Private ruling: Assessable income - International fellowship payments
Date of advice: 1 June 2019
Published: July 2019
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the funds received from your fellowship assessable income in Australia? | A1: Yes

Relevant facts and circumstances: You have been awarded a fellowship. The fellowship is aimed at researchers who have done a doctorate and who wish to pursue an academic career in country X. The fellowship payments enable scientists to go abroad for a certain period of training and then return to perform their research. A research stay abroad enables such researchers to acquire more in-depth knowledge, increases their scientific independence and enhances their research profile. You receive the funds in two transactions. You say that it is paid to cover your cost of living of you and your unemployed partner. You perform research in Australia at a place that provides research facilities, however they do not pay you. You perform and publish your research in scientific journals. The terms of the fellowship provide that you are not an employee. Prior to receiving the payments you were in Australia and employed for a number of months. In this job your main responsibilities were: · To perform research · Publish research in scientific journals · And give lectures to students. You lived in country X from XXXX to XXXX. You recently bought a property in Australia. You also own properties in country Y. You have bank accounts in Australia which you use for daily use and mortgage for your house. Your partner lives in country Y for the moment. The rest of your family live in country Y. You have bank accounts in country Y. You have no properties or assets in other countries. Your payments have not been taxed in country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 subsection 6-15(2) | Income Tax Assessment Act 1997 section 51-10 | Income Tax Assessment Act 1997 section 51-35

Reasons for decision: Detailed Reasoning - Are you a resident?: Firstly we need to establish that you are a resident of Australia for tax purposes. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: · the resides test, · the domicile test, · the 183 day test, and · the superannuation test. The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - Resides test: The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word ' resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year: · Physical presence in Australia; · Nationality; · History of residence and movements; · Habits and 'mode of life' · Frequency, regularity and duration of visits to Australia; · Purpose of visits to or absences from Australia; · Family and business ties with Australia compared to the foreign country concerned; and · Maintenance of a place of abode. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. In your case, you identify as a non-Australian. Prior to arriving in Australia you lived in country X. Your partner lives in country Y. You may return to country X when you complete the fellowship. However, you intend to live in Australia for a minimum of XX months. You have purchased a house; have a bank account and a mortgage. You were employed in Australia for a few months prior to being awarded the fellowship. You are provided research facilities to perform the scientific research required to meet the requirements for the fellowship. These factors conclude that you are a resident for tax purposes under the resides test from the date you arrived in Australia. | Detailed Reasoning - Assessable income: Subsection 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 three categories, namely, income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: · are earned, · are expected, · are relied upon, and · have an element of periodicity, recurrence or regularity. It is not necessary for all of the above indicators to be present for a receipt to be considered ordinary income. The fellowship payments you have received relate to the research services you are providing. The payments include amounts for your research and living expenses. The fact that you are not employed during the period does not alter the nature of the fellowship payments which is to acquire more in-depth knowledge, increase your scientific independence and enhance your research profile. Furthermore you will be receiving payments on an expected basis and the payments are relied up during your fellowship. Your fellowship payments are regarded as ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. The fellowship payments therefore form part of your assessable income unless it is exempted by a provision of either the ITAA 1936 or the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income it is not included in assessable income. | Detailed Reasoning - Exemption under section 51-10 of the ITAA 1997: Certain amounts of income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type listed in the tables in Division 51 of the ITAA 1997. 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, income received by way of a scholarship, bursary, educational allowance or education assistance by a full-time student at a school, college or university is exempt from income tax. Item 2.5 of the table in section 51-10 of the ITAA 1997 provides that a recipient of a research fellowship under the Endeavour Awards or an Endeavour Executive Award is exempt from income tax. You are not a full time student. Your fellowship payments arenot paid under the Endeavour Awards. Your fellowship payments are not exempt under section 51-10 of the ITAA 1997. There are no other exemptions relevant to your fellowship payments. Therefore your fellowship payments are income that is assessable under subsection 6-5(2) of the ITAA 1997. | Detailed Reasoning - International tax agreements: In determining liability to Australian tax, 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 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that the Acts are read as one. The convention operates to avoid the double taxation of income received by residents of Australia and country X. There is no convention between Australia and country Y Articles within the convention with country X point to the ability for income to be considered in country X in addition to Australia. You are not a student or business apprentice. When you first arrived in Australia you were employed by a place with research facilities. You are not in Australia solely for the purpose of education or training. As your income is not being taxed in Country X the issue of double taxation does not arise. Australia has a taxing right in relation to your fellowship payments under the convention. Therefore, as explained above, your fellowship payments are assessable in Australia.