Edited version of private advice

Authorisation Number: 1012682262464

Ruling

Subject: Scholarships

Question

Is your work integrated learning (WIL) scholarship exempt from tax under section 51-10 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ending 30 June 2015

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You were awarded a scholarship through your university.

The scholarship was advertised through university's website, following the application there was an interview with a four person panel who determined the scholarship recipient; two representatives from the university and two from the sponsor.

You understand the scholarship to be a vacation scholarship, and interpret the compulsory work experience to be educational in the sense that you are learning in the field relevant to your study. The purpose of a work integrated learning (WIL) scholarship is to enable you to engage in and gain work experience.

Under the Scholarship Agreement, you are required to undertake a minimum period of 10 weeks professional work experience each year during the summer vacation, unless specified otherwise. Failure to meet this or any other condition may result in the repayment of monies you have received in relation to the scholarship.

You completed work experience in 2013, with the sponsor, and are currently completing further work experience in 2014. This took place in two of the organisation's branches, where you were involved in a number of projects.

In 2013, you spent the majority of your time working on a particular project, which the scholarship's advertising was based upon. This was a large project in which a number of people were involved. You consider yourself to have played a key role in contributing to the project.

You were also able to participate in other alternative work opportunities when they arose. This was dependent on what day you were present, as you came only two days a week throughout the university semester.

Since 2013, the project was put on hold and is no longer being worked on. Consequently, in 2014 you have had the opportunity to work on a number of other projects and spend most of your time in another area.

You state that you are not and cannot be required to become an employee of the provider and therefore do not provide labour services.

Under the Scholarship Agreement, you receive two equal monetary instalments per annum, over a two year period.

You are paid by the university. You have so far received three of four payments. You anticipate receiving the fourth and final payment in the coming months.

The scholarship is funded by an external provider to the university. If at any time the sponsor ceases to provide the scholarship funds to the university; the university may terminate the scholarship.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) section 6-5

Income Tax Assessment Act 1997 (ITAA 1997) section 51-10

Income Tax Assessment Act 1997 (ITAA 1997) section 51-35

Reasons for decision

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an amount is included as assessable income if it is income according to ordinary concepts (ordinary income). However, if an amount is exempt, it is not included in the assessable income of a taxpayer

Section 51-10 of the ITAA 1997 provides, subject to some exceptions listed in section 51-35 of that Act, that a scholarship, bursary, educational allowance or educational assistance payment is exempt from income tax if it is paid to a full-time student at a school, college or university.

For the scholarship to be exempt from income tax the taxpayer must be a full time student at a school, college or university, they must be in receipt of a scholarship that is provided principally for educational purposes and there must be no condition that the taxpayer be an employee of the scholarship provider or enter into any contract with the scholarship provider that is wholly or principally for labour.

The continuation of your scholarship is dependent on you completing 10 weeks professional work experience during the summer vacation, as stipulated in your Scholarship Agreement contract. As a recipient of the scholarship, it is a condition that you are available to attend work experience with the sponsor throughout the year, as specified under the successful applicant criteria.

Your scholarship was advertised through the university as an opportunity to be involved with the implementation of the project. In 2013 you were working with a branch that was heavily involved in the project; consequently you also spent a majority of your time on the project. However, the projects or activities you were, and are, able to participate is largely dependent on whatever workday you are with the organisation. As a result, you have experienced a variety of projects and work types within several branches of the organisation.

Given the length of time that you are required to attend work experience with the sponsor is limited to XX days each year, the perceived benefit for the sponsor is limited. In this case, this is indicative of a scholarship that was provided principally for educational purposes - thus section 51-35(e) of the ITAA 1997 has not been met.

Similarly, while your scholarship is conditional on you completing professional work experience with the sponsor, it does not appear that the sponsor's main purpose in providing the scholarship was to have access to what would essentially be another employee. Since you were able to be involved in a number of projects and work types, depending on the type of work being undertaken at the time, the benefit received by the sponsor is largely dependent on whatever activity you were participating in. It does not appear the main motivation in providing the scholarship was to obtain cost effective labour - thus section 51-35 (c) of the ITAA 1997 has not been met.

Given the exemption clauses of section 51-35 of the ITAA 1997 have not been met, your situation meets the conditions required for a scholarship to be exempt. Accordingly, the money received under the scholarship is exempt from tax under section 51-10 of the ITAA 1997.