ATO ID 2002/220: Exemption of summer vacation scholarship income - provided for research
Date of decision: 13 February 2002
Business line: Small Business/Individual Taxpayers

Issue
Is a summer vacation scholarship exempt from tax under section 51-10 of the Income Tax Assessment Act 1997 (ITAA 1997) when the purpose of the scholarship is to enable the recipient to engage in and gain experience in research?

Decision
Yes. A summer vacation scholarship is provided principally for educational purposes when the purpose of the scholarship is to enable the recipient to engage in and gain experience in research and is exempt from tax under section 51-10 of the ITAA 1997.

Facts
The taxpayer, who is undertaking a full-time undergraduate course at a university, was awarded a summer vacation scholarship by the university. The university's stated purpose in providing the scholarship is to assist recipients to engage in and gain experience in research during the university summer vacation period. A member of the academic staff or a post-graduate student supervised the taxpayer's research.

Reasons for decision
Summary: Section 51-10 of the Income Tax Assessment Act 1997 (ITAA 1997) exempts from tax income which a full-time student at a school, college or university receives from a scholarship, bursary educational allowance or educational assistance. However, paragraph 51-35(e) of the ITAA 1997excludes from exemption a payment under a scholarship where the scholarship is not provided principally for educational purposes. In Chesterman v. Federal Commissioner of Taxation (1923) 32 CLR 362 (at 385-6) Isaacs J said that for purposes to be educational they must provide for the giving or imparting of instruction. Rath J in FC of T v. Hall (1975) 5 ATR 450; 75 ATC 4156 held that research conducted under supervision at a university is instructional in character and therefore educational. As the university provided the scholarship to the taxpayer for the purposes of engaging in and gaining experience in research, the scholarship was provided principally for educational purposes. Income provided by the scholarship is therefore exempt under section 51-10 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 51-10 paragraph 51-35(e)
Case references: Chesterman v. Federal Commissioner of Taxation 32 CLR 362
Related ATO interpretative decisions: ATO ID 2002/221 | ATO ID 2002/222
Subject references: Exempt income Scholarships, fellowships & bursaries