Edited version of your written advice

Authorisation Number: 1012805780823

Ruling

Subject: International - foreign allowances

Questions and answers

Is the fixed monthly allowance you receive from an overseas Postdoctoral Fellowship taxable in Australian as assessable income?

Yes.

This ruling applies for the following period

1 July 2014 to 30 June 2015

1 July 2015 to 30 June 2016

1 July 2016 to 30 June 2017

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have accepted an overseas fellowship funded by an overseas group.

The overseas fellowship is to conduct research for a period of 24 consecutive months.

You will receive from the overseas group a fixed monthly allowance, as well as a one off settling in allowance, your airfares and overseas travel insurance.

The overseas group program guidelines state that it provides Fellows with maintenance and other allowances to cover the cost of their stay and travel for the purpose of carrying our research activities overseas.

The overseas fellowship does not constitute employment nor is the allowance considered to be pay or remuneration in the overseas country.

The overseas group do not deduct tax from the allowances as they do not consider the money to be 'earned income'.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 960-50

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that the assessable income of a resident of Australia includes ordinary income derived directly or indirectly from all sources in or out of Australia.

Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation but the courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts.

The main characteristics that have evolved from case law include receipts that are:

• received periodically and regularly

• relied upon or expected

• earned, and

• for the replacement of income

Research grants are generally assessable. For example, amounts paid under a postgraduate research scholarship granted to a PhD student by a university out of funds provided by the Asthma Foundation were not exempt as the Foundation financed the scholarship on the condition that the student would analyse, collate and prepare for publication the findings of a respiratory survey conducted on behalf of the Foundation (Federal Commissioner of Taxation v. Hall 75 ATC 4156).

You will be receiving a monthly 'allowance' from the overseas group. The meaning of allowance in the Macquarie Online Dictionary is a definite sum of money allotted or granted to meet expenses or requirements.

This regular payment that you will be receiving falls within the meaning of ordinary income and must be included in your Australian tax return.

As an Australian resident you are required to lodge your tax return by your due date and you remain entitled to the full tax-free threshold.

All income must be translated to Australian dollars

Under the general translation rule, all tax-relevant amounts that are denominated in a foreign currency must be translated into Australian currency. The general translation rule applies regardless of whether the foreign income is remitted to Australia or not.

You can translate an amount into Australian currency using an exchange rate that is an average of the exchange rates applicable during a period (which may be less than, but not exceeding, 12 months) chosen by you.

However, an average rate cannot be used unless the average rate is a reasonable approximation of the exchange rates that would otherwise be applicable if you had used spot rates each time you receive your monthly foreign income. You should consider whether the use of an average rate is reasonably likely to approximate the use of spot rates. For example:

1. Maria is an Australian resident who receives a foreign age pension from Italy. The pension is paid to her fortnightly in Euros. Maria may translate her total assessable Italian pension amounts for the income year by using an average annual exchange rate. She does not have to translate the pension into Australian dollars at the exchange rate prevailing at each time the pension payment is received.

2. Veronica receives a fortnightly British age pension. While the pension is paid in pounds sterling, the Australian bank into which her pension is paid converts her pension payments into Australian dollars at the time of each payment. Veronica chooses to translate her assessable British pension into Australian dollars using the rate applied by her Australian bank. That is, Veronica adds up the Australian dollar value of her pension as converted by her bank, rather than choosing to use an average annual exchange rate.

Average rates are published to the Australian Tax Office (ATO) website. Alternatively, you can use appropriate exchange rates provided by a banking institution operating in Australia including, where relevant, the banking institution through which your foreign income is received. You can also use rates published by another reliable external source. The rate used and the source of rates should be kept with your records.