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  • Scholarship payments and tax

    Scholarship payments you receive or that are made on your behalf as a full-time student at a school, college or university may be exempt income. Exempt income is an amount or payment that you:

    • don't pay tax on
    • don't need to include in your tax return as income.

    Many scholarship payments are exempt income. If your scholarship is not exempt, you need to include it as income in your tax return. Use this information to work out if your scholarship payment is either wholly or partially assessable or exempt income.

    On this page:

    What is a scholarship?

    When we say 'scholarship' we mean the following types of payments:

    • a scholarship
    • a bursary
    • an educational allowance
    • educational assistance.

    A scholarship can be a one-off payment, or a series of payments over one or more years as either:

    • an amount of money you receive
    • a payment made on your behalf.

    Scholarship payments help you with your educational expenses or other requirements. For example, payments may include:

    • offsets for tuition fees
    • a regular amount for general living costs – such as travel or boarding
    • allowances to cover particular costs – such as uniforms and textbooks.

    Scholarship money comes from any number of sources such as a university, government, a business or an individual philanthropist. You might receive your scholarship payment directly from the source or through an administrator which is often your university.

    Your scholarship agreement will set out:

    • the amounts you receive
    • when you will receive payments
    • any conditions that apply to continue to get the scholarship
    • what you can spend the money on (in some cases).

    You generally apply for a scholarship by submitting an application. It is usually granted on merit or some process involving specific criteria.

    A scholarship is not a loan. There are no repayment requirements.

    Example: scholarship arising from charitable bequest

    Jenny is a full-time student doing an undergraduate degree. She applies for and wins the 'Fearless Journalist' award. This gives her fortnightly payments over the course of her degree which she uses to pay for her HECS-HELP debt and text books.

    The 'Fearless Journalist' award is from investment income that comes from capital donated in the Will of Jack Jones. The payments go to the most meritorious applicant in the journalist course at Williams University, who shows the most potential to succeed in fearless journalism.

    The money Jenny receives for the award is a scholarship.

    End of example

    Is my scholarship exempt income?

    For a scholarship payment to be exempt income it can't:

    • be an excluded government payment (Austudy, Youth Allowance or ABSTUDY)
    • come with a requirement for you to do work (either as an employee or contract for labour, now or in the future).

    You must also meet both of the following conditions:

    Your scholarship provider may be able to tell you if your scholarship is exempt or assessable income. In some cases, they will already have sought advice from us.

    Next step:

    Work requirement

    Your scholarship payment is not exempt income if, as a condition of the scholarship, you work or will work in the future for the person or organisation funding the scholarship. This includes work as an employee or under a contract for labour. It will also include work that is done without a contract or any other form of legal relationship.

    Example: requirement to work as employee – not exempt income

    Henry receives a Delilah Limited scholarship for university students. The scholarship has certain conditions. The payments are conditional on Henry achieving a minimum grade each semester. Henry must submit a copy of his academic record to Delilah Limited each semester.

    There may also be a requirement for Henry to complete paid vacation employment with Delilah Limited during the scholarship term. The scholarship payment depends on him working under the terms set out by Delilah Limited.

    If Henry completes his studies successfully, Delilah Limited may offer him a position. If Henry does not accept the position, he may need to repay some or all of the scholarship. Delilah Limited also has the right of first refusal should Henry need to do other work experience as part of his course.

    The scholarship payments are not exempt income. Henry may need to become Delilah Limited’s employee, at their discretion, for a period set out in the scholarship agreement.

    End of example

    Full-time student at a school, college or university

    For your scholarship payment to be exempt income you must be studying full-time at a school, college or university. You do not need to be physically at the school, college or university but must be studying a full-time load.

    Example: part time university study – scholarship payment not exempt

    Kirra receives a scholarship from her local government. The scholarship is available to women in their second or third year of study who are doing a science degree at a local university.

    Under the scholarship agreement, Kirra receives $1,000 to assist her to pay for education expenses.

    Kirra studies part-time.

    Even though Kirra is doing a university degree, her scholarship payments are not exempt income because she is not studying full-time.

    End of example

    Educational purposes

    For your scholarship payment to be exempt income, it must be provided to you principally for educational purposes. This includes education at a place of learning such as a university campus or a full-time degree provided online, and can also include a component of work experience.

    Work experience at the premises of an organisation is for your education as long as your education is the most important factor for the work experience (and not the output you are producing). If you are working alongside employees and producing outputs that a similarly experienced employee or contractor would produce, your scholarship would generally not be considered as being provided principally for educational purposes.

    Example: work experience requirement as part of the course – exempt income

    The AAA University has a veterinary course that requires all students to complete work experience with a qualified practitioner as part of the course's qualification requirements.

    A select number of students in the course receive a scholarship from the university. The scholarship payments go to students throughout the length of the course, including when students do their work experience.

    The students gain work experience from their participation at the practitioner's clinics in a six-month period. Students do not provide normal vet services to the owners of the animals.

    The scholarship payments are exempt because they are provided principally for educational purposes.

    End of example

     

    Example: scholarship requires work experience – exempt income

    Megan receives a vacation scholarship from her university funded by WalesCo, an external organisation. A panel consisting of representatives from both the university and WalesCo, select the scholarship recipient.

    Under the scholarship agreement, Megan receives four equal payment instalments over two years. In return, she must complete 10 weeks of professional vacation work experience with WalesCo each year. Megan can select when she will carry out the work experience and the hours she will attend. She rotates between departments within WalesCo to give her an insight and enable her to observe and learn from the various projects WalesCo undertakes.

    The scholarship agreement states there is no requirement for Megan to become an employee of WalesCo, and nor is Megan an employee. She remains enrolled in full-time study during the time she is doing the work experience.

    Megan’s scholarship is exempt income. The benefit of Megan’s work is limited (both by time, and is not concentrated on one project).This demonstrates that WalesCo is not engaging Megan for her work output, but to assist her in her education by providing work experience.

    End of example

     

    Example: company sponsored PhD study – not exempt income

    Diego resigns as an employee of Alpha Co to do a full-time study course. He is completing research for a PhD which involves an area in which Alpha Co has a commercial interest. Diego had been part of a team working on this project before resigning.

    Diego applies for and wins a research scholarship that Alpha Co funds. The scholarship administration is done by the university. The university pays weekly support for Diego during his study.

    Diego works alongside Alpha Co's current employees. Alpha Co's expectation is for him to produce the same output and contribute in the same way as those employees.

    Diego's weekly support payments are not exempt income. The scholarship is not provided principally for educational purposes. Instead Alpha Co benefits from his participation as Diego is producing outputs that an employee or contractor with similar experience would produce while he is completing his PhD.

    End of example

    Scholarship payments specifically exempt from tax

    The following education and training payments are specifically exempt from tax. You don't need to include these in your tax return.

    • Payments under a Commonwealth scheme for assistance of secondary education or the education of isolated children.
    • Grants from the Australian-American Educational Foundation –the Fulbright Commission.
    • Endeavour research fellowships and Executive Awards.

    Scholarship payments and your tax return

    If your scholarship is taxable:

    • you need to show your scholarship amount as assessable income in your tax return
    • you should advise your scholarship provider that your scholarship is assessable income for tax purposes.

    The scholarship provider may need to withhold tax from your periodic payments depending on:

    • the information you provide on your tax file number (TFN) declaration
    • the amount paid to you.

    If your scholarship is not taxable:

    • you don't include your scholarship amount as assessable income in your tax return
    • you should advise your scholarship provider
      • that your scholarship is exempt income
      • they don't need to withhold tax from your periodic payments.
       

    See also:

      Last modified: 15 Apr 2021QC 65302