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Edited version of your written advice
Authorisation Number: 1051276246100
Date of advice: 31 August 2017
Ruling
Subject: University Scholarship for Professional Placement
Question 1
Will the scholarship payments paid be treated as exempt income for tax purposes?
Answer
Yes
This ruling applies for the following periods:
The year ending 30 June 2017
The year ending 30 June 2018
The scheme commences on:
06 February 2017
Relevant facts and circumstances
You are required to undertake work based learning as part of your study
You are a fulltime student (transcript provided)
You have signed a contract for a merit based scholarship as part of your professional placement which is a pre-requisite of the completion of your studies.
The professional placement is for the completion of various related subjects which have been documented.
The scholarship provides no guarantee or obligation with regards future employment
You are currently employed by the University as part of the completion professional development year
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5 (2)
Income Tax Assessment Act 1997 section 6-15
Income Tax Assessment Act 1997 section 51-10
Income Tax Assessment Act 1997 section 51-35
Reasons for decision
A payment or other benefit received by a taxpayer is assessable income if it is:
● income in the ordinary sense of the word (ordinary income); or
● an amount or benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income).
Ordinary income
Subsection 6-5(1) of the ITAA 1997 provides that an amount is included as assessable income if it is income according to ordinary concepts (ordinary income).
Relevant factors in determining whether an amount is ordinary income include:
● whether the payment is the product of any employment, services rendered, or any business;
● the quality or character of the payment in the hands of the recipient;
● the form of the receipt, that is, whether it is received as a lump sum or periodically; and
● the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist.
Payments made by the University Scholarship are considered to be ordinary income as they are periodical payments and are depended upon by the recipient (Federal Commissioner of Taxation v. Ranson (1989) 25 FCR 57; 89 ATC 5322; (1989) 20 ATR 1652).
As the payments are considered to be ordinary income, it is not necessary to consider whether they could also be statutory income.
Exempt Payments
Subsection 6-20(1) of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.
Certain amounts of ordinary income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type listed in the tables in Division 51 of the ITAA 1997.
Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that payments are exempt from income tax if they are made:
● to a full-time student at a school, college or university;
● made by way of scholarship, bursary, educational allowance or educational assistance;
● subject to the exceptions set out in section 51-35 of the ITAA 1997.
Section 51-35 of the ITAA 1997 excludes the following payments from exemption:
● payments by the Commonwealth for education or training;
● payments made on the condition that the student will (or will if required) become an employee of, or enter into a labour contract with, the payer; and
● payments made under a scholarship that is not provided principally for educational purposes.
In your case you are enrolled as a full time student as evidenced by your academic transcript, subject weighting and status at the university. You are currently employed at the university as part of your scholarship under professional placement however; it does not make any guarantee of future employment and is a pre-requisite for completion of your related studies.
The contract you signed is a scholarship agreement with the University is given for the purposes of completion of Academic requirements provided on a merit basis for completion of the professional placement.
Therefore, as you meet the conditions in section 51-35 of the ITAA 1997 your scholarship income is exempt from tax under the provisions of section 51-10 of the ITAA 1997.
ATO view documents
Class Ruling 2004/26
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