Taxpayers warned not to rort scholarship trusts
THE Tax Office has issued a warning about individual education or scholarship trusts in its latest Taxpayer Alert, the sixth one this year.
The ATO is ramping up warnings for taxpayers to avoid getting involved in unscrupulous tax schemes before the end of the financial year.
The schemes 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.
The warnings do not apply to investment products that operate as scholarship plans through mutual friendly societies such as Australian Scholarships Group and Lifeplan.
Tax commissioner Michael D’Ascenzo said he was concerned about whether taxpayers who entered into individual arrangements were entitled to claim scholarship and bursary payments as tax free.
He said under the arrangements, taxpayers applied to the marketer of the scheme for the student to be accepted into an education funding program.
Once the student was accepted into the program, the taxpayer, who is usually a relative, contributed money indirectly to an individual scholarship trust and the funds were 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.”
Ali Noroozi, tax counsel for the Institute of Chartered Accountants, said taxpayer alerts were early warnings signs for consumers to be vigilant about getting into “dodgy schemes” before the end of the financial year.
A spokeswoman for Australian Scholarships Group said mutual scholarship plans, not individual scholarship trusts, were granted a unique tax break that was only available through friendly societies.
“ASG has been concerned for some time that these (individual) arrangements promoted by some accountants do not fit into the spirit of school funds that are allowed special considerations under the Tax Act,” she said.
