship.

The scholarship consists of allowances and a stipend:

· a travel allowance to be used towards the cost of travel to undertake your programme of study

· an establishment allowance to be used towards the cost of other expenses connected with undertaking your programme

· an allowance to be used towards tuition fees, and

· a stipend.

The scholarship contract emphasizes that the stipend component must only be used for the purposes of the Award which are to:

· enable high achieving professionals to further develop their skills and knowledge

· deepen professional engagements between Australia and participating countries

· strengthen mutual understanding between the peoples of Australia and participating countries, and

· build linkages and networks between Australian and participating countries.

This is the only direction that the contract gives regarding how the stipend should be spent.

You have stated that the allowances and stipend are non-taxable.

Your spouse was over the age of 25 years as at 1 July 2008.

Relevant legislation provisions:

Income Tax Assessment Act 1936 Subsection 159J(4)

Income Tax Assessment Act 1936 Subsection 159J(6)

Reasons for decision

Subsection 159J(4) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where a person is otherwise entitled to a dependant tax offset, that tax offset may be reduced in part or in full by the dependants separate net income (SNI).

SNI is not the same as taxable income. SNI is defined as gross income (determined in accordance with ordinary concepts and usages, including salaries, wages, pensions, dividends, business proceeds, trust income and partnership income) less expenses which, in accordance with ordinary accounting and commercial principles, are direct costs against that income.

Income that may be exempt from tax may nevertheless be included in SNI. SNI includes all receipts which have the character of income whether they are liable to income tax or whether there are provisions in the income tax law specifically exempting them from liability.

Payments that are specifically excluded from SNI include the social security family allowance supplement, family allowance, family tax payments, non-benefit parenting allowance, maternity allowance, child disability allowance and domiciliary nursing care benefits (subsection 159J(6) of the ITAA 1936).

Subsection 159J(6) of the ITAA 1936 also provides details of receipts that whilst not being part of a spouse's taxable income may nevertheless form part of SNI. Scholarships (not paid to children, or dependent students under 25) are only mentioned in subparagraph 159J(c)(ii) of the ITAA 1936 and form part of SNI when the amount paid is:

for the purpose of maintenance or accommodation of the dependant in connection with the education of dependant.

In your case, your spouse is in receipt of a scholarship which consists of four components covering:

· a travel allowance to cover expenses incurred travelling to undertake your programme of study

· an establishment allowance to cover other expenses connected with undertaking your programme of study

· an allowance to provide assistance towards the payment of tuition fees, and

· a stipend.

As your spouse is over 25 years of age, only the provisions of subparagraph 159J(c)(ii) of the ITAA 1936 are applicable. However, as none of the scholarship components are paid for the purpose of covering maintenance or accommodation costs, subparagraph 159J(6)(c)(ii) of the ITAA 1936 does not apply.

In conclusion, as the allowances and stipend paid to your spouse as their scholarship are not included in their SNI under subsection 159J(6) of the ITAA 1936 and as you have stated that it is non taxable, the scholarship is excluded from your spouse's SNI and is therefore excluded when calculating your entitlement to a dependant spouse tax offset.