Private ruling: Exempt income and self-education expenses
Date of advice: 19 November 2015
Published: January 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015.

Ruling: Q1: Will a scholarship to enable you to commence full-time studies to obtain an MBA be treated as exempt income? | A1: Yes | Q2: Will you be able to claim the course tuition fees as self-education expenses? | A2: No

Relevant facts and circumstances: You are qualified and currently employed as an engineer and intend to commence post graduate study for a Master's degree in the relevant calendar year. You will apply for leave without pay from your employer during this period in order to undertake the study. You will receive a scholarship to attend this course at university. You have provided a link to the university web site which confirms the scholarship amount and sets out the requirements for eligibility for the course. However, no information is apparent on the web site as to whether the scholarship may be used for payment of living expenses or must be used to pay for course fees. You will recommence employment in the subsequent year but you are under no obligation to the scholarship provider with regard to present or future employment. Tuition fees will be incurred in the relevant calendar year.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 6-5 | 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: Item 2.1A of the table in section 51-10 of the Income Tax Assessment Act 1997 (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. Section 51-35 of the ITAA 1997 provides that the following payments made to or on behalf of a full-time student at a school, college or university are not exempt from income tax under item 2.1A of the table in section 51-10 of the ITAA 1997; • A payment by the Commonwealth for assistance for secondary education or in connection with the educational of isolated children; • A Commonwealth education or training payment; • A payment by a person or an 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 person or authority that is wholly or principally for the labour of the student; • A payment under a scholarship where the scholarship is not provided principally for educational purposes; and • An education entry payment under Part 2.13A of the Social Security Act 1991 . In your case, you are a full time student at a university and receive a scholarship that is provided principally for educational purposes. You are not bonded to the scholarship provider to commence employment with them in any way while you are a student or at the completion of your studies. The scholarship does not fall within the category of payments listed in section 51-35 of the ITAA 1997. Accordingly, your scholarship is exempt from income tax under section 51-10 of the ITAA 1997 and will not form part of your income that is assessable under section 6-5 of the ITAA 1997. A deduction may be claimed under section 8-1(1) of the ITAA 1997 if it can be shown that the relevant expense has been incurred in gaining or producing the assessable income of the taxpayer or has been incurred in carrying on a business. However a deduction is precluded by section 8-1(2) of the ITAA 1997 if the loss or outgoing is capital, private or domestic in nature or the loss or outgoing has been incurred in deriving exempt income. As the scholarship you received to enable you to undertake full time study is considered to be exempt income for the purposes of section 51-10 of the ITAA 1997 and is therefore not subject to income tax, the course fees that you incur whilst studying have been incurred in deriving exempt income. Accordingly no deduction is allowable in terms of section 8-1 of the ITAA 1997 for the self-education expenses incurred.