Edited version of your written advice

Authorisation Number: 1012710434252

Ruling

Subject: Fellowship

Question 1

Is the Fellowship assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for expenses incurred in engaging in the overseas travel?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts

You are employed full time as a professional.

You were awarded a Fellowship and departed for overseas for approximately X weeks.

You received the fellowship in the relevant financial year.

You travelled on your own.

Some of the expenses were incurred in the 2014-15 financial year.

The Fellowship provides all recipients with their base salary while they are overseas. Recipients are on unpaid leave for the duration of their Fellowship, although they receive their salary as a lump sum prior to departure. Recipients will receive financial assistance to cover the cost of course fees, living allowance, travel expenses and other costs deemed necessary to successfully complete the course or research; such as family travel and accommodations costs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) includes amounts called ordinary income in the assessable income of a taxpayer. Pursuant to subsections 6-5(2) and (3) ordinary income is included in the assessable income of a taxpayer when it is derived by that taxpayer.

Ordinary income is generally considered to include:

• Amounts received in return for personal services, whether received in the capacity of an employee or otherwise;

• Amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540).

In your case, you have applied for the Fellowship. Under the fellowship you will receive an amount for the purpose of providing you financial assistance while travelling to the foreign country.

While you are not receiving the fellowship in return for your personal services, it is considered that the fellowship is income according to ordinary concepts as it is intended to cover expenses that you will incur during the course of the fellowship and will be used for your maintenance.

The fellowship 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.

Section 51-10 of the ITAA 1997 provides, subject to some exceptions, that a scholarship, bursary education allowance or educational assistance payment is exempt from income tax if it is paid to a full time student at a school, college or university.

As the fellowship is not to be paid to you in your capacity as a full time student studying at a school, college or university, it will not be exempt under this provision.

No other exemption provision is relevant in your circumstances. Therefore, your fellowship amount is assessable income in the relevant financial year.

Deductibility of work related expenses

Section 8-1 of the ITAA 1997 allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income. However, no deduction is allowed where the losses or outgoings are capital, or are of a capital, private or domestic nature or another provision prevents the taxpayer from deducting it.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

In your case, it is accepted that the study tour enhanced the knowledge and skills that you require to perform in your current employment duties. Consequently, the expenses you incurred in undertaking the study tour have the necessary and relevant connection with the earning of your assessable income and are therefore deductible.