ATO Interpretative Decision
ATO ID 2001/81
Income tax
Deductions: scholarship payments made by a non-profit organisationFOI status: may be released
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Please note: This ATO ID was withdrawn in error on 21 October 2005. This error was corrected on 21 October 2005 and this ATO ID has been current since its release.
This ATO ID was amended to clarify title, the reasons for decision and update case references.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a non-profit association claim the payment of sponsorships, awards and scholarships as allowable deductions against interest income?
Decision
No. The payment of sponsorships, awards and scholarships are not deductible against interest income derived by the non-profit organisation.
Facts
A non-profit association has paid various sponsorships, awards and scholarships for the benefit of its members.
The funds to pay these amounts have been derived from interest earned from the investment of bequests from members.
Reasons for decision
The legislative requirements for general deductions are set out in section 8-1 of the Income Tax Assessment Act 1997 . The first requirement is that expenditure must be an outgoing incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income. The expenditure must have the necessary and relevant connection with the operation or activities which directly gain or produce assessable income (Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; Federal Commissioner of Taxation v. DP Smith (1981) 147 CLR 578; (1981) 11 ATR 538; 81 ATC 4114; Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431).
Non-profit organisations not formed with a profit making purpose, but operating for the benefit of its members will generally be taxable non-profit organisations. Some examples of this are body corporates, social clubs, professional associations, and political parties.
The assessable income of non-profit organisations such as this organisation essentially consists of interest, dividends or other income derived from the investment of moneys held in its funds or income from activities directly involving the public. Deductions for expenditure incurred are only allowed in respect of expenses relating directly to the gaining of such assessable income (e.g., bank fees).
The scholarship and award expenses are not deductible, as they are not incurred in gaining or producing assessable income of the non-profit association. The payment of sponsorships, awards and scholarships is not relevant or necessary to earning income from the investment of moneys bequeathed by members.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 21 December 2018 | Issue, Decision | Minor rephrasing of question and answer |
| Reasons for decision | Spelling error corrected
New paragraph inserted regarding non-profit organisations operating for the benefit of their members. |
|
| References | References to IT 2084 and IT 2505 removed, and reference to TR 2015/3 inserted. | |
| 27 May 2016 | Throughout | Amended to update references and other minor amendments. |
Legislative References:
Income Tax Assessment Act 1997
section 8-1
Case References:
Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation
(1956) 95 CLR 344
(1956) 11 ATD 147
(1981) 147 CLR 578
(1981) 11 ATR 538
81 ATC 4114 Ronpibon Tin v Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 8 ATD 431
Related Public Rulings (including Determinations)
TR 2015/3
Keywords
Advertising and promotion expenses
Associations, organisations and societies
Deductions and expenses
Prizes and awards
Scholarships, fellowships and bursaries
Date reviewed: 17 December 2018
ISSN: 1445-2782
| Date: | Version: | |
| 29 March 1999 | Original statement | |
| 27 May 2016 | Updated statement | |
| You are here | 21 December 2018 | Updated statement |