Edited version of private advice

Authorisation Number: 1012622900774

Ruling

Subject: fellowship

Question 1

Are the fellowship payments assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for rent in respect of your home office?

Answer

No.

Question 3

Are you entitled to a deduction for the additional home electricity costs incurred in carrying out the fellowship activities?

Answer

Yes.

Question 4

Where substantiation is kept, are you entitled to a deduction for the travel expenses incurred when away from home overnight for your fellowship activities?

Answer

Yes.

Question 5

Are you entitled to a deduction for meal expenses incurred when not away from home overnight for your fellowship activities?

Answer

No.

Question 6

Are you entitled to a deduction for printing, stationery, computer supplies and secretarial assistance incurred and substantiated for that directly relate to your fellowship activities?

Answer

Yes.

Question 7

Are the expenses incurred for the maintenance of your family an allowable deduction?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• the application for private ruling including

• the relevant web site and

• the Fellowship Agreement and budgeted expenditure.

You are a leading professional. You have worked in this field for several years.

You have been awarded a Fellowship.

You are to receive money that aims to cover your living expenses.

A further amount is available for reimbursement of approved project expenses.

You have agreed to take leave of absence or resign from your current employment and must not engage in any paid activity during the fellowship period. You hope to complete the project within nine months.

The subject for your research relates to your professional field. You will need to travel as part of your fellowship activities.

You expect that a substantial amount of the Fellowship will be expended in travel, accommodation, field trips, secretarial and research assistance and living expenses.

You will provide an interim progress report via personal presentation to the relevant committee at the mid-point of the Fellowship. In addition you will submit a short written report.

You are not a student.

The Fellowship program provides support to individuals who have a proven track record of achievement in their field of expertise.

You are expected to have a distinct, clearly identifiable output at the end of your Fellowship.

Applicants for the Fellowship must be an Australian citizen or permanent resident.

The fellowship is based on the application and selection process.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident 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.

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.

It is not necessary for all of the above indicators to be present for a receipt to be considered ordinary income.

Ordinary income includes amounts received in return for personal services, whether received in the capacity of an employee or otherwise, and amounts received which the recipient relies on for the maintenance of themselves and/or their dependants. This will be so even if the receipt is not directly related to any service provided by the recipient to the donor (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540 (Dixon's case)).

When considering prizes won by professional sportspersons, Taxation Ruling IT 167 states in paragraph 5: "A prize or award won in circumstances where it is an incident of the taxpayer's income producing activities (for example, a 'best player' award won by a professional footballer in a newspaper competition) or where it is part of the proceeds of a business conducted by the taxpayer (for example, a prize won by an author in a literary competition) would have the character of income.

Although you are not a professional sportsperson, the principles outlined in IT 167 are relevant in your circumstances. Rewards will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, rewards that relate to a taxpayers income producing activities will be assessable.

In determining whether a reward, prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account:

n how, in what capacity, and for what reason the recipient received the prize or gift (Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 (Squatting Investment case)

n whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 (Scott's case)

n whether the prize or gift is made voluntarily

n whether the prize or gift is solicited (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 (Hayes' case) and Scott's case)

n whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor (Squatting Investment case)

n the motive of the prize or gift donor (though this factor is rarely decisive in itself) (Hayes' case); and

n whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants (Dixon's case ) and FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661).

In your case, the fellowship is awarded to individuals who have a proven track record of achievement in their field of expertise. The fellowship payments you receive relate to personal services you are providing. The subject of your fellowship research relates to your field of expertise. The funds are designed to cover your living expenses. The fact that you are not employed during the fellowship period does not alter the nature of the payment. The fellowship and your employment are closely related. The fellowship is the product or consequence of your income producing activities. Your fellowship payments are regarded as ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

The fellowship payments 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.

Certain amounts of income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type listed in the tables in Division 51 of the ITAA 1997.

Item 2.1A of the table in section 51-10 of ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, income received by way of a scholarship, bursary, educational allowance or educational assistance by a full-time student at a school, college or university is exempt from income tax.  

You are not a full time student. Your fellowship income is not exempt under section 51-10 of the ITAA 1997.

There are no other exemptions relevant to your fellowship. Therefore your fellowship income is assessable under subsection 6-5(2) of the ITAA 1997.

Allowable deductions

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

A deduction is only allowable if an expense:

n is actually incurred,

n meets the deductibility tests, and

n satisfies the substantiation rules.

Where an expense is reimbursed, no deduction is allowed.

Travel expenses

Expenditure on the daily necessities of life (for example, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

An exception to this is where you are undertaking work related travel and are required to stay away overnight.

In your case, where you travel away from home and stay away overnight for your fellowship activities, the associated travel, accommodation and meal expenses incurred are an allowable deduction.

Please note if your family travel with you, then no deduction is allowable for the portion of their travel expenses. Similarly the costs of maintaining your family are regarded as private expenses and no deduction is allowed.

Please ensure you keep all receipts and relevant records to substantiate all deductible expenses incurred. As you are not an employee and not receiving a travel allowance, you are not able to use the Commissioner's reasonable travel amounts and the exception from substantiation does not apply in your circumstances. Full substantiation is required before any work related expense is claimed.

Home office

Taxation Ruling TR 93/30 examines the deductibility of home office expenses. Where a person maintains an office or study at home for work related activities, a deduction is allowable for the additional running expenses such as electricity used exclusively for work related purposes.

Where an area of a home is considered to be a place of business, a portion of other expenses such as rent may be also an allowable deduction. However, in your case you are not considered to have a place of business. Therefore the costs of rent for your office space are not an allowable deduction.

Printing, stationery, computer supplies and secretarial assistance

A deduction is allowable for the cost of stationery, printing and computer supplies used for income producing purposes. Where such items are also used for private purposes, it is necessary to apportion the expenses.

Therefore, where you use stationery, computer supplies and printing solely for your fellowship activities, then you are entitled to a deduction for the associated costs incurred. Please ensure you keep receipts or relevant substantiation for the costs incurred.

Similarly, the cost of secretarial assistance that is used solely for your fellowship activities is also an allowable deduction.