Class Ruling CR 2004/12
Date of effect: 1 July 2003


Class of entities or scheme: 3. The class of persons to which this Ruling applies is tertiary students who obtain a Summer Vacation Research Scholarship from the Defence Science and Technology Organisation (DSTO). | Qualifications: 4. The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling. 5. The class of persons defined in this Ruling may rely on its contents provided the arrangement actually carried out is carried out in accordance with the arrangement described below at paragraphs 9 to 23 in this Ruling. 6. If the arrangement actually carried out is materially different from the arrangement that is described in this Ruling: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 8. This Ruling applies from 1 July 2003. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 to 22 of Taxation Ruling TR 92/20). Furthermore, the Ruling only applies to the extent that: 9. The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of documents incorporated into this description of the arrangement are: 10. The DSTO is the scientific research and development arm of the Department of Defence. 11. Each year, commencing in 2003, DSTO will make available a limited number of 'Summer Vacation Research Scholarships' to full-time students that will be advertised nationally through Australian universities during the summer months. 12. The primary objective of the scholarship is to support the education of promising tertiary students by providing them with a means by which they can engage in and gain experience in research during the university summer vacation period. The scholarship aims to provide students with: 13. The Scholarship will be conferred as a reward for academic merit. Applicants will be required to submit a copy of their Academic Transcript and a Reference from a member of the academic staff from their current course of study. Scholarship recipients will be selected by the DSTO on the basis of their written applications through a competitive selection process using the following criteria: 14. As a minimum, all scholarship recipients must: 15. DSTO will allocate scholarship recipients a challenging research project that is closely aligned with their current course of study, and has been approved by DSTO Senior Executive (SES Band 2 and above). 16. The scholarship stipend is currently set at $3,600 and will be paid to the scholarship recipient in instalments of $600 on a fortnightly basis over the twelve-week summer vacation period. This payment is not provided as a fee for services rendered. The stipend constitutes a 'living allowance' that is provided to support the scholarship recipient financially while they conduct their research project over the summer vacation period. 17. Selection for the scholarships will be on the basis of academic merit by DSTO through a competitive selection exercise. The DSTO intends to provide the scholarships to enable the students to engage in and gain experience in research during the university summer vacation period. The summer vacation research scholarships that DSTO will be offering to students do not contain any conditions that would require the recipients of the award to become an employee of the DSTO at any stage in the future. The recipients will not be required to enter any contracts with the DSTO for their labour and for the purpose of the scholarship, students will not be entitled to any conditions of employment such as paid leave. 18. DSTO will provide a flexible approach to the scholarship recipient's working patterns and arrangements. The scholarship recipients will not be expected to work a set pattern of hours, but as a guide will be expected to maintain contact hours with DSTO during the standard operational bandwidth of 8.30am to 5.00pm, primarily to ensure an adequate level of supervision is provided to safeguard their health, safety and well being in the work place. 19. Irregular attendance of itself would not be grounds for DSTO to cease paying a student. DSTO would only cease payments to students in the event that their failure to attend on a regular basis affects their ability to conduct their research project to a satisfactory level. 20. During the course of the summer vacation, the recipient will undertake research on-site at DSTO establishments, using DSTO research equipment and facilities under local supervision by DSTO staff and produce research findings. The scholarship recipients will be expected to make an oral presentation elaborating on their research experience to an audience of their fellow scholarship recipients and DSTO supervisors and Senior Executives, at a Reporting Seminar to be held at the conclusion of the program in February. 21. During the presentation the student is to provide a summary of their experiences at DSTO, detail any relevant skills they have obtained as a result of the placement and give a brief description of the research they have undertaken. 22. All intellectual property generated by the student during and in connection with the placement vests upon its creation in the Commonwealth. 23. Each scholarship recipient will receive a written statement of completion and evaluation of their performance and conduct from the DSTO supervisor at the conclusion of the program. 24. The payments made by the DSTO under the Summer Vacation Student Research Scholarships are considered ordinary income and are therefore in principle, assessable income under subsection 6-5(1) of the ITAA 1997. However, these payments will be exempt from income tax under Item 2.1A in the table in section 51-10 of the ITAA 1997. 25. A payment or other benefit received by a taxpayer is assessable income if it is: | Ordinary income: 26. Subsection 6-5(1) of the ITAA 1997 provides that an amount is included as assessable income if it is income according to ordinary concepts (ordinary income). 27. Relevant factors in determining whether an amount is ordinary income include: 28. Payments made by the DSTO under the Summer Vacation Student Research Scholarships are considered to be ordinary income as they are periodical payments and are depended upon by the recipient (Federal Commissioner of Taxation v. Ranson (1989) 25 FCR 57; 89 ATC 5322; (1989) 20 ATR 1652). 29. As the payments are considered to be ordinary income, it is not necessary to consider whether they could also be statutory income. | Exempt Income: 30. Subsection 6-20(1) of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law. 31. Certain amounts of ordinary income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type covered by the tables in Division 51 of the ITAA 1997. 32. Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that payments are exempt from income tax if they are made: These three conditions are discussed below. | Are scholarship holder's full-time students at a school, college or university?: 33. Yes. The scholarships will only be awarded to full-time students enrolled at a tertiary education institution. | Are the payments made by way of a scholarship, bursary, educational allowance or educational assistance?: 34. The words 'scholarship, bursary, educational allowance or educational assistance' are not defined in the ITAA 1997. The Macquarie Dictionary, 2nd Revised Edition, defines 'scholarship' as 'the sum of money or other aid granted to a scholar', and 'scholar' as 'a student; who, because of merit, etc., is granted money or other aid to pursue ... studies'. 35. Paragraphs 34 to 45 of Taxation Ruling TR 93/39 discuss the meaning of the words 'scholarship, bursary, educational allowance or educational assistance' for the purposes of the former subsection 23(z) of the ITAA 1936. Paragraph 35 of TR 93/39 states that the words are no more 'than a description of rewards for merit attained as a result of competition or selection on the basis of general criteria'. 36. In interpreting the meaning of the words 'scholarship, bursary, educational allowance or educational assistance', courts have determined that the relevant characteristics of a scholarship include: 37. There will be a limited number of scholarships made available each year and recipients will be selected on the basis of academic merit by DSTO through a competitive selection process. 38. In Chesterman v. Federal Commissioner of Taxation (1923) 32 CLR 362 (at 385-6) Isaacs J said that for purposes to be educational they must provide for the giving or imparting of instruction. Rath J in Halls' case held that research conducted under supervision at a university is institutional in character and therefore educational. 39. The scholarships are provided to students to enable them to engage in and gain experience in research. Although it is not a course requirement the research experience is relevant to and intended to assist in their studies. Therefore, it is accepted that there is an educational purpose in the provision of the scholarships. The payments are therefore made by way of a scholarship, bursary, educational allowance or educational assistance. | Do the exceptions in section 51-35 apply?: 40. Section 51-35 of the ITAA 1997 excludes the following payments from exemption: | Are the payments Commonwealth education or training payments?: 41. Paragraph 51-35(a) of the ITAA 1997 excludes from income tax exemption Commonwealth payments for secondary education assistance or in connection with the education of isolated children. The scholarship payments are not payments of this kind. 42. Paragraph 51-35(b) of the ITAA 1997 excludes from exemption Commonwealth education or training payments, as defined in section 52-145 of the ITAA 1997. The scholarship payments are not payments of this kind. 43. Paragraph 51-35(f) of the ITAA 1997 excludes from exemption scholarship payments that are education entry payments under Part 2.13A of the Social Security Act 1991. The scholarship payments are not payments of this kind. | Are the payments made on the condition that the student will (or will if required) become an employee of or enter into a contract for labour with the payer?: 44. Paragraphs 51-35(c) and (d) of the ITAA 1997 exclude payments from exemption if they represent: 45. The scholarship agreement does not require the recipients to be, or become, employees of the DSTO. The payment of the scholarship does not confer a right to, or expectation of, future employment with the DSTO. 46. The scholarship agreement does not require the recipients to enter into a contract for labour with the DSTO. 47. The scholarship agreement requires the recipients to take part in research being conducted by DSTO. The research will take place, under supervision, on site at DSTO establishments, using DSTO research equipment and facilities. The recipients will be expected to make an oral presentation elaborating on their research experience at the conclusion of the program. All intellectual property generated by the student during and in connection with the placement vests upon its creation in the Commonwealth. This is not considered to constitute a requirement to perform work for the scholarship provider under a contract for labour. | Are the scholarships provided principally for educational purposes?: 48. The scholarships will only be provided to students who are enrolled at a tertiary education institution. 49. The stated purpose of the scholarship is to enable the recipients to engage in and gain experience in scientific research. DSTO will appoint a supervisor for the duration of the placement. 50. Payment of the scholarship is provided to support the scholarship recipient financially while they conduct their research project over the summer vacation period and is not provided as a fee for services rendered. 51. The payments made under the terms of this arrangement are considered to be provided principally for educational purposes and therefore are not excluded from exemption by paragraph 51-35(e) of the ITAA 1997. | Conclusion: 52. None of the exclusions in section 51-35 of the ITAA 1997 apply to scholarship payments. 53. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 21 January 2004 Not previously released in draft form.

Ruling: 24. The payments made by the DSTO under the Summer Vacation Student Research Scholarships are considered ordinary income and are therefore in principle, assessable income under subsection 6-5(1) of the ITAA 1997. However, these payments will be exempt from income tax under Item 2.1A in the table in section 51-10 of the ITAA 1997. 25. A payment or other benefit received by a taxpayer is assessable income if it is: | Ordinary income: 26. Subsection 6-5(1) of the ITAA 1997 provides that an amount is included as assessable income if it is income according to ordinary concepts (ordinary income). 27. Relevant factors in determining whether an amount is ordinary income include: 28. Payments made by the DSTO under the Summer Vacation Student Research Scholarships are considered to be ordinary income as they are periodical payments and are depended upon by the recipient (Federal Commissioner of Taxation v. Ranson (1989) 25 FCR 57; 89 ATC 5322; (1989) 20 ATR 1652). 29. As the payments are considered to be ordinary income, it is not necessary to consider whether they could also be statutory income. | Exempt Income: 30. Subsection 6-20(1) of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law. 31. Certain amounts of ordinary income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type covered by the tables in Division 51 of the ITAA 1997. 32. Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that payments are exempt from income tax if they are made: These three conditions are discussed below. | Are scholarship holder's full-time students at a school, college or university?: 33. Yes. The scholarships will only be awarded to full-time students enrolled at a tertiary education institution. | Are the payments made by way of a scholarship, bursary, educational allowance or educational assistance?: 34. The words 'scholarship, bursary, educational allowance or educational assistance' are not defined in the ITAA 1997. The Macquarie Dictionary, 2nd Revised Edition, defines 'scholarship' as 'the sum of money or other aid granted to a scholar', and 'scholar' as 'a student; who, because of merit, etc., is granted money or other aid to pursue ... studies'. 35. Paragraphs 34 to 45 of Taxation Ruling TR 93/39 discuss the meaning of the words 'scholarship, bursary, educational allowance or educational assistance' for the purposes of the former subsection 23(z) of the ITAA 1936. Paragraph 35 of TR 93/39 states that the words are no more 'than a description of rewards for merit attained as a result of competition or selection on the basis of general criteria'. 36. In interpreting the meaning of the words 'scholarship, bursary, educational allowance or educational assistance', courts have determined that the relevant characteristics of a scholarship include: 37. There will be a limited number of scholarships made available each year and recipients will be selected on the basis of academic merit by DSTO through a competitive selection process. 38. In Chesterman v. Federal Commissioner of Taxation (1923) 32 CLR 362 (at 385-6) Isaacs J said that for purposes to be educational they must provide for the giving or imparting of instruction. Rath J in Halls' case held that research conducted under supervision at a university is institutional in character and therefore educational. 39. The scholarships are provided to students to enable them to engage in and gain experience in research. Although it is not a course requirement the research experience is relevant to and intended to assist in their studies. Therefore, it is accepted that there is an educational purpose in the provision of the scholarships. The payments are therefore made by way of a scholarship, bursary, educational allowance or educational assistance. | Do the exceptions in section 51-35 apply?: 40. Section 51-35 of the ITAA 1997 excludes the following payments from exemption: | Are the payments Commonwealth education or training payments?: 41. Paragraph 51-35(a) of the ITAA 1997 excludes from income tax exemption Commonwealth payments for secondary education assistance or in connection with the education of isolated children. The scholarship payments are not payments of this kind. 42. Paragraph 51-35(b) of the ITAA 1997 excludes from exemption Commonwealth education or training payments, as defined in section 52-145 of the ITAA 1997. The scholarship payments are not payments of this kind. 43. Paragraph 51-35(f) of the ITAA 1997 excludes from exemption scholarship payments that are education entry payments under Part 2.13A of the Social Security Act 1991. The scholarship payments are not payments of this kind. | Are the payments made on the condition that the student will (or will if required) become an employee of or enter into a contract for labour with the payer?: 44. Paragraphs 51-35(c) and (d) of the ITAA 1997 exclude payments from exemption if they represent: 45. The scholarship agreement does not require the recipients to be, or become, employees of the DSTO. The payment of the scholarship does not confer a right to, or expectation of, future employment with the DSTO. 46. The scholarship agreement does not require the recipients to enter into a contract for labour with the DSTO. 47. The scholarship agreement requires the recipients to take part in research being conducted by DSTO. The research will take place, under supervision, on site at DSTO establishments, using DSTO research equipment and facilities. The recipients will be expected to make an oral presentation elaborating on their research experience at the conclusion of the program. All intellectual property generated by the student during and in connection with the placement vests upon its creation in the Commonwealth. This is not considered to constitute a requirement to perform work for the scholarship provider under a contract for labour. | Are the scholarships provided principally for educational purposes?: 48. The scholarships will only be provided to students who are enrolled at a tertiary education institution. 49. The stated purpose of the scholarship is to enable the recipients to engage in and gain experience in scientific research. DSTO will appoint a supervisor for the duration of the placement. 50. Payment of the scholarship is provided to support the scholarship recipient financially while they conduct their research project over the summer vacation period and is not provided as a fee for services rendered. 51. The payments made under the terms of this arrangement are considered to be provided principally for educational purposes and therefore are not excluded from exemption by paragraph 51-35(e) of the ITAA 1997. | Conclusion: 52. None of the exclusions in section 51-35 of the ITAA 1997 apply to scholarship payments. 53. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 21 January 2004 Not previously released in draft form.


Appendix: 25. A payment or other benefit received by a taxpayer is assessable income if it is: | Ordinary income: 26. Subsection 6-5(1) of the ITAA 1997 provides that an amount is included as assessable income if it is income according to ordinary concepts (ordinary income). 27. Relevant factors in determining whether an amount is ordinary income include: 28. Payments made by the DSTO under the Summer Vacation Student Research Scholarships are considered to be ordinary income as they are periodical payments and are depended upon by the recipient (Federal Commissioner of Taxation v. Ranson (1989) 25 FCR 57; 89 ATC 5322; (1989) 20 ATR 1652). 29. As the payments are considered to be ordinary income, it is not necessary to consider whether they could also be statutory income. | Exempt Income: 30. Subsection 6-20(1) of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law. 31. Certain amounts of ordinary income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type covered by the tables in Division 51 of the ITAA 1997. 32. Item 2.1A in the table in section 51-10 of the ITAA 1997 provides that payments are exempt from income tax if they are made: These three conditions are discussed below. | Are scholarship holder's full-time students at a school, college or university?: 33. Yes. The scholarships will only be awarded to full-time students enrolled at a tertiary education institution. | Are the payments made by way of a scholarship, bursary, educational allowance or educational assistance?: 34. The words 'scholarship, bursary, educational allowance or educational assistance' are not defined in the ITAA 1997. The Macquarie Dictionary, 2nd Revised Edition, defines 'scholarship' as 'the sum of money or other aid granted to a scholar', and 'scholar' as 'a student; who, because of merit, etc., is granted money or other aid to pursue ... studies'. 35. Paragraphs 34 to 45 of Taxation Ruling TR 93/39 discuss the meaning of the words 'scholarship, bursary, educational allowance or educational assistance' for the purposes of the former subsection 23(z) of the ITAA 1936. Paragraph 35 of TR 93/39 states that the words are no more 'than a description of rewards for merit attained as a result of competition or selection on the basis of general criteria'. 36. In interpreting the meaning of the words 'scholarship, bursary, educational allowance or educational assistance', courts have determined that the relevant characteristics of a scholarship include: 37. There will be a limited number of scholarships made available each year and recipients will be selected on the basis of academic merit by DSTO through a competitive selection process. 38. In Chesterman v. Federal Commissioner of Taxation (1923) 32 CLR 362 (at 385-6) Isaacs J said that for purposes to be educational they must provide for the giving or imparting of instruction. Rath J in Halls' case held that research conducted under supervision at a university is institutional in character and therefore educational. 39. The scholarships are provided to students to enable them to engage in and gain experience in research. Although it is not a course requirement the research experience is relevant to and intended to assist in their studies. Therefore, it is accepted that there is an educational purpose in the provision of the scholarships. The payments are therefore made by way of a scholarship, bursary, educational allowance or educational assistance. | Do the exceptions in section 51-35 apply?: 40. Section 51-35 of the ITAA 1997 excludes the following payments from exemption: | Are the payments Commonwealth education or training payments?: 41. Paragraph 51-35(a) of the ITAA 1997 excludes from income tax exemption Commonwealth payments for secondary education assistance or in connection with the education of isolated children. The scholarship payments are not payments of this kind. 42. Paragraph 51-35(b) of the ITAA 1997 excludes from exemption Commonwealth education or training payments, as defined in section 52-145 of the ITAA 1997. The scholarship payments are not payments of this kind. 43. Paragraph 51-35(f) of the ITAA 1997 excludes from exemption scholarship payments that are education entry payments under Part 2.13A of the Social Security Act 1991. The scholarship payments are not payments of this kind. | Are the payments made on the condition that the student will (or will if required) become an employee of or enter into a contract for labour with the payer?: 44. Paragraphs 51-35(c) and (d) of the ITAA 1997 exclude payments from exemption if they represent: 45. The scholarship agreement does not require the recipients to be, or become, employees of the DSTO. The payment of the scholarship does not confer a right to, or expectation of, future employment with the DSTO. 46. The scholarship agreement does not require the recipients to enter into a contract for labour with the DSTO. 47. The scholarship agreement requires the recipients to take part in research being conducted by DSTO. The research will take place, under supervision, on site at DSTO establishments, using DSTO research equipment and facilities. The recipients will be expected to make an oral presentation elaborating on their research experience at the conclusion of the program. All intellectual property generated by the student during and in connection with the placement vests upon its creation in the Commonwealth. This is not considered to constitute a requirement to perform work for the scholarship provider under a contract for labour. | Are the scholarships provided principally for educational purposes?: 48. The scholarships will only be provided to students who are enrolled at a tertiary education institution. 49. The stated purpose of the scholarship is to enable the recipients to engage in and gain experience in scientific research. DSTO will appoint a supervisor for the duration of the placement. 50. Payment of the scholarship is provided to support the scholarship recipient financially while they conduct their research project over the summer vacation period and is not provided as a fee for services rendered. 51. The payments made under the terms of this arrangement are considered to be provided principally for educational purposes and therefore are not excluded from exemption by paragraph 51-35(e) of the ITAA 1997. | Conclusion: 52. None of the exclusions in section 51-35 of the ITAA 1997 apply to scholarship payments.


What this Class Ruling is about | The number, subject heading, and the What this Class Ruling is about (including Tax law(s), Class of persons and Qualifications sections), Date of effect, Arrangement and Ruling parts of this document are a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953. CR 2001/1 explains Class Rulings and Taxation Rulings TR 92/1 and TR 97/16 together explain when a Ruling is a public ruling and how it is binding on the Commissioner. | What this Class Ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)', identified below, apply to the defined class of persons, who take part in the arrangement to which this Ruling relates. | Tax law(s): 2. The tax laws dealt with in this Ruling are sections 6-5, 6-20, 51-1, 51-10 and 51-35 of the Income Tax Assessment Act 1997 (ITAA 1997).


Related rulings: TR 92/1 TR 92/20 TR 93/39 TR 97/16 CR 2001/1
Legislative references: TAA 1953 Pt IVAAA ITAA 1936 23(z) ITAA 1997 Div 51 ITAA 1997 6-5 ITAA 1997 6-5(1) ITAA 1997 6-20 ITAA 1997 6-20(1) ITAA 1997 51-1 ITAA 1997 51-10 ITAA 1997 51-30 ITAA 1997 51-35 ITAA 1997 51-35(a) ITAA 1997 51-35(b) ITAA 1997 51-35(c) ITAA 1997 51-35(d) ITAA 1997 51-35(e) ITAA 1997 51-35(f) ITAA 1997 52-145 Social Security Act 1991 2.13A Copyright Act 1968
Case references: FC of T v. Hall (1975) 6 ALR 457 75 ATC 4156 (1975) 5 ATR 450
Subject references: exempt income post graduate research scholarships