ATO Alerts Taxpayers To Fraudulent Scholarship Claims

by Mary Swire, Tax-News.com, Hong Kong

18 June 2007

The Australian Tax Office has warned taxpayers to be cautious of arrangements that seek to reduce tax through 'education or scholarship trusts’.

The ATO's latest warning is aimed at students 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 arrangement in question, 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 explained.

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

The ATO also recently announced that it is investigating trust arrangements that are being used to reduce tax on options and shares acquired under an employee share scheme. The Tax Office has additionally issued an alert regarding arrangements that seek to reduce tax on Australian income through the use of foreign tax credits.

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