Edited version of private advice

Authorisation Number: 1052076757245

Date of advice: 2 February 2023

Ruling

Subject: Fellowship income

Question

Are the monthly stipend payments you received from the overseas university fellowship assessable as ordinary income under subsection 6-5(2) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You work as a post-doctoral researcher at several Australian universities.

As encouraged and required by the Australian tertiary education system, early-career researchers have the right and responsibility to apply for research grants and fellowships in order to devote substantial periods of time to full-time research, grow their scientific expertise and international network, develop professional skills, and develop into independent scientific leaders.

In recognition of the importance of advanced research in the life of the scientific community, you applied for a twelve-month research fellowship at an overseas university.

You applied for the fellowship, outlining your special research project.

Your application for the fellowship was successful.

The fellowship agreement states that the fellowship is intended to support postdoctoral researchers and to foster their scientific careers.

The letter you received from the university states that taking advantage of the opportunity will go a long way to advance your own scientific career as well as to contribute to the mission of the university as a whole.

The fellowship agreement states that any results obtained in the course of the fellowship activities shall be made available to the public in appropriate form, for example, through publications using the affiliation of your host professor.

The fellowship agreement describes the fellowship payments as being a 'stipend' subject to the guidelines for fellowship payments payable on the first day of each month. The guidelines describe the value of the fellowship as being a monthly amount.

Due to COVID-19 and personal illness, the start date of the fellowship was postponed.

While you undertook the fellowship, you were engaged in full-time research.

You were not a full-time student at a school, college, or university.

As part of the fellowship, you received a monthly payment. It was to cover the cost of the following:

•         cost of material, for example laboratory equipment

•         travel expenses incurred during conducting the research

•         living expenses

•         health and third-party insurance.

Whilst undertaking research for the fellowship project, you were not employed anywhere else.

The fellowship did not constitute employment in the country of study, and you were unable to access social security services in that country.

The fellowship lump sum was exempt from taxation in that country.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Summary

The monthly stipend payments you received as part of the university fellowship are assessable as ordinary income under subsection 6-5(2) of the ITAA 1997.

Detailed reasoning

Section 6-5(2) of the 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 income from providing personal services, income from property and income from carrying on a business.

Income is said to be earned, expected, and relied upon. In addition, it generally has an element of periodicity, regularity, or recurrence.

Amounts of ordinary income are assessable, unless made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

Gifts

There is no statutory definition of gift in the ITAA 1997. However, the courts have described a gift as having the following features:

•         Transfer of beneficial interest in property

•         Transfer is made voluntarily

•         Transfer arises by way of benefaction and;

•         No material benefit or advantage is received by the giver by way of return

Gifts to an individual because of a person's personal qualities or needs are not income.

An amount of money or transfer of property from one person to another is generally not ordinary income. However, if it can be shown that the money or property was given to another in relation to services or employment provided by the recipient, this will constitute income (Hayes v FC of T (1956) 96 CLR 47).

As stated in FC of T v Squatting Investment Co Ltd (1953) 86 CLR 570, the test of whether a gift is income is whether it is made in relation to some activity or occupation of the recipient of an income-producing character.

To determine whether an amount received is a gift, it is necessary to look at the character of the amount when received by the recipient.

In the decision of Kelly v FC of T 85 ATC 4283 (Kelly's case), the taxpayer received an amount of money from a television station after being awarded a best and fairest medal for playing football. The Court held that he was only eligible to receive the money as a result of his employment by a football club. Were it not for this, he would not have been eligible. Therefore, the money could not be characterised as a gift, given to him because of personal attributes but rather was an incident of his employment as a footballer.

Stipend

The Macquarie Online Dictionary defines a stipend as fixed or regular pay, a periodic payment or salary.

A stipend paid on a periodic basis is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997

Application to your circumstances

You received the monthly stipend to assist with living expenses while undertaking your research project. Although the payments are provided voluntarily, they are only available to those who receive a fellowship from the university. Fellowship applications are further limited to people who are involved in postdoctoral research.

As a result, there is a connection between your labour, skill and the payments. In addition, the payments are regular, recurring and relied upon. They assist you to pay for your expenses while undertaking your study.

The stipend is not provided as a result of personal qualities you possess, but rather to assist with your research, which will also contribute to the mission of the university as a whole.

As outlined in Taxation Ruling IT 2162 Income tax: assessability of fellowship moneys received from an overseas university, where a case has similar facts to V135, the Commissioner will apply the reasons in Kelly's case and the other court decisions considered in that case.

As the stipend you receive is not otherwise exempt under the ITAA 1997, it will be included in your assessable income under subsection 6-5(2) of the ITAA 1997.