Private ruling: Exempt income
Date of advice: 26 August 2025
Published: 27 October 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Is the scholarship you receive from the Commonwealth Department exempt income? | A1: No.

Relevant facts and circumstances: You are a full-time student at University A studying Bachelor degree A. On XX XXX 20XX you were formally offered a scholarship under Program A which is offered by a Commonwealth Department. The scholarship will fund you as you undertake and complete full-time study in Program A. The purpose of the scholarship is to assist students studying under Program A, who are willing to work in a state or territory government operated facility in the relevant industry, with the financial costs of undertaking the accredited program. It is a requirement of the scholarship that students remain enrolled in the program on a full time basis until they complete their relevant degree and they are to meet all academic requirements of the program. It is also a requirement of the scholarship that students commit to a defined Obligation that requires them to undertake Eligible Work in an Eligible Setting. This involves undertaking work in a state or territory government operated facility within the industry for a period equivalent to the length of their program (generally 4 years). Students have a period of up to 10 years post-graduation from their program to fulfill the defined Obligation, although they can seek an extension to this period of 10 years. Your agreement schedule details that the scholarship funding is conditional. Should you not comply with the obligations set out in the agreement, including the commitment to work within the industry in state or territory government run facilities, you will be required to repay the scholarship funding in full or part. Your scholarship funding commenced on XX XXX 20XX and is expected to continue until XXX 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 section 6-15 | Income Tax Assessment Act 1997 section 51-10 | Income Tax Assessment Act 1997 section 51-35 | Income Tax Assessment Act 1997 paragraph 51-35(e)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) details that assessable income includes income according to ordinary concepts, which is called ordinary income. Payments received under a scholarship are considered to be ordinary income, except where the scholarship payment amount is considered to be exempt income under section 6-15 of the ITAA 1997. Item 2.1A in the table of section 51-10 of the ITAA 1997 details that an amount paid as a scholarship, bursary, educational allowance or educational assistance to a full-time student at a school, college or university, will be exempt from income tax, subject to the exceptions and conditions listed in section 51-35 of the ITAA 1997. Section 51-35 of the ITAA 1997 provides those payments from item 2.1A in section 51-10 that will not be exempt from income tax. These are: 1) a payment by the Commonwealth for assistance for secondary education or in connection with education of isolated children; 2) a Commonwealth education or training payment; 3) a payment by an entity or authority on the condition that the student will (or will if required) become, or continue to be, an employee of the entity or authority; 4) a payment by an entity or authority on the condition that the student will (or will if required) enter into, or continue to be a party to, a contract with the entity or authority that is wholly or principally for the labour of the student; 5) a payment under a scholarship where the scholarship is not provided principally for educational purposes; 6) an education entry payment under Part 2.13A of the Social Security Act 1991 . Relevant to your circumstances is paragraph 51-35(e) a payment under a scholarship where the scholarship is not provided principally for educational purposes. | Detailed Reasoning - Scholarship not provided principally for educational purposes: To be exempt from income tax, the law specifies that the scholarship must be provided principally for educational purposes. There can be additional benefits arising from the agreement so long as the primary purpose is educational. It is not enough that an educational purpose is a by-product of the scholarship. In determining the purpose of the scholarship, bursary or other educational allowance it is the purpose of the provider of the relevant payment and not the student that is paramount. In FCT v. Hall (1975) 6 ALR 457; 75 ATC 4156; (1975) 5 ATR 450 ( Hall's case ) the taxpayer was offered a fellowship by the Asthma Foundation of Tasmania on the basis that he would undertake work in relation to a respiratory survey that the foundation was linked to. He then registered as a candidate for a Doctor of Medicine with the University of NSW with the basis of his doctorate research project being the respiratory survey. He received a scholarship from the university with funds provided by the foundation. The scholarship did not qualify for exemption under s 23(z) of the Income Tax Assessment Act 1936 (predecessor to section 51-35 of the ITAA 1997) as the scholarship was not provided for educational purposes. On the evidence, the NSW Supreme Court found that the purpose of the foundation in providing the scholarship was not for the education of the recipient, but for the purposes of the foundation. | Detailed Reasoning - Principal purpose: A 'principal purpose' need not involve commercial benefits. For example, in a government program for a bonded scholarship, the fact that there is an intended work outcome such as recruitment for state or territory government facilities in a particular industry, means that the principal purpose of the provider of the scholarship is not one (principally) of providing education. Rather the principal purpose is one of ensuring that the student participates in a program designed to assist in the supply of qualified workers in state or territory government run facilities in a particular industry, fulfilling the policy intent of the government department, and not providing education to a particular student or students. | Detailed Reasoning - Application to your circumstances: In your case, the scholarship agreement you entered into has a requirement that you work for a minimum period of 4 years (or equivalent to the length of your program) in state or territory government run industry based facilities. If you do not fulfil this obligation, you will be required to repay all or part of the scholarship. If assisting you in your education was the principal purpose of the scholarship, then it would not place any obligations on you after you complete your study. However, the existence of the post-study requirement that you work for a minimum period in state or territory government run industry based facilities demonstrates that the principal purpose of this scholarship is facilitating the supply of staff in these facilities which is the policy intent of the government department that provided the scholarship. The principal purpose of the scholarship is not the provision of education. As such paragraph 51-35(e) of the ITAA 1997 applies and consequently the payments received under that scholarship will not be exempt and will be assessable income.