Private ruling: Scholarship income
Published: March 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the scholarship money you receive assessable income? | A1: Yes | Q2: Are you entitled to a deduction for self-education expenses? | A2: No

Relevant facts and circumstances: You applied for a student health professional role. At a similar point in time you also applied for a scholarship. You were successful in obtaining the student health professional role. Your position as a student health professional requires you to work 4 days with 1 day a week allocated for study. As a result of your role as a student health professional, you were a recipient of the scholarship. You will receive a capped amount towards the costs associated with obtaining a qualification. You will receive payment of the scholarship via reimbursement amounts being directly credited to your bank account. A requirement of the scholarship is that you complete a minimum 12 months service with the scholarship provider, following the attainment of your qualification. Failure to meet the requirements of the scholarship would result in a repayment of all scholarship funds awarded. You do not currently work for the scholarship provider but intend to do so.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 6-5(4) | Income Tax Assessment Act 1997 Section 6-15 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 51-10 | Income Tax Assessment Act 1997 Section 51-35

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer (section 6-15 of the ITAA 1997). As a general rule, money received from scholarships is ordinary income. Item 2.1A of the table in section 51-10 of the ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, 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: • the taxpayer must be a full time student at a school, college or university; • the taxpayer must be in receipt of a scholarship and the scholarship must be 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. In your case you are in the receipt of a scholarship which has the condition that you must complete a minimum of 12 months service for the scholarship provider upon finishing your qualification. Although the scholarship is provided for educational purposes, as you are required to commit to employment with the scholarship provider the scholarship income must be included in your assessable income. Subsection 6-5(4) of the ITAA 1997 indicates that amounts will be taken to have been received, and therefore derived, as soon as they have been dealt with in any way on a taxpayer's behalf. In your case, the physical receipt of income will constitute derivation of that income. Therefore when your educational costs have been reimbursed and credited to your bank account the income is then considered derived. The income will be reportable in your income tax return in the financial year it is received. | Detailed Reasoning - Self-education costs: Section 8-1 of the ITAA 1997 provides that you may deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. Taxation Ruling 1998/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9) considers the deductibility of self-education expenses incurred by an employee or a person in business. At paragraph 12 it is provided that self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income-earning activities. It is considered that your study is directly related to your current income earning activities. It is also noted that your employer has supported your decision to undergo further study by allocating one day a week for your studies. Therefore you are entitled to claim self-education expenses under section 8-1 of the ITAA 1997.