Scholarship: Exempt Income

Are amounts received by the taxpayer under a Centenary of Federation Scholarship (the Scholarship) exempt from income tax under section 51-10 of the Income Tax Assessment Act 1997 (ITAA 1997).

Yes, the amounts are exempt income under section 51-10 of the ITAA 1997.

The taxpayer, a full time university student, is in receipt of a Scholarship from the Foundation for Young Australians (the Foundation). This is one of 100 scholarships which were funded by an endowment of $15 million by the Federal Government to the Foundation as part of the Centenary of Federation celebrations.

The scholarships are available to both undergraduate and post graduate students under 30 years of age to enable them to pursue or complete their studies and are intended to assist with HECS fees, college fees, books etc but not living expenses.

A maximum of $10 000 is to be provided to each recipient per year and, subject to satisfactory progress, for the duration of the course. There are no conditions in respect of current or future employment or the rights to any research results.

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.

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: (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 a person or an authority on the condition that the student will (or will if required) become, or continue to be, an employee of the person or authority; (d) 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; (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 .

As the taxpayer is a full time student at a university and the payments under the scholarship do not fall within the category of payments listed in section 51-35 of the ITAA 1997, the amounts received by the taxpayer are exempt from income tax.