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Edited version of private ruling

Authorisation Number: 1011613530036

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Ruling

Subject: PAYG withholding and scholarship payments

Question 1

Do you have the obligation to withhold Pay As You Go (PAYG) withholding tax from the various scholarships you provide to students?

Answer:

No

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Relevant facts and circumstances

Organisation A offers and funds three types of scholarships.

The scholarships range in value from $150 to $1000 and are offered to students who demonstrate proven abilities in a particular field or potential to achieve success in a particular field.

Each of the three categories of scholarships are awarded principally for education purposes with no terms or conditions that the students enter into a contract of employment.

All of the scholarship recipients are full time students.

The scholarships are purely on a volunteer basis, with no guarantee of future employment with the provider of the scholarship.

Relevant legislative provisions

Income Tax Assessment Act 1997 51-10,

Income Tax Assessment Act 1997 51-35(e) and

Income Tax Assessment Act 1997 6-5(2).

Reasons for decision

PAYG withholding and scholarship payments

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer (section 6-15 of the ITAA 1997).

Item 2.1A of the table in section 51-10 of the ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, income received by way of a scholarship, bursary, educational allowance or education assistance by a full time student at a school, college or university is exempt from income tax.

For a scholarship to be exempt from income tax, a taxpayer must be:

Application to your circumstances

As the recipients of the scholarships satisfy all the above requirements, their scholarship income is exempt from tax and, as such, there is no need for PAYG withholding tax to be withheld from payments made to scholarship recipients.

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