Private ruling: Scholarship fund requirements
Date of advice: 9 January 2019
Published: April 2019
Ruling period: 1 July 2018 to 30 June 20XX | 1 July 2019 to 30 June 20XX | 1 July 2020 to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Taxpayer’s Scholarship Fund satisfy the requirements for Deductible Gift Recipient (DGR) status under table item 2.1.13 of section 30-25 of the Income Tax Assessment Act 1997 (ITAA 1997) if the Scholarships are funded in the manner proposed? | A1: Yes

Relevant facts and circumstances: The School is an independent day and boarding school. The School Council is the endorsed as a charity. The School is the Council’s trading entity The School Council is empowered to create and maintain a public fund to provide money for scholarships and bursaries to promote education The School Council operates DGR funds The School Council resolved to: a. establish a public fund to provide money for scholarships and bursaries to promote education; and b. to adopt Rules ABC is an unrelated third party, which is also a Charity registered with the ACNC. It has a scholarship fund (ABC Scholarship Fund), which is endorsed as a DGR, under with item 1 of the table at section 30-15 of ITAA 1997 A Scholarship Funding Agreement (Agreement) between the School Council and ABC aims to enable the joint funding of full boarding scholarships for Year 7 to Year 12 Indigenous students to attend the School. The Scholarships provided to the identified students will cover the cost of education, boarding and various incidental costs associated with the provision of education (Fees) The Agreement between the ABC and the School Council states: a. Indigenous Boarders are eligible for an ABC Scholarship if the following conditions are both satisfied and continue to be satisfied; i. The student is an Indigenous Australian ii. The student is (or will be on enrolment) a boarding student at the school iii. The student is eligible and is receiving ABSTUDY funding iv. The student is not being funded by any other scholarship program (unless waived by ABC) v. The student has completed the current school year of study and has either completed Year 12 or is enrolled to progress to the next year of study in the following school year vi. The student is in need of financial assistance to enable them to successfully complete their education vii. The student is enthusiastic about the educational opportunity offered viii. The student’s parent’s offer a high level of support and encourage the student’s attendance ix. The School has assessed and determined that the student is likely to succeed in attaining Year 12 completion at the School, and x. The student and student’s parents have completed an ABC Application Form including having made a commitment to make a parent contribution. A School Scholarship Fund applicant completes the School enrolment form and the ABC application form. These forms are lodged at the School The School Council will make suitable enquiries, interview the student and the student's parents, assess the student's ABC Application Form, previous academic record, attitudes to learning and other support needs and otherwise satisfy itself as regards to the Eligibility Criteria ABC may, in its absolutely discretion, on a case by case basis, waive or alter some or all of the eligibility criteria The Agreement requires both parties contribute equal funds over time, to a set amount each. The funding arrangement is as follows: a. The cost of the Fees will be initially covered during the year by the School Council b. The students will attend the School and on completing a full year of education the School Council will invoice ABC for the yearly Fees c. ABC will pay the invoice from its ABC Scholarship Fund (100% of the Fees) d. Subsequently, ABC will invoice the School Council for their agreed contribution (50% of the Fees) e. The School Council will pay ABC the invoiced contribution (50% of the total Fees). The School Council will then receive matching funds (50% of the Fees) from their School Scholarship Fund f. Accordingly at the end of the school year (subject to the students having completed a full year of education) the Fees are ultimately paid for equally by the ABC Scholarship Fund and the School Scholarship Fund Where the student does not complete the year of education the School Council is responsible for the costs associated with educating the student. Initially the Fees will be covered by the School and subsequently will be entirely paid for by the School Scholarship Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 , section 30-25 | Income Tax Assessment Act 1997 , section 30-37

Reasons for decision: Summary: The School Council has partnered with ABC to provide Scholarships. The partnership arrangement does not alter the purpose of the School Scholarship Fund, only the funding arrangements have changed. The School Scholarship Fund satisfies all the requirements of sections 30-37 and 30-25 of the ITAA 1997. Accordingly, the School Council is entitled to maintain its endorsement as a deductible gift recipient for a scholarship fund under table item 2.1.13 of section 30-25 of the ITAA 1997. | Detailed Reasoning - School Scholarship Fund: Subsection 30-25(1) of the ITAA 1997 sets out the general categories of education recipients and at table item 2.1.13 includes a public fund that is established and maintained solely for providing money for scholarships, bursaries or prizes to which section 30-37 of the ITAA 1997 applies. The scholarship fund DGR category covers funds with all the following characteristics: ● the fund is a public fund, ● the fund is a charity registered with Australian Charities Not-for-profits Commission (ACNC) or operated by a registered charity, and ● the fund is established and maintained solely for providing money for eligible scholarships, bursaries or prizes. The School Council is registered with the ACNC as a charity. The School Scholarship Fund is administered by the School Council. The School Council has already received DGR endorsement from the Tax Office for the operation of the School Scholarship Fund. | Detailed Reasoning - Eligible scholarships: Section 30-37 of the ITAA 1997 states that for the purposes of item 2.1.13 of the table in Subsection 30-25(1), a scholarship, bursary or prizes is one that the section applies if: a) it may only be awarded to Australian citizens, or permanent residents of Australia, within the meaning of the Australian Citizenship Act 2007; and b) it is open to individual or groups of individuals throughout a region of at least 200,000 people, or through at least an entire State or Territory; and c) it promotes recipients' education in either or both of the following: i. pre-school courses, primary courses, secondary courses or tertiary courses; ii. educational institutions overseas, by way of study of a component of a course covered by subparagraph; and d) it is awarded on merit or for reasons of equity. | Detailed Reasoning - Australian citizens or permanent residents: To be eligible, the scholarship, bursary or prize must be awarded only to Australian citizens or permanent residents of Australia. The School Scholarship Fund is open to Australian citizens or permanent residents. The Scholarships meet the citizenship/residency requirements in subsection 30-37(a) of the ITAA 1997. | Detailed Reasoning - Must be open to at least 200,000 people: To be eligible, entry to the scholarship, bursary or prize must be open to individuals or groups of individuals in a region of at least 200,000 people. The School Council will seek applicants from indigenous students from across Australia for their boarding Scholarships. The Scholarships will be awarded to academically focused indigenous student who would be unable to attend the School unless they received financial support. Limiting the Scholarships to a particular group of the population is allowed under subsection 30-37(b) of the ITAA 1997 which includes ‘individual’ or ‘groups of individuals’ throughout a region of at least 200,000 people, or throughout at least an entire State or Territory. The Scholarships are open to indigenous students and this section of the Australian community is comprised of more than 200,000 people. The Scholarships meet the population requirement in subsection 30-37(b) of the ITAA 1997. | Detailed Reasoning - Promoting the recipient's education: To be eligible, the scholarship, bursary or prize must promote the recipient's education. Approved courses include pre-school courses, primary courses, secondary courses and tertiary courses. The joint funded Scholarship to attend the School will be open to indigenous students from Years 7 to 12. The Scholarship covers the cost of education, boarding and various incidental costs associated with the provision of education. The Scholarship meets the education requirements in subsection 30-37(c) of the ITAA 1997. | Detailed Reasoning - Awarded on merit or reasons of equity: The Rules state the Scholarships are to be provided to indigenous students who: ● Are in need of financial assistance to enable them to successfully complete their education ● Are enthusiastic about the education opportunity offered ● Are supported by their parent and encourage the student’s attendance ● Are assessed by the School Council as likely to succeed in completing Year 12 at the School ● Have completed an ABC Application Form, and ● Have made a commitment to a parent contribution When assessing the application the School Council makes suitable enquiries, interviews the student and the student's parents, assesses the student's ABC Application Form as well as academic records, attitudes to learning and other support needs and satisfies itself whether the applicant meets the eligibility criteria. Section 30-37(d) of the ITAA 1997 is met as the Scholarships are to awarded on the basis of merit and reasons of equity. | Detailed Reasoning - Funding arrangement with ABC: The Scholarships will be administered by the School Council along with other scholarships that are offered. The School Council assesses and offers Scholarship placements but ABC may waive or alter some or all of the eligibility criteria. The Agreement between the School Council and ABC requires both parties to contribute 50% towards the funding of Scholarships for Indigenous people. The monies will ultimately be contributed by the School Scholarship Fund and the ABC Scholarship Fund. The payment arrangement is as follows: ● The cost of the Fees will be initially covered during the year by the School Council ● The students will attend the School and on completing a full year of education the School Council will invoice ABC for the yearly Fees ● ABC will pay the invoice from its ABC Scholarship Fund (100% of the Fees) ● Subsequently, ABC will invoice the School Council for their agreed contribution (50% of the Fees) ● The School Council will pay ABC the invoiced contribution (50% of the Fees). The School will then receive matching funds (50% of the Fees) from their School Scholarship Fund Therefore, at the end of the school year (subject to the students having completed a full year of education) the Fees are ultimately paid for equally by the School Scholarship Fund and the ABC Scholarship Fund. However, where the student does not complete the year of education the School Council is responsible for the costs associated with educating the student. The Fees will initially be covered by the School Council and subsequently would be entirely paid by the School Scholarship Fund and not by ABC. | Detailed Reasoning - Conclusion: Whilst the School Council has partnered with ABC to provide Scholarships, the partnership arrangement does not alter the purpose of the School Scholarship Fund. The School Scholarship Fund satisfies all the requirements of sections 30-37 and 30-25 of the ITAA 1997. Accordingly, the School Council is entitled to maintain its endorsement as a deductible gift recipient for a scholarship fund under table item 2.1.13 of section 30-25 of the ITAA 1997.

Question 1: Will the Taxpayer’s Scholarship Fund continue to retain its Deductible Gift Recipient (DGR) status under table item 2.1.13 of section 30-25 of the Income Tax Assessment Act 1997 (ITAA 1997), if it provides Scholarship funding in the manner proposed?