ATO ID 2005/350: Assessability of an education allowance received by an Australian resident from the Danish Government
Date of decision: 28 November 2005
Year of income: Year ending 30 June 2006
Business line: Public Groups and International

Issue
Is the education allowance received by an Australian resident taxpayer from the Danish Government assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The education allowance received by an Australian resident taxpayer from the Danish Government is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt income under section 51-10 of the ITAA 1997.

Facts
The taxpayer is a Danish citizen. The taxpayer is a resident of Australia for income tax purposes. The taxpayer is undertaking a full-time teaching degree course at a Danish University through the internet. The taxpayer receives an educational allowance from the Danish Government.

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. The educational allowance is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth Law. 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. Section 51-10 of the ITAA 1997 provides an exemption for certain education and training payments. Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that a scholarship, bursary, educational allowance or educational assistance received by a full-time student at a school, college or university is exempt from tax unless the conditions in section 51-35 of the ITAA 1997 apply. Section 51-35 of the ITAA 1997 sets out the various circumstances under which payments to students will not be exempt. None of these circumstances described in section 51-35 of the ITAA 1997 apply to the taxpayer. In determining liability to Australian tax on income received by an Australian resident from a foreign country, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997, so that those Acts are read as one. Schedule 18 to the Agreements Act contains the tax treaty between Australia and the Kingdom of Denmark (the Danish Agreement). The Danish Agreement operates to avoid the double taxation of income received by Australian and Danish residents. Article 20 of the Danish Agreement provides that where a student who is a resident of Australia who is temporarily present in Demark solely for the purpose of their education, receives payments from sources outside Denmark for the purpose of maintenance or education, those payments shall be exempt from tax in Denmark. Article 20 of the Danish Agreement does not apply to the taxpayer as the taxpayer is not temporarily present in Denmark. Article 21 of the Danish Agreement provides that items of income of a resident of Australia which are not expressly mentioned in the Articles of the Danish Agreement shall be taxable only in Australia. However, if such income is derived by a resident of Australia from sources in Denmark, such income may also be taxed in Denmark. As the taxpayer is a full-time student at a university, the educational allowance received by the taxpayer is exempt under section 51-10 of the ITAA 1997. Accordingly, the educational allowance received by the taxpayer is not assessable income under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2) section 6-20 section 11-5 section 51-10 section 51-35
Subject references: Denmark Double tax agreements Exempt income Education payments International tax Scholarships, fellowships & bursaries