Private ruling: Assessable income
Date of advice: 7 February 2024
Published: 2 April 2024
Ruling period: Year ending 20XX-XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Fellowship allowance you received assessable income? | A1: Yes. | Q2: Are you eligible to claim a deduction for the expenses you incurred in relation to the Fellowship? | A2: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are not a student. You are employed as a Principal Research Scientist. You were awarded a Fellowship from the XX Trust. As part of the Fellowship, you travelled to a foreign country for technical development in your field of expertise. As part of your Fellowship, return airfares to the foreign country were provided and you were granted a living allowance to cover expenses such as meals, accommodation, and travel in the foreign country.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Detailed Reasoning - Assessable income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) includes amounts called ordinary income in the assessable income of a taxpayer. Pursuant to subsections 6-5(2) and (3) ordinary income is included in the assessable income of a taxpayer when it is derived by that taxpayer. Ordinary income is generally considered to include: • Amounts received in return for personal services, whether received in the capacity of an employee or otherwise. • Amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540). In your case, you were awarded the XX Fellowship. Under the fellowship you received a payment for the purpose of providing financial assistance to you while travelling to the foreign country. It is considered that the Fellowship is income according to ordinary concepts as it is intended to cover expenses that you will incur during the course of the fellowship and will be used for your maintenance. The Fellowship will therefore form part of your assessable income unless it is exempted by a provision of either the Income Tax Assessment Act 1936 or the ITAA 1997. As the Fellowship was not paid to you in your capacity as a full-time student studying at a school, college, or university, it will not be exempt under this provision. No other exemption provision is relevant in your circumstances. Therefore, your Fellowship amount is assessable income in the 20XX-XX financial year and should be reported as 'other income' in your tax return. | Detailed Reasoning - Deductibility of work-related expenses: Section 8-1 of the ITAA 1997 allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income. However, no deduction is allowed where the losses or outgoings are capital, or are of a capital, private or domestic nature or another provision prevents the taxpayer from deducting it. Taxation Ruling TR 2023/D1 Income tax: deductibility of self-education expenses incurred by an individual , discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge. To claim a deduction for a work-related expense you must meet the 3 golden rules: • you must have spent the money and you weren't reimbursed • the expense must directly relate to earning your income, and • you must have a record to prove it (usually a receipt). If the expense was incurred for both work and private purposes, you can only claim a deduction for the work-related use. In your case, it is accepted that the Fellowship project enhanced the knowledge and skills that you require to perform in your current employment duties. Consequently, the expenses you incurred in undertaking the Fellowship have the necessary and relevant connection with the earning of your assessable income and are therefore deductible.