Private ruling: Exempt income
Date of advice: 4 September 2025
Published: 27 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the amount you received under the Trainee Grant tax exempt income? | A1: No.

Relevant facts and circumstances: You are a trainee. You are receiving the Trainee Grant. You made an application for the Trainee grant in a prior year. The eligibility criteria for this grant were: • Be enrolled to undertake professional training in a specific year • Meet the relevant citizenship, visa, qualification, registration and training requirements • Be successfully accepted into one of the training programs and commence training • Undertake training at a location within a specific area The grant was offered with the purpose of increasing number of trainees, and to support trainees to complete their studies. The Grants Program was established with the aim of increasing numbers of trainee enrolments in the relevant years, provide a top-up payment for first year trainees, and provide financial support to undertake multiple compulsory exams in training programs. There are a number of requirements to keep the grant. The grant is paid in a number instalments.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 11-15 | 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 an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year, except if an amount is exempt income (section 6-15). Section 11-15 of the ITAA 1997 lists certain types of exempt income, including Item 2.1A of the table in section 51-10, which makes exempt from income tax amounts paid as a scholarship, bursary, educational allowance, or educational assistance to a full-time student at a school, college, or university, subject to exceptions and conditions listed in section 51-35. For a scholarship, bursary, or other educational allowance to be exempt from income tax it must be provided principally for educational purposes. It is not enough that an educational purpose is a by-product or incidental purpose 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. Section 51-35 of the ITAA 1997 states: 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: a) a payment by the Commonwealth for assistance for secondary education or in connection with education of isolated children; b) a Commonwealth education or training payment; c) 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; d) a payment by an entity or authority on the condition that the student will (or will if required) enter, 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; e) a payment under a scholarship where the scholarship is not provided principally for educational purposes; f) an education entry payment under Part 2.13A of the Social Security Act 1991 . Paragraph 51-35(e) specifies the following is not exempt under section 51-10: g) a payment under a scholarship where the scholarship is not provided principally for educational purposes. We consider the relevant exception to your circumstances to be: • a payment under a scholarship where the scholarship is not provided principally for educational purposes. • 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. This means there can be collateral advantages so long as the primary purpose is for educational purposes. It is not enough that an educational purpose is a by-product or incidental purpose 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 Income Tax Assessment Act 1936 (predecessor to section 51-35) 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. Provider is not necessarily the payer. In relation to the provision of the scholarship, the 'provider' is not necessarily the payer. Where a party other than educational institution 'funds' the scholarship and the student's activities have some relationship or connection to that party providing the funds, such as working with or for the provider, or working towards outcomes potentially beneficial to the provider, the 'funder' can be the provider for the purposes of applying paragraph (e) and analysing the 'purpose' of that party, rather than the payer (Hall's case). | 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 geographical placement, 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 certain activities are provided in a particular area by the former student, consistent with the main purpose of the government, being its policy intent, and not providing education to a particular student or students. | Detailed Reasoning - Application to your circumstances: In your case you entered into the grant agreement knowing that you were required to maintain your enrolment as a trainee during the relevant period. The Grants Program was established with the aim of increasing numbers of trainee enrolments in relevant years. It is considered that the principal purpose for providing the grant is not for education purposes, it is to ensure a commitment of service in an approved area from the recipient consistent with the policy intent. The grant provider offers the grants to top up a trainee's wages and to assist with compulsory exams. Which means the education aspect of the grant is incidental to attracting trainees into the field. Therefore, paragraph 51-35(e) of the ITAA 1997 will apply to exclude the payment of the grant from being exempt. You must include this grant in your assessable income in your tax return.