Study grant - Employee on leave without pay

Is the study grant received by the taxpayer from their employer while on leave without pay exempt from income tax under section 51-10 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

No. The study grant received by the taxpayer from their employer while on leave without pay is not exempt from income tax under section 51-10 of the ITAA 1997.

The taxpayer is a full time employee who has enrolled as a full time post graduate student at a university. The study has been endorsed under the employer's ongoing career development and performance management system.

The taxpayer has been given leave without pay and awarded a lump sum study grant by their employer.

The study grant is part of the Studies Assistance program of the employer. The guidelines for the grant state that it is only available to current employees enrolled in full time study at an educational institution. The employee must go on leave without pay during which time the employee will retain all entitlements.

There is an expectation that the taxpayer will return to work after the study and may be required to work for the employer during term breaks.

Item 2.1A of the table in section 51-10 of the ITAA1997 provides that if a taxpayer is a full time student at a school, college or university then a scholarship, bursary, educational allowance or educational assistance they receive is exempt from tax, except where an exclusion in section 51-35 of the ITAA 1997 applies.

Paragraph 51-35(c) of the ITAA 1997 states that a payment to or on behalf of a full time student, by a person or an authority on the condition that the student will (or will if required) enter into, or continue to be an employee of the person or authority, is not exempt from income tax under Item 2.1A of the table in section 51-10 of the ITAA 1997.

The terms of the study grant awarded provide that it is a condition that the taxpayer will take leave without pay, retaining all entitlements as an employee during the study period and may be required to work during term breaks. The taxpayer is also expected to return to work after the period of leave. An employee taxpayer on leave without pay continues to be an employee ( Sykes v. Cleary (No 2) 176 CLR 77).

As the study grant is awarded on the basis that the taxpayer continues to be an employee on leave without pay, paragraph 51-35(c) of the ITAA 1997 applies and the income is not exempt from income tax under Item 2.1A of the table in section 51-10 of the ITAA 1997.