Centrelink and Taxation of Scholarships

Centrelink

From April 2010, up to $6,762 of equity and merit-based scholarships will be exempt from the income test. This applies to all payments with a personal, partner or parental income test. This means these scholarships will have less of an impact on your fortnightly Centrelink payment.

Any amount of the scholarships over $6,762 will still be considered personal income and may affect your payment rate. The excess amount will be averaged over the remaining fortnights of the period of the scholarship. This means it will have a consistent impact on your fortnightly rate of payment.

The $6,762 will be exempt from the total amount of eligible scholarships that you receive, not from each scholarship. The amount of the scholarship exempt from the personal income test ($6,762 in 2010) will be indexed each year. It will always be equal to the combined value of the previous Commonwealth Education Costs Scholarship and Commonwealth Accommodation Scholarship.

For more information refer to the Centrelink website.

Taxation of scholarships

In order for a payment to be exempt from income tax under section 51-10 of the Income Tax Assessment Act 1997, the payment must be:

• made to a full time student of a university (must be enrolled in a minimum 18 credit points);
• of a scholarship, bursary, education allowance or other form of educational assistance; and
• not otherwise excluded under section 51-35 of the ITAA 1997.

When does section 51-35 apply?

Section 51-35 applies to remove the exempt status of a scholarship in cases where:

• the payment is made by a person or authority on condition that the student will, or will if required, become, or continue to be, an employee of the person or authority;
• the payment is made by a person or authority on 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; and
• the payment is under a scholarship where the scholarship is not provided principally for educational purposes.

It is important to note that :

• tax exempt payments must be for educational purposes to full time students
• there is NO income tax exemption for scholarships awarded to part-time students

Further information about the tax status of your scholarship can be found by using the scholarship tool on the Australian Taxation Office (ATO) website.