Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Commonwealth education or training payments
Summary of the amendments
The amendments ensure the existing tax treatment of Commonwealth payments to students is not disturbed. The amendments do not change the existing requirement, as it has applied since 1951, that payments must not be received on condition that the student will (or will if required) render, or continue to render, services to the provider if they are to be tax exempt. The amendments also correct an omission from the Bill relating to bereavement payments made to youth training allowance recipients.
The amendments apply from 1 July 1996.
Background to the amendments
Income derived by way of a scholarship, bursary or other education assistance is presently exempt under paragraph 23(z) of the Income Tax Assessment Act 1937 (the Act) provided the recipient is ot required to render services to the provider. Certain Commonwealth payments are specifically excluded from this exemption.
The Bill as originally drafted inadvertently removed the exempt status under paragraph 23(z) of the Act of certain other Commonwealth payments, such as post graduate research awards funded under the Higher Education Funding Act 1988 , because of the scope of the term Commonwealth education or training payment introduced by the Bill. It was not the Government's intention that such a change occur.
The term Commonwealth education or training payment covers payments of youth training allowance. Broadly, bereavement payments made in connection with youth training allowance are presently exempt from tax. The provisions had unintentionally been omitted from the original Bill.
Explanation of the amendments
Amendment 1 substitutes a new definition of Commonwealth education or training payment. In relation to payments made to students, the new definition only includes within its scope those Commonwealth payments that are specifically not exempt under the current tax law. This will ensure that the existing treatment of Commonwealth payments to students is not disturbed.
The opportunity has also been taken to make clear that payments which flow from the Commonwealth to the recipient through a third party (such as `sponsor organisation' under a Commonwealth labour market program) are covered by the definition of Commonwealth education or training payment. This is achieved by the words "...or in connection with a payment by the Commonwealth" in the new definition.
Amendments 3 and 5 are consequential to amendment 1. The narrowing of the meaning of the term Commonwealth education or training payment means that the range of Commonwealth payments to students which qualify for the beneficiary rebate, or in respect of which supplementary amounts are exempt and the balance assessable, is unchanged. Accordingly, the insertion of the requirment that payments must not be received on condition that the student will (or will if required) render, or continue to render, services to the provider in order to qualify for the rebate and supplementary amount exemption concessions is unnecessary. The amendments remove the requirement.
Amendment 2 reinstates subsections 24ABZE(3) amd 24ABZE(4) of the Act as new subsections 24ABZE(4) and (5) and Amendment 4 reinstates subsections 24ABZF92) to 24ABZF(5) of the Act. These provisions broadly provide for the exemption from tax of bereavement payments made where the partner of a youth training allowance recipient dies. The provisions had unintentionally been omitted from the original Bill.