Question

With reference to relevant legislation and case law, discuss whether the following receipts are assessable or exempt income. Give reasons.

Lucas is a full-time student and received a scholarship of $3,000 per annum from XYZ Engineering Solutions, conditional upon Lucas agreeing to accept employment with XYZ Engineering Solutions for at least three years after graduation

Answer 1

Answer: Assessable Income and not exempt from income taxes.

Recall what is an assessable income.

Assessable income = ordinary income + statutory income (s6-5 ITAA97)

Let's see if this passes all the test of ordinary income:

Hence, it's an ordinary income.

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Since  this payment is for future services, this is not  statutory income. Reference law is s15(2) of ITAA97

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Let's now examine if it's exempt or not?

Relevant case law: ITAA97 s51-10

For a full-time student at a school, college or university the amounts like a scholarship, bursary, educational allowance or educational assistance, are exempt from income tax, subject to exceptions and special conditions mentioned section 51- 35

Relevant case law: ITAA97 s51-35

Item 2.1A

Exceptions:

Part (c) a payment by an entity or authority on the condition that the student will (or will if required) become, or continue to be, an employee of the entity or authority;

Part (d) a payment by an entity or 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 entity or authority that is wholly or principally for
the labour of the student;

Lucas is a full-time student and received a scholarship on condition that she will become an employee of the entity.

Hence, the case falls under exception and hence the receipts are assessable and not exempt from income tax under item 2.1A of the table in section 51-10