Tax Office Warning on Educational or Scholarship Trust Schemes

The Tax Office today warned taxpayers to be cautious of arrangements that seek to reduce tax through ‘education or scholarship trusts’ for a student who may be a family member of the person contributing to the trust.

Tax Commissioner Michael D’Ascenzo said he is concerned about whether taxpayers who enter into these arrangements are entitled to claim scholarship and bursary payments as tax free.

Under the arrangements taxpayers apply to the marketer of the scheme for the student to be accepted into an ‘education funding program’. Once the student is accepted into the program, the taxpayer who is usually a relative contributes money indirectly to an ‘individual scholarship trust’ and these funds are distributed to the student tax free.

“Under the law these types of payments are only tax free if they are received by a student who has won an award or been selected through an open process,” Mr D’Ascenzo said.

“The Tax Office is looking at arrangements that do not appear to meet these requirements and whether tax should be paid on any distributions,” Mr D’Ascenzo said.

Further information about these arrangements can be found in Taxpayer Alert 2007/6 which is available from the Tax Office website.