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Edited version of your written advice
Authorisation Number: 1051364846170
Date of advice: 9 May 2018
Ruling
Subject: Exempt Income - Scholarship
Question
Is your scholarship exempt from tax in Australia?
Answer
Yes
Relevant facts and circumstances
You were a Country A resident before traveling to Australia.
You commenced your Postdoctoral Research Fellowship with Institution X in January 201X.
The Postdoctoral Research Fellowship is undertaken for your own personal educational purposes.
You are currently employed by Institution X who are paying 100% of your salary.
Under your Research Fellowship your current duties are research and limited teaching.
Prior to commencement of the Research Fellowship you were awarded a scholarship from a Country A based institution.
The Scholarship awards you 70% of your salary.
Under section two of the scholarship you must not derive any more than 30% of your salary from another source of income.
If more than 30% is earnt, the additional income will be taxed accordingly.
It may also result in a reduction of payments received by the scholarship provider.
You postponed the scholarship to January 201X.
On commencement of the scholarship you will continue your duties as before.
Upon commencement of the scholarship Institution X will reduce their payments to only 30% of your salary.
The scholarship will pay the remaining 70% in two lump sum payments half-yearly for three years.
The scholarship payments will be paid directly into your Country A bank account.
You have no guarantee of employment with the provider or any related entities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
International Tax Agreements Act 1953 (Agreements Act) section 4
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that your assessable income includes income according to ordinary concepts and is called ordinary income. It states that:
(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.
(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
(3) If you are a foreign resident, your assessable income includes:
a. the ordinary income you derived directly or indirectly from all Australian sources during the income year; and
b. other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.
In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
The applicable agreement is the Country A agreement
The Country A agreements is listed in a section of the Agreements Act which state that, subject to the provisions of the Agreements Act, any provision in the Country A agreement has the force of law.
Article 21 of the Country A agreement states:
Where a student, who is a resident of one of the Contracting States or who was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State solely for the purpose of his education, receives payments from sources outside that other State for the purpose of his maintenance or education, those payments shall be exempt from tax in that other State.
You are a student who was a resident of Country A immediately before visiting Australia. You are in Australia solely for the purpose of your education. The payment you will receive from the Country A institution is for the purposes of your maintenance and education. Therefore your scholarship is exempt from tax in Australia. The remaining 30% of your salary paid by Institution X will remain taxable