Exempt income: tax treatment of research income received by visiting Chinese lecturer

Is income received for research conducted in Australia by a visiting Chinese lecturer for less than two years, assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The Chinese lecturer's research income will not be assessable in Australia as it is exempt from Australian tax under Article 20 of Schedule 28 of the International Tax Agreements Act 1953 , to the extent to which it is subject to tax in China.

A university lecturer from China is conducting full time paid research in an Australian university for no more than two years. The research is not for the private benefit of a specific person or persons. The remuneration is paid by the Australian university.

Section 6-5 of the ITAA 1997 includes in assessable income, ordinary income derived from all Australian sources. However, agreements that Australia has with various countries under the International Tax Agreements Act 1953 operate to prevent the double taxation of income.

Section 4 of the International Tax Agreements Act 1953 incorporates that Act with the ITAA 1997 so that both Acts are read as one. The International Tax Agreements Act 1953 effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Article 20 of Schedule 28 of the International Tax Agreements Act 1953 provides that where a professor or teacher who is a resident of China, visits Australia for a period not exceeding two years for the purpose of conducting research at an Australian university, any remuneration the person receives for such research shall be exempt from tax in Australia to the extent to which the remuneration is subject to tax in China. However, remuneration which a professor or teacher receives for conducting research where it is undertaken primarily for the private benefit of a specific person or persons is not exempt.

The Chinese lecturer meets the conditions of Article 20 of Schedule 28 of the International Tax Agreements Act 1953 . The income the lecturer receives for research undertaken is therefore exempt from tax in Australia to the extent to which it is subject to tax in China.