Edited version of private ruling

Authorisation Number: 1011663510384

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Fellowship

1. Are the allowances you receive from the institution in Country A for undertaking research in Country A assessable?

No.

2. Is the value of a return air ticket from Australia to Country A provided to you by the institution in Country A assessable?

No.

This ruling applies for the following period

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Relevant facts

You are an Australian resident for tax purposes.

You were awarded a fellowship by the institution in Country A to undertake research in Country A.

You undertake research in Country A for a continuous period of more than nine months.

You began the fellowship in the year ended 30 June 2011.

You receive quarterly maintenance allowance and a number of other allowances for undertaking research in Country A.

The institution in Country A provided you with a non-refundable return airfare from Australia to Country A.

You have provided the supporting documents.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 23AG(1)

Income Tax Assessment Act 1936 Subsection 23AG(2)

Income Tax Assessment Act 1936 Subsection 23AG(7)

Income Tax Assessment Act 1936 Paragraph 23AG(2)(b)

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

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 11-15

International Tax Agreements Act 1953

Reasons for decision

Fellowship income

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

Allowances for the research fellowship award are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.

Section 6-15 of the ITAA 1997 provides that if an amount is exempt income it will be excluded from 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 Income Tax Assessment Act 1936 (ITAA 1936) which deals with overseas employment income.

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (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 tax treaty contained in the International Tax Agreements Act 1953 (the 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.

A schedule to the Agreements Act contains the tax treaty between Australia and Country A. The tax treaty with Country A operates to avoid double taxation of income received by Australian and Country A residents.

An article of the tax treaty with Country A provides that salary, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in Country A. If the employment is exercised in Country A then the income may be taxed in Country A.

The allowances you receive are remuneration derived by you for conducting research in Country A.

Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the allowances you receive is not exempt from tax in Country A under Article 14 of the tax treaty with Country A.

As you are engaged in foreign service for a continuous period of not less than 91 days, the income derived from that foreign service will be exempt from tax under subsection 23AG(1) of the ITAA 1936.

Accordingly, the allowances you receive from undertaking research in Country A will not be assessable under subsection 6-5(2) of the ITAA 1997.

Airfare

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

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Paragraph 19 of Taxation Ruling TR 2001/7 defines income from personal services as:

… income that is mainly a reward for an individual's personal efforts or skills (or would be mainly such a reward if it was the income of the individual who did the work).

Other characteristics of income that have evolved from case law include receipts that:

· are earned

· are expected

· are relied upon, and

· have an element of periodicity, recurrence or regularity.

Further, section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income are also included in assessable income. These amounts are called statutory income and are included as assessable income under provisions in relation to assessable income.

In your case, the institution in Country A provided you with a non-refundable return airfare from Australia to Country A. This is not considered to be a reward for personal services, nor is it a payment in respect of services rendered. It is merely an expense paid for by the institution in Country A to enable you to travel to Country A. Therefore, the value of the airfare is not assessable.