ATO Interpretative Decision

ATO ID 2001/168 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it does not accurately reflect the ATO view.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the payments received by the taxpayer under a Rural Health Cadetship (RHC) exempt from income tax under section 51-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The payments received are not exempt under section 51-10 of the ITAA 1997. They are assessable income under section 6-5 of the ITAA 1997.

Facts

The taxpayer spent four years in full time post graduate studies in medicine at an Australian University.

During that time the taxpayer received payments under a RHC which supplemented his or her Austudy income up to a determined amount per year. In accordance with the terms of the cadetship, the taxpayer has taken up duties as a resident medical officer at a country hospital as directed for a determined period of time.

Reasons for Decision

Item 2.1A of the table in section 51-10 of the ITAA 1997 provides that if you are a full-time student at a school, college or university, a scholarship, bursary, educational allowance or educational assistance is exempt from tax, except where an exclusion in section 51-35 applies .

As the taxpayer was a full-time student at an Australian University, he or she satisfies the requirement of Item 2.1A.

Paragraph 51-35(d) of the ITAA 1997 states that a payment to or on behalf of a full-time student, by a person or an authority on the condition that the student will (or will if required) enter into, or continue to be a party to, a contract with the person or authority that is wholly or principally for the labour of the student, is not exempt from income tax under item 2.1A of the table in section 51-10.

Payments under the cadetship were conditional on the taxpayer, upon completion of studies, taking up duties as a resident medical officer in a country hospital as directed. Therefore the cadetship was awarded on the basis that the taxpayer entered into and continued to be a party to a contract that was wholly or principally for the taxpayer's labour as a medical intern. Consequently paragraph 51-35(d) applies and the income is not exempt under Item 2.1A of the table in section 51-10 of the ITAA 1997.

As the amounts received are income according to ordinary concepts and not exempt under any provision of the ITAA 1997, the income will be assessable income under section 6-5 of the ITAA 1997.

Legislative References:
Income Tax Assessment Act 1997
   ITAA 1997 6-5
   ITAA 1997 6-20
   ITAA 1997 51-10
   ITAA 1997 51-35
   ITAA 1997 51-35(d)

Case References:
Federal Commissioner of Taxation v. Ranson
   89 ATC 5322
   (1989) 25 FCR 57
   (1989) 90 ALR 533
   20 ATR 1652

Keywords
Scholarships, fellowships & bursaries

Business Line:  Small Business/Individual Taxpayers

Date of publication:  6 August 2001

ISSN: 1445-2782