Scholarship Trusts and Education Funding Programs

A taxpayer applies to an entity controlled by the marketer of the arrangement, based either in Australia or in a foreign country, for a student (usually related to the taxpayer) to be accepted into a purported 'Education Funding Program' ('the program'). The program offers assistance in the form of a 'student loan', 'scholarship', 'bursary', 'educational allowance', or 'educational assistance,' 2. If the student is accepted into the program the taxpayer is invited to contribute money to a purported 'Scholarship Trust' that is associated with the program, controlled by the marketer of the arrangement, and based either in Australia or in a foreign country. 3. The marketing of the arrangement may include the claim that the money contributed by the taxpayer may be in the form of a 'distribution' from a trust (including from a service trust), an 'assignment' from a partnership or a 'distribution' from a joint venture. 4. An 'Individual Scholarship Trust' for the student is then purportedly established, either in Australia or in a foreign country, for the purpose of receiving educational assistance that is granted to the student. The Trustee of the 'Individual Scholarship Trust' is an associate of the marketer of the arrangement. 5. When educational assistance is granted, the 'Scholarship Trust' transfers the assistance to the 'Individual Scholarship Trust'. The trustee of the 'Individual Scholarship Trust' then distributes to, or expends funds on behalf of, the student an amount referred to as a 'student loan', 'scholarship', 'bursary', 'educational allowance' or 'educational assistance,' 6. The marketing of the arrangement includes the claim that the assistance provided to the student is a 'scholarship', 'bursary', 'educational allowance' or 'educational assistance' which is exempt from income tax. 7. The marketing of the arrangement also includes the claim that, where the assistance provided to the student is referred to as a 'student loan', that loan may be subsequently forgiven without an amount being included in the assessable income of the student. 8. The marketing of the arrangement may also include the claims that the 'Scholarship Trust' is liable to tax in Australia on the 'distribution' or the 'assignment' contributed by the taxpayer and that the 'Scholarship Trust' receives a deduction for funds it transfers to the 'Individual Scholarship Trust,' 9. In variations to these arrangements the marketing may include the claim that surplus funds of the 'Individual Scholarship Trust' may be invested in a ten year 'Investment Bond' where the funds will accumulate free of tax.