Assessable income: repayment arrangement - amounts not yet repaid

Is an amount received by a taxpayer which is subject to a repayment arrangement, but has not yet been repaid, treated as 'not assessable income' under section 59-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. An amount received by a taxpayer which is subject to a repayment arrangement, but has not yet been repaid, is not treated as 'not assessable income' under section 59-30 of the ITAA 1997.

The taxpayer received a grant to assist them in studying full time. The grant formed part of their assessable income in the income year the payment was received.

The grant was paid subject to certain conditions, one of which was that upon completion of their studies the taxpayer was required to complete a further two years of service with their employer. Failure to satisfy this condition would result in the taxpayer being required to repay the grant.

The taxpayer's circumstances changed and they decided not to return to complete the two years further service.

The taxpayer has agreed to repay the grant in monthly instalments over a period of two years. The taxpayer has made some of these instalment payments in the income year following the year in which the grant was received. The remainder of the amount remains unpaid.

The taxpayer is not entitled to a deduction for any of the amounts repaid or to be repaid.

Subsection 59-30(1) of the ITAA 1997 states that:

An amount you receive is not assessable income, and is not exempt income, for an income year if: (a) you must repay it; and (b) you repay it in a later income year; and (c) you cannot deduct the repayment for any income year.

The first requirement is that the taxpayer must 'repay' the grant. The term repay is not defined in income tax legislation. It is appropriate therefore to look at the ordinary meaning of the term repay.

The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, defines the term as 'pay back (money) ... make payment (to a person) ... make payment'. It follows that the term requires the actual transfer of money rather than merely a promise or requirement to make a payment in the future.

The taxpayer will only satisfy this requirement that they repay the amount, in relation to the amount of the instalments actually paid. For any amounts that are required to be paid, but as yet have not been, the requirement is not satisfied. Therefore these amounts are not treated as 'not assessable income' under section 59-30 of the ITAA 1997. Note: Section 59-30 of the ITAA 1997 replaced section 22-5 of the ITAA 1997. As the terms of section 22-5 of the ITAA 1997 were identical to those in section 59-30 of the ITAA 1997 this ATO ID has equal application to the operation of section 22-5 of the ITAA 1997.