Edited version of your private ruling

Authorisation Number: 1012433887060

Ruling

Subject: Assessability of stipend income

Question and answer:

Is your stipend income exempt from income tax?

No.

This ruling applies for the following periods

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are employed at a university (the University) as an associate on a part-time basis.

You are also enrolled in a postgraduate or higher degree course at the University.

The higher degree course is for a specified period and is related to the research you are undertaking as part of your paid employment at the University.

The letter from the University confirming your acceptance for the higher degree course states that the course is full time.

You signed a three way agreement (the Agreement) with the University and a Cooperative Research Centre (CRC) to participate in a Research Project in exchange for a 'Stipend' and 'Support' to be paid by the CRC.

The Support monies are in the form of a travel and research support account held at the University.

The period of the Agreement is for three years running concurrently with your higher degree course enrolment.

The Agreement describes the degree you are undertaking as being a 'Top-up Scholarship'.

The Agreement states that:

· the University and the CRC have a formal agreement to undertake 'research and development efforts' which include the Research Project you are undertaking;

· the University has made provision for you to participate in the Research Project as an integral part of your higher degree course;

· you are obligated to assign any Intellectual Property you develop, or contribute to, to the University 'and/or' the CRC.

The Agreement states that all Project Intellectual Property (PIP) created, discovered, contributed to or compiled by you as part of the Research Project will be the sole property of the CRC (which may deal with it in such manner as it deems fit), and by signing the Agreement you are irrevocably assigning to the CRC all of your right title and interest in and to any PIP, with the exception of your thesis.

The Agreement states that you will do all things necessary to invest PIP with the CRC, or its nominee, or for the CRC, or its nominee, to register PIP.

The Agreement states that you acknowledge and agree that the annual Stipend paid by the CRC is 'fair and reasonable consideration' for you to make the assignment of PIP.

The Agreement states that the CRC will pay the Stipend to the University which will pay it to you for so long as you are enrolled in the higher degree course and actively participating in the Research Project.

The Agreement states that the CRC is only obligated to pay the Stipend during the period that the CRC is funding the Research Project.

The Agreement states that you acknowledge that the payment of the Stipend is 'fair remuneration' for your contribution to the Research Project and you will not be entitled to a proportion of any income received by the University which has been derived from the commercialisation of any Intellectual Property rights arising from the Research Project.

The Agreement defines 'Intellectual Property' as including all copyright, all rights in relation to inventions (including patent rights), plant varieties, trade marks, designs, circuit layouts and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields and any right to have confidential information kept confidential.

The University has recently informed you that it intends to commence withholding pay as you go (PAYG) tax from your Stipend; however you believe the Stipend is not taxable.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 51-1.

Income Tax Assessment Act 1997 Section 51-10.

Income Tax Assessment Act 1997 Section 51-35.

Reasons for decision

The assessable income of an Australian resident taxpayer includes ordinary income and statutory income derived from all sources during the income year.

Amounts of ordinary income and statutory income are exempt from income tax under section 51-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if the amount is of a type listed in the tables in Division 51, subject to any exception or special condition.

Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that payments are exempt from income tax if:

· they are made to a full-time student at a school, college or university;

· they are made by way of a scholarship, bursary, educational allowance or educational assistance; and

· they are not subject to the exceptions set out in section 51-35.

Section 51-35 of the ITAA 1997 excludes the following payments from exemption:

· payments by the Commonwealth for education or training: paragraphs 51-35(a), 51-35(b) and 51-35(f);

· payments made on the condition that the student will (or will if required) become an employee of the payer: paragraph 51-35(c);

· payments made on the condition that the student will (or will if required) enter into a contract with the payer that is wholly or principally for the labour of the student: paragraph 51-35(d); and

· payments made under a scholarship that is not provided principally for educational purposes: paragraph 51-35(e).

In your case, you are employed at a university as a research associate on a part time basis. You are also undertaking a higher degree course which is directly related to your employment. The university considers your enrolment to be full time. In addition, you have entered into an agreement with the university and a CRC to undertake a research project which directly relates both to your higher university degree and your paid employment. Under the agreement you receive an annual stipend from the CRC which you believe should be exempt from income tax.

As stated above, paragraph 51-35(d) of the ITAA 1997 provides that a payment by way of a scholarship, bursary, educational allowance or educational assistance will not be exempt from tax if it is provided on the condition that the student enters into a contract with the payer that is wholly or principally for the labour of the student. This means that an exemption from tax will not extend to payments, whether termed scholarships or otherwise, which are in effect payments in the nature of remuneration for present or future services.

In your case, one of the conditions of the agreement with the CRC is that any intellectual property you create, discover, contribute to or compile as part of the research project will be the sole property of the CRC. Furthermore, the agreement states that the stipend is 'fair remuneration' for your contribution to the research project and that you acknowledge and agree that the annual stipend paid by the CRC is 'fair and reasonable consideration' for you to make the assignment of the intellectual property to the CRC.

In your case, one of the conditions of the agreement with the CRC is that any intellectual property you create, discover, contribute to or compile as part of the research project will be the sole property of the CRC. The agreement also states that the stipend is 'fair remuneration' for your contribution to the research project and that you acknowledge and agree that the annual stipend paid by the CRC is 'fair and reasonable consideration' for you to make the assignment of the intellectual property to the CRC. Furthermore, the stipend is only payable for the period that the CRC is funding the research project.

Therefore, you are in effect being paid by the CRC to assist in a research project with which the CRC has a direct interest and to provide the CRC with intellectual property. Accordingly, the payment of the stipend is principally for the contribution of your labour to the research project.

Therefore, paragraph 51-35(d) of the ITAA 1997 will exclude your annual stipend from exemption from income tax under section 51-10 of the ITAA 1997.

Your stipend is assessable income for income tax purposes.