Exempt Income - Scholarship supplementary allowance

Is the taxpayer's supplementary allowance attached to a scholarship, exempt from income tax under section 51-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer's supplementary allowance is exempt from income tax under section 51-10 of the ITAA 1997 as it is paid under the same conditions as their income tax exempt scholarship.

The taxpayer is a full time university student in receipt of an income tax exempt postgraduate scholarship. The scholarship was paid principally for education purposes and there are no conditions that the taxpayer be an employee of the payment provider or enter into any contract with the provider that is wholly or principally for labour.

The taxpayer was awarded a one-off supplementary allowance attached to the scholarship.

The supplementary allowance was paid to assist with expenses attached to the taxpayer's studies and is subject to the same conditions applicable to the scholarship. The allowance is to cover expenses such as field trips, conference attendance, rental, visits to laboratories, etc.

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 educational assistance by a full time student at a school, college or university is exempt from income tax.

Thus, for the education allowance to be exempt from income tax: • the taxpayer must be a full-time student at a school, college or university; • there must be no condition that the taxpayer be an employee of the payment provider or enter into any contract with the provider that is wholly or principally for labour; and • the payment under the scholarship must be provided principally for education purposes.

The supplementary allowance the taxpayer received was subject to the same conditions as their scholarship. The supplement was paid for the purposes of allowing the taxpayer to fulfil their obligations under the scholarship and help meet the requirements of their studies. Accordingly, the supplementary payment is exempt from income tax under section 51-10 of the ITAA 1997.