C25/2004 Exempt non discretionary fee waiver and fee pay scholarships from the income tests for income support payments | Compensation and Support Reference Library, Departmental Instructions, 2004

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C25/2004 Exempt non discretionary fee waiver and fee pay scholarships from the income tests for income support payments

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DATE OF ISSUE:  8 September 2004

Exempt non discretionary fee waiver and fee pay scholarships from the income tests for income support payments

Purpose

The purpose of this departmental instruction is to inform State Offices that the excluded income rules have been extended to fee waiver and fee pay scholarships.

Commencement date

The commencement date for the new exemption rules is 31 August 2004, the date of Royal Assent for the Family and Community Services and Veterans' Affairs Legislation Amendment (2004 Budget Measures) Act 2004 that amended the Social Security Act 1991 (SSA) and the Veterans' Entitlements Act 1986 (VEA).

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Background

The inconsistent income test treatment of scholarships is of concern in the education sector, particularly the higher education sector.  Accordingly the treatment of certain scholarships has been reviewed by the Departments of Education, Science and Training, Family and Community Services and Veterans' Affairs.

Changes resulting from the review process commenced with the Budget 2003 announcement that the Government would exclude Commonwealth Learning Scholarships from income testing.  This change commenced on 1 January 2004.

A further development occurred prior to the recent Budget 2004 announcement, relating to fee waiver and fee pay scholarships.  On 24 February 2004 the Administrative Appeals Tribunal determined that a scholarship that partially waived a fee was not income for social security purposes.  Bond University, which awarded the fee-waiver scholarship, publicised the outcome of the case.

The concern in relation to these scholarships is that students cannot use the part fee-waiver or fee-pay scholarships to support themselves, as the scholarships do not provide them with additional discretionary income.  There is evidence that some students do not accept such scholarships because they would result in a reduction in income support entitlements.

Accordingly, the Government announced in the Budget 2004 that all scholarships that pay tuition fees on a student's behalf, or waive all, or part of, a student's tuition fee, will no longer be included as income under the SSA or VEA income tests.

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Definitions

Fee pay scholarships pay course fees on behalf of the student.  These are generally a set cash amount paid directly to the university on behalf of the student from a university-administered trust and may include Higher Education Contribution Scheme (HECS) charges, course fees and/or services and amenities fees.

Fee waiver scholarships are offered by universities to students as a discharge of all or part of the fees or charges otherwise associated with their course of study.  They are generally designed to cover fees due on non-Commonwealth supported places and are offered as a waiver of a percentage of fees otherwise due on a particular course, rather than as a cash amount.

Please note that fee pay scholarships are not paid to the student but rather to the educational institution or the Commonwealth.  This is one of the requirements of the new legislation in order for the amount to be exempt from income testing.  In contrast, Commonwealth Learning Scholarships (CLS) are paid to the student and would normally be considered 'valuable consideration' and counted as income as the money has been received by the student and could be used for any purpose.  However legislation passed in 2003 exempts the CLSs.

What is exempt?

For scholarships to be exempt from the income test, they must be for tuition fees, either as a full or part waiver offered by an education institution, or as a full or part payment directly to the institution for those fees.  The exemption will only apply to that part of the scholarship that is for tuition fees and will only cover the value of fees that would normally be charged for the course in which the student is enrolled.

Target Population

It is anticipated that the number of cases arising under the VEA will be very low.  To date no cases have come to light.

Questions & Answers

To assist State Offices to answer inquiries, questions and answers are set out at attachment A.

Inquiries

For any questions concerning this Departmental Instruction, please contact Georgina Dudzinski on (02) 6289 4895.

Jeanette Ricketts

Branch Head

Income Support

8 September 2004

Attachment A

QUESTIONS AND ANSWERS

TREATMENT OF SCHOLARSHIPS

What are the changes effective 31 August 2004 in relation to the treatment of scholarships?

Effective 31 August 2004 all non-discretionary fee-waive or fee-pay scholarships will be excluded income under the Veterans' Entitlements Act 1986 (VEA) or the Social Security Act 1991 (SSA).  This means the value of these scholarships are no longer assessed as income for income support pensions and allowances.

What is meant by a non-discretionary fee-waiver and fee-pay scholarship?

  • A fee-waiver scholarship is one where an education institution reduces or waives part or all of the course charge or fee.
  • A fee-pay scholarship is one provided by an external provider (for example, a business, charity, government department) to pay for tuition fees.

Non-discretionary scholarships do not provide any choice to students over how the scholarship can be used.

How does this differ from the previous changes to the treatment of scholarships?

The new initiative builds on changes to the treatment of scholarships that were introduced earlier this year.  Under the earlier changes, the excluded income rules were extended to scholarships offered by higher education institutions that:

  • fully waive fees;
  • grant full exemption from fees or contribution amounts; or
  • exempt a student from HECS charges.

The Budget 2004 measure extends the previous measure to apply the excluded income rules to:

  • scholarships that are offered in education sectors other than the higher education sector (for example scholarships that waive or pay school or TAFE fees); and
  • scholarships that partially waive, reduce or pay tuition fees or course charges.


When will the new treatment of scholarships apply?

The Budget 2004 amendments commenced on 31 August 2004 when the Family and Community Services and Veterans' Affairs Legislation Amendment (2004 Budget Measures) Act 2004 was granted Royal Assent.  This act amended the VEA and SSA.

How are scholarships treated?

Scholarships or similar payments are income unless otherwise excluded.  Scholarships that pay tuition fees on a student's behalf, or waive all, or part of, a student's tuition fee, are not included as income for SSA or VEA income support payments.

The value of any board or lodging received by the person continues to be exempt.  That is, if a student is provided with free accommodation as part of their study, the value of this boarding is not counted as income.  If, however, a scholarship is discretionary and paid directly to the student, it is counted as income.  For example, a scholarship paid to a student as cash with the intention that it be used for boarding is counted as income.

How are prizes treated?

Some scholarships paid as one-off sums in the nature of a reward or prize are not treated as income for income support purposes.  These scholarships are defined by the following characteristics:

  • the payment of the lump sum is unlikely to be repeated;
  • the scholarship (reward/prize) could not be reasonably expected to be received or necessarily anticipated; and
  • the payment of the lump sum does not represent receipt of money for services rendered directly or indirectly.

What are Commonwealth Learning Scholarships?

As part of the Higher Education Reform Package (Higher Education Support Act 2003) Commonwealth Learning Scholarships were introduced from 2004 and are exempted from income testing.  These discretionary scholarships assist rural, regional, low income and indigenous students.  They are paid directly to the student, are merit based, non-repayable and for up to four years.  There are two types:

  • Commonwealth Education Costs Scholarships of $2000 per year; and
  • Commonwealth Accommodation Scholarships of $4000 per year.


The following table describes the treatment for different forms of scholarships and grants that originate in Australia:

Form of scholarship

Treatment of scholarship/grant as income

Scholarship that is paid directly to a student.

Treated as income for all income support payments.  The value of the scholarship must be declared to DVA.

Exception:  Commonwealth Learning Scholarships.

Scholarship from an educational institution that fully or partially reduces or waives tuition fees or course charges (eg a fee reduction scholarship provided by a school).

Not treated as income for income support payments.

Scholarship from an accommodation provider that fully or partially reduces or waives board and lodging charges.

Not treated as income for income support payments.

Non-discretionary scholarship provided by an external provider (such as business, charity or government department) that pays, on behalf of the recipient, part or all:

  • course fees or charges; or

  • board and lodgings.

Not treated as income for income support payments.

Scholarship that is paid to a third party to provide goods or services on behalf of a student (other than tuition or board and lodging).

Regarded as 'valuable consideration' and is treated as income.  The value of this scholarship must be declared to DVA.

Scholarship that is in the nature of a reward or a prize.

Not treated as income for income support payments.