ATO ID 2005/53: Superannuation Guarantee Scheme and scholarships
Date of decision: 1 September 2004
Year of income: Year ended 30 June 2004
Business line: Superannuation

Issue
Does the entity, an Australian University, have an obligation under the Superannuation Guarantee (Administration) Act 1992 (SGAA) to make superannuation contributions on 'industry based learning scholarships' paid by the entity to students?

Decision
An entity does not have an obligation under the SGAA to make superannuation contributions on 'industry based learning scholarships' paid by it to students.

Facts
Scholarships (industry based learning scholarships) are offered by the entity, an Australian University, to full-time students who are enrolled at the University and undertaking a course of study within the relevant faculty. There are certain conditions that must be satisfied by a student of the University in order for the student to be eligible for a scholarship. One of those conditions is that the student must undertake training within the industry relevant to the student's coursework. The scholarship, which is paid by the University to the student, is funded by the relevant industry-based organisation. Each student awarded a scholarship is to undertake a placement with the industry-based organisation for a prescribed time period. The industry-based organisation is under no obligation to employ any student either during the scholarship or after its completion. The stipend of the scholarship is paid fortnightly to the student by the University in his or her capacity as a student. The payments made under the scholarship are not made on the condition that the student will become an employee of either the University or the industry-based organisation. The industry based organisation does not make any direct payments to the student.

Reasons for decision
Summary: An obligation to make contributions under the SGAA arises when there is an employer-employee relationship within the meaning of the SGAA. The terms 'employer' and 'employee' are defined in section 12 of the SGAA. Relevantly, subsection 12(1) of the SGAA states that 'employer' and 'employee' have their ordinary meaning. At general law, the relationship between an employer and an employee is a contractual one, or otherwise known as a 'contract of employment'. Ordinarily, an employer is a person or entity that engages another to perform work or provide services or labour under the contract. The person who performs the work or provides the services or labour is otherwise known as the employee. The consideration or remuneration that the employee receives for working under such a contractual arrangement is generally referred to as 'salary or wages'. Subsection 12(3) of the SGAA extends the definition of employee to include a person who receives payment under a contract wholly or principally for labour. In the circumstances of this case, the relevant students enrolled at the University are engaged in a course of study with the University on a full-time basis. Some of the students undertaking this course of study may be eligible for a scholarship. Each student awarded a scholarship must undertake a work placement of a certain duration with an organisation in the industry relevant to the student's coursework. The stipend of the scholarship is paid to the student by the University in his or her capacity as a student. There is no evidence that the students are engaged in employment with the University nor is it a condition of the scholarship that a student engages in employment with the University. Having regard to these facts, it is considered that there is no employer/employee relationship between the University and students who are offered a scholarship. The awarding of the scholarship does not alter the status of the student into that of an employee of the University. The student is not performing any work or services for the University under a contract of employment nor are they working under a contract wholly or principally for their labour. The payments under the scholarship relate solely to the student's course of study and do not constitute salary or wages. Accordingly, the University will not have an obligation under the SGAA to make superannuation guarantee contributions on the scholarship awarded to the students.

Legislative references: Superannuation Guarantee (Administration) Act 1992 subsection 12(1) subsection 12(3)
Related public rulings and determinations: Taxation Ruling 2023/4
Subject references: Scholarships, fellowships & bursaries Superannuation guarantee scheme