USA – Australia F-1 Tax Treaty
Article 20 of the US – Australian Tax Treaty provides that, when a resident of Australia goes to the USA for the purpose of full-time education, the United States may not tax payments received by the student for the purpose of his maintenance or education from sources outside of the United States.
Under the Australia-US Treaty, students are covered under Article 20. Payments are exempt from tax if the source is outside the United States and are for the purpose of the individual’s maintenance, education or training. The individual must be in the USA for the purpose of pursuing full-time education or training.
Q: Kasey, an Australian is a part-time student at University of Denver – Colorado. She receives payments from Australia that cover her tuition and accommodation. Are these payments taxable in the US?
A: Yes – The provision specifies that the student must be present in the USA for the purpose of full-time education or training. Kasey is only part-time and would not fall under Article 20 of the Australia-US Treaty.
Q: Kasey, an Australian is a full-time student at University of Denver – Colorado. She chose to study at University of Denver – Colorado because she was offered an Athletic scholarship. Under the Australia-US Treaty, will Kasey be subject to tax by the US on this scholarship?
A: Yes – The provision states that any payments made to a student must arise from a source outside the United States.
According to the IRS, Payments of scholarships, fellowships, and grants paid to U.S. citizens and resident aliens are not reportable to the IRS and are not generally subject to withholding of tax. However, payments of taxable scholarships, fellowships, and grants to nonresident aliens are reportable to the IRS and are subject to withholding of U.S. Federal income tax.
What are taxable scholarships, fellowships, and grants?
All amounts paid to nonresident aliens in the form of scholarships, fellowships, grants, and financial aid, which are not excludible from gross income as a “Non-Taxable or Qualified Scholarship” under I.R.C. 117 must be reported to the IRS, regardless of the amount paid, unless the grant is from sources outside the United States.
A non-taxable scholarship is an amount received as a scholarship grant that covers tuition, fees, books, supplies and equipment required for instruction at the education institution
A Taxable scholarship is an amount issued for any other purpose, including travel, room, board, research, etc. The taxable (nonqualified) portion of a scholarship or fellowship paid to an Australian Student is subject to Federal income tax withholding at a rate of 14% or higher.
***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**