Edited version of private advice

Authorisation Number: 1051782442961

Date of advice: 26 November 2020

Ruling

Subject: Scholarship income

Question 1

Is the income you received from the scholarship assessable?

Answer 1

No

Question 2

Can you claim a deduction for the amount you have paid for course fees?

Answer 2

No

Question 3

Can you claim deductions for the cost of ink and stationery?

Answer 3

No

Question 4

Can you claim a deduction for depreciation of your laptop over an effective life of 2 years?

Answer 4

No

Question 5

Can you claim a deduction for the cost incurred for travel?

Answer 5

No

This ruling applies for the following periods:

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You are a full-time student currently completing your Honours year at university. The purpose of undertaking an honours year is to enable you to develop a body of knowledge in a specific context as further preparation to undertake professional work and/or as a pathway for master's degree or Doctorate in the future.

You have received a scholarship to complete your studies. The scholarship provides you with an amount which covers your fees for the year of study. This amount is paid in two equal instalments to your bank account at the commencement of each semester. You are expected to successfully complete each semester.

This scholarship is provided by the university at which you are studying and a government body. The purpose of the scholarship is to support research into the challenges and opportunities associated with regional economic development, innovation and entrepreneurship. You will be embedded with the local government body and required to work on your research out of one of their offices two days per week.

For the last few months, you have been based out of the relevant office of the local government body X days per week. Prior to this, you were not able to attend the office due to COVID restrictions. You must also report to your research supervisor at your university.

You have a meeting each fortnight where you update the local government body on the progress of your research. While at their office, you have no employment duties as such but are required to work on your research. You are jointly supervised by the CEO and another staff member.

At the end of your first semester of the honour's year, you were required to provide a one-page progress report and preliminary findings to the Scholarship Office at your university.You must present your research findings to your university, and a final one-page report to the Scholarships Office. You will also provide a lay person's version of your thesis to industry groups and community at the completion of your research. Neither you nor the local government body retain any rights to the intellectual property (research) that you complete during you honours year.

You have spent amounts on the following items that are related to the scholarship:

•         Course fees

•         Ink and stationery

•         A new laptop

•         Travel to the Office of the local government body

You expect to graduate at the completion of your honour's year.

Relevant legislative provisions

Income Tax Assessment Act section 6-5

Income Tax Assessment Act section 6-10

Income Tax Assessment Act section 8-1

Income Tax Assessment Act section 51-10

Income Tax Assessment Act section 51-35

Reasons for decision

Summary

The income you received from your scholarship is exempt income and will not form part of your assessable income. As a result, you are unable to claim any outgoings in relation to this income. The first requirement of section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) is that an expense must have been incurred in the gaining or producing of your assessable income. Where income is exempt, it will not be assessable and therefore no outgoings can be claimed in relation to such income.

Detailed reasoning

Scholarship income

Subsection 6-5(2) of the 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.

Where you receive an amount that is exempt income, you do not include this in your assessable income (section 6-15 of the ITAA 1997).

As a general rule, money received from scholarships is ordinary income. However, section 51-10 of the ITAA 1997 provides that, subject to some exemptions and special conditions, 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 the scholarship to be exempt from income tax:

•         you must be a full-time student at a school, college or university;

•         you must receive a scholarship and the scholarship must be provided principally for educational purposes; and

•         there must be no condition that you be an employee of the scholarship provider or enter into any contract with the scholarship provider that is wholly or principally for labour.

You are a full-time student enrolled at a university, thereby satisfying the first requirement for an exemption from income tax.

To satisfy the second requirement, a scholarship must be provided for educational purposes. A scholarship will be provided for educational purposes where it is provided for the act of acquiring knowledge or skill through experience, research, practice, study or instruction. You are receiving the scholarship to enable you to acquire knowledge and to undertake research. The scholarship you receive is therefore provided principally for educational purposes.

To satisfy the third requirement, a scholarship must not require you to enter into any contract with the scholarship provider that is wholly or principally for labour. A condition of receiving the scholarship is that at the end of your year of study, you must present a thesis to your university. You will also present a report of this thesis written in laypersons terms, and understandable by those in the industries relevant to your research. This version will be presented to relevant industries and the community.

You are also required to provide a progress report at the end of the first semester of study and a final one-page report at the completion of your year of study to the Scholarships Office of your university. In addition, you are required to provide a thesis as outlined above.

Although you are required to report to the CEO of the local government body, you are not an employee.Once you complete your year of study, you are not required to enter into a contract for employment.The scholarship is provided by the local government body and the university, with you carrying out research at the local government body a few days a week. You have not entered into and will not enter into a contract principally or wholly for your labour with the university or the local government body. As outlined above, you participate in the honour's year for the principal purpose of education.

Although the local government body and the university receive some benefit from your research, the primary purpose of you completing your honour's year is to enable you to develop a body of knowledge in a specific context as further preparation to undertake professional work and/or as a pathway for a Master's degree or Doctorate in the future.

As you have met the relevant requirements for a scholarship to be exempt income, the amount you received to pay your university fees is therefore exempt income.

Course fees

In relation to claiming deductions, the first requirement is that an outgoing must have been incurred in the earning or production of your assessable income.As the scholarship payments are exempt income and therefore non-assessable, you are unable to deduct any amounts in relation to the receipt of scholarship income.

Printer ink and stationery costs, laptop depreciation and travel

As outlined above, you cannot claim a deduction for outgoings incurred in relation to exempt income. Therefore, none of these deductions are allowed.