Go8 response to Review of ATO advice on scholarships

5 Apr 2017
The Group of Eight (Go8) welcomes the opportunity to respond to the Review of ATO advice on Scholarships.

Please note that Go8 members may make individual and more detailed responses to the paper and therefore the Go8 response is deliberately high-level, focussing on scholarship support for Higher Degree by Research students.

The Go8 represents Australia’s leading research-intensive universities, accounting for over two-thirds of Australian university research activity, spending around $6 billion per year on research and investing more than $3 billion annually in applied research and experimental development.

In 2015, the Go8 provided 28.63 per cent (92,986) of all graduates from Australian higher education institutions across all levels of course from undergraduate to higher doctorate. In 2015 our universities awarded 51 per cent of all doctorates by research and over 47 per cent of all research masters.

A proportion of these graduates – and of the current students –are supported by scholarships of various origin: government (Federal and State), university or other publicly funded research organisation, industry, philanthropic, or not-for-profit organisations.

The Go8 recognises the ATO’s desire to reduce reliance on case rulings in the treatment of scholarships, but believes that the approach suggested in the discussion paper to increase the range of scholarships taxable, particularly those linked to industry engagement, is 180 degrees from where it should be.

While more taxation of scholarships yields marginally more income for the Government, it will have a potentially significant impact on the day-to-day lives of students on modest scholarships.

Although decreasing the use of class rulings may reduce complexity for the ATO, increasing the range of taxable business-provided scholarships increases the overall complexity and expense for business, particularly SMEs, in collaborating with universities. This runs completely contrary to stated government policy by various agencies, including Education and Training; Industry, Innovation and Science; and Health, where the focus is, rightly, on collaboration, for example in the National Innovation and Science Agenda (NISA). It also runs contrary to the concerted efforts of Australian universities – and particularly the Go8 – to increase collaboration as an economic driver in the national interest.

The Go8 believes that the best course of action is to reduce the taxation of scholarships as much as is allowable under the relevant legislation by applying a broad definition of education and an emphasis on the primary purpose of scholarship funded activity being attainment of an educational qualification or experience and not the provision of services.

Accordingly, the Go8 makes the following recommendations:  
  1. The Go8 recommends that, in examining how tax is applied on a scholarship, the ATO take as its leading consideration the purposes of the scholarship: enabling student education. Australia’s future will depend on the capacity of today’s students to contribute to the strength of Australia’s economy, as both the nation’s workforce and tax contributors. The ATO should avoid placing unnecessary deterrents to the successful pursuit of a key factor underpinning that capacity – a university education.
  2. The Go8 recommends that the ATO develop its advice on the taxation of scholarships to support government policies to encourage university collaboration with industry. The university sector, government and industry are all striving to generate and maximise economic growth and greater employability underpinned by innovation and collaboration under the operation of policies such as the National Innovation and Science Agenda (NISA). In particular, the Go8 seeks that, where students engage in internships or Work Integrated Learning endorsed or facilitated by their university, any related scholarship to the student should be tax exempt wherever reasonable.
  3. The Go8 recommends that the ATO adopt a broader and more fit-for-purpose definition of education in its proposed treatment of scholarships. The current definition of educational purposes used by ATO is limited to the giving or imparting of instruction. This should be expanded to include experiential learning, and a more refined definition should be carefully developed for the purpose of considering the tax liability of scholarships. Reference to the International Standard Classification of Education (ISCED) is one example of a broader definition of education: comprise all deliberate and systematic activities designed to meet learning needs, entailing organized and sustained communication designed to bring about learning. At its core are a relationship between two or more parties involving the transfer of information (messages, ideas, knowledge, strategies, etc.), improvement in behaviour, information, knowledge, understanding, attitude, values or skills, and the planning of activities with explicit or implicit aims.
  4. The Go8 recommends that the ATO follow a principle that payments that were previously tax exempt remain so regardless of a revised assessment methodology, or at the very least, are grandfathered. The Go8 would specifically advocate that the core basis for assessing the taxation status of a scholarship payment is whether that payment is ultimately to assist a student acquire an education in the manner discussed above – including for example if it enables a student to move to take up a university offer in another location.
  5. The Go8 recommends that the ATO regards the raison d’être of any student’s labour under a scholarship, including research and internship activities, be educational outcomes and qualifications.
  6. The Go8 recommends that the presumption of a future employment relationship between a scholarship recipient and scholarship payer should not be the basis of taxing the scholarship. As discussed in Recommendation 1 education should be the main outcome of scholarship provision and any tying of the funding to future, potentially unrealisable, expectations, seems both unfair and unnecessary.
  7. The Go8 supports the proposed definition of full-time as studying at least 75% of the Equivalent Full Time Student Load for the course the student is enrolled in as the most appropriate of the options suggested by the ATO.
For the full submission, please download the PDF by clicking the link below.