ATO ID 2006/39: Assessability of a scholarship received by an Australian resident from a Swiss university
Date of decision: 30 January 2006
Year of income: Year ending 30 June 2006
Business line: Public Groups and International

Issue
Is the scholarship income received by an Australian resident taxpayer from a Swiss university assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The scholarship income received by an Australian resident taxpayer from a Swiss university 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 resident of Australia for income tax purposes. The taxpayer was a resident of Switzerland immediately before visiting Australia. The taxpayer undertakes full-time studies in Australia. The taxpayer receives scholarship income from a Swiss University. The taxpayer is in Australia for the purpose of their studies and to be with their spouse. The taxpayer intends to reside in Australia permanently.

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 scholarship 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 income from a scholarship. 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 15 to the Agreements Act contains the tax treaty between Australia and Switzerland (the Swiss Agreement) and the Protocol. The Swiss Agreement and Protocol operate to avoid the double taxation of income received by Australian and Swiss residents. Article 20 of the Swiss Agreement provides that where a student who was a resident of Switzerland immediately before visiting Australia, and who is temporarily present in Australia solely for the purpose of their education, receives payments from sources outside Australia for the purpose of maintenance or education, those payments shall be exempt from tax in Australia. The taxpayer intends to live permanently in Australia. Therefore, Article 20 of the Swiss Agreement does not apply, as the taxpayer is not temporarily present in Australia solely for the purpose of their eduction. As the taxpayer is a full-time student at a university, the scholarship income received by the taxpayer is exempt income under section 51-10 of the ITAA 1997. Accordingly, the scholarship income 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) subsection 6-15(2) section 6-20 section 11-15 section 51-10 section 51-35
Subject references: Double tax agreements Exempt income International tax Scholarships, fellowships & bursaries Switzerland