AMA fumes over tax plan for bonded students

The ATO is planning to charge income tax on funds the government pays students on bonded rural scholarships

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The AMA is disputing a tax office proposal to charge income tax on funds the government pays medical students on bonded rural scholarships.  

AMA President Dr Michael Gannon today said the proposal, outlined in an Australian Tax Office discussion paper, clashed with government policy aimed at attracting more doctors to the bush to address medical workforce shortages. 

“We are very concerned that the ATO wants to make the Medical Rural Bonded Scholarship (MRBS) scheme, and similar programs, subject to income tax,” Dr Gannon said. 

“The MRBS was closed off to new entrants following the 2015 Budget, with 421 MRBS students still at medical school receiving this scholarship. It will be some years before all of these students graduate, and they now face the prospect of the tax-free status of their scholarship being withdrawn.” 

This was not only poor policy that could disrupt medical workforce planning, but was unfair on students who had signed up for the MRBS on the understanding that the scholarships were exempt from income tax, he said. 

In a letter to the ATO, Dr Gannon said the tax office appeared to be taking a “very black and white view” of the principal purpose of the bonded scholarship.  

The MRBS gives students a place at medical school as well as financial and non-financial support for their education, and recipients must agree to work in a designated area for six years after attaining fellowship of a medical college.  

The ATO paper says: “… the fact that there is an intended work outcome such as geographical placement, means that the principal purpose of the provider of the scholarship is not one (principally) of providing education.   

“Rather the principal purpose is one of ensuring that certain activities are provided in a particular area by the former student, consistent with the main purpose of the government, being its policy intent, and not providing education to a particular student or students.”

 In his letter, Dr Gannon said the tax office should think again.  

He said the ATO had given too much weight to the return-of-service obligation as opposed to the educational intent of the scholarship.

“The policy intent of providing doctors in areas of need is not based on commercial gain,” he wrote.  

Other scholarship programs including the Rural Australia Medical Undergraduate Scholarship (RAMUS) Scheme, the Puggy Hunter Memorial Scholarships and the John Flynn Placement Program (JFPP) did not appear to be affected by the ATO’s proposed approach.