Assessability of a research grant from the Danish Government received by a resident for services performed in Australia

Is a research grant received from the Danish Government by a Danish citizen, who is a resident of Australia for income tax purposes, for services performed in Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The research grant received from the Danish Government by a Danish citizen, who is a resident of Australia for income tax purposes, for services performed in Australia is not assessable under subsection 6-5(2) of the ITAA 1997 because Article 19(1) of Schedule 18 to the International Tax Agreements Act 1953 (Agreements Act) makes the research grant assessable only in Denmark.

The taxpayer is a citizen of Denmark.

The taxpayer is a resident of Australia for taxation purposes and for the purposes of Schedule 18 to the Agreements Act.

The taxpayer receives a research grant from the Danish Government for research undertaken at an Australian University on behalf of the Danish government.

The taxpayer became a resident of Australia solely for the purposes of performing the services that are the subject of the research grant.

The research work undertaken by the taxpayer is considered by the Danish tax authorities to involve the discharge of governmental functions on behalf of the Danish Government.

The taxpayer has received advice from the Danish taxation authorities that the grant is only taxable in Denmark in accordance with Article 19 of the Danish Agreement.

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 research grant is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to tax on Australian 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 Agreements Act.

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

Schedule 18 to the Agreements Act contains the double tax agreement between Australia and the Kingdom of Denmark (the Danish Agreement). The Danish Agreement operates to avoid double taxation of income received by Australian and Danish residents.

Article 19(1) of the Danish Agreement provides that remuneration paid by the Danish Government or a political subdivision or local authority of that State to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Denmark. However, such remuneration shall be taxable only in Australia if the services are rendered in Australia and the recipient is a resident of Australia who: (a) is a citizen of Australia, or (b) did not become a resident of Australia solely for the purposes of performing the services.

The taxpayer is an Australian resident who is discharging governmental functions on behalf of the Danish Government in Australia and receives a research grant which is paid by the Danish Government. However, as the taxpayer became a resident of Australia solely for the purposes of performing the services, the research grant is taxable only in Denmark and is not taxable in Australia.

Accordingly the research grant received by the taxpayer from the Danish Government for services performed in Australia is not assessable under subsection 6-5(2) of the ITAA 1997.