ATO ID 2003/135: Assessability of foreign sourced payments made to Australian resident student
Date of decision: 3 February 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Are monthly maintenance payments from sources outside Italy received by an Australian resident taxpayer temporarily present in Italy solely for educational purposes assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. Monthly maintenance payments from sources outside Italy received by an Australian resident taxpayer temporarily present in Italy solely for educational purposes are assessable under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a resident of Australia for income tax purposes. The taxpayer is enrolled as a part-time student at an Australian university. The taxpayer's course of study includes a compulsory work experience component. The taxpayer undertakes the work experience component in Italy through a one year placement with an Italian resident company. The taxpayer receives monthly payments to meet basic living costs from the parent company of the Italian resident company. The parent company is not a resident of Italy.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Subsection 6-5(1) of the ITAA 1997 defines ordinary income to mean income according to ordinary concepts. Subsection 6-15(2) of the ITAA 1997 provides that exempt income is not assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 51-10 of the ITAA 1997 which deals with educational allowances. Item 2.1A of the table in section 51-10 of the ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, amounts received by way of scholarship, bursary, educational allowance or educational assistance by a full-time student at a school, college or university is exempt from income tax. In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that all Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions. Schedule 21 to the Agreements Act contains the double tax agreement between Australia and Italy (the Italian Convention). The Italian Convention operates to avoid the double taxation of income received by Australian and Italian residents. Article 21 of the Italian Convention provides that payments received by an Australian resident taxpayer from sources outside Italy for maintenance or education while present in Italy solely for the purpose of education, will be exempt from tax in Italy. Even though the payments received by the Australian resident taxpayer will be exempt from tax in Italy, the assessability of the payment in Australia needs to be considered. The taxpayer does not meet one of the essential requirements of section 51-10 of the ITAA 1997 for exemption - the taxpayer must be a full-time student at a school, college or university. The monthly maintenance payments are not exempt from income tax under section 51-10 of the ITAA 1997 as the taxpayer is enrolled as a part-time student. The payments received by the taxpayer are income according to ordinary concepts and form part of the taxpayer's assessable income in accordance with subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(1) subsection 6-5(2) subsection 6-15(2) section 11-15 section 51-10 section 51-35
Related ATO interpretative decisions: ATO ID 2001/227
Subject references: Double tax agreements Education payments Exempt income Foreign source income Income International tax Italy Scholarships, fellowships & bursaries