Assessability of educational grant from Norway paid to resident

Is a grant received by an Australian resident taxpayer from the State Educational Loan Fund (SELF) in Norway assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The grant received by an Australian resident taxpayer from the SELF in Norway is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt under section 51-10 of the ITAA 1997.

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is a Norwegian citizen and a permanent resident in Australia. The taxpayer lives in Australia and has done so for many years.

The taxpayer applied for and received a grant from the SELF in Norway.

The SELF provides grants to pupils in upper secondary schools, and to university and college students. To receive an educational grant for higher education undertaken outside Norway, the applicant must have achieved general study competence and must be enrolled at an educational institution. The education must provide occupational competence in Norway and must be officially approved in the country where studies are taking place.

The taxpayer is a full time student at an Australian university.

The taxpayer is studying for an undergraduate degree.

The grant is paid principally for education purposes.

The grant is not paid on the condition that the taxpayer will become (or will if required), or continue to be, an employee of the SELF or a party to a contract wholly or principally for the labour of the taxpayer.

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 grant 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 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 of 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 various circumstances under which payments to students will not be exempt. None of the circumstances described in section 51-35 of the ITAA 1997 apply to the taxpayer.

In determining liability to Australian tax on foreign sourced income received by a resident, 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 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 23 to the Agreements Act contains the double tax convention and the protocol between Australia and the Kingdom of Norway (the Norwegian Convention). The Norwegian Convention operates to avoid the double taxation of income received by Australian and Norwegian residents.

Article 20 of the Norwegian Convention, which deals with students, is not relevant in this case as the taxpayer is a resident of Australia who is studying in Australia and receiving a grant from Norway.

Article 21(1) of the Norwegian Convention provides that items of income not expressly mentioned in the foregoing Articles of the Norwegian Convention received by a resident of Australia shall be taxable only in Australia. Article 21(2) of the Norwegian Convention further provides that if income is derived by a resident of Australia from sources in Norway, such income may also be taxed in Norway. Therefore, both Australia and Norway may tax the SELF grant.

However, as the taxpayer is a full-time student at an Australian university, the education grant received by the taxpayer is exempt from tax under section 51-10 of the ITAA 1997.