Taxation of grants, scholarships, awards for merit and other awards
- Date of issue
- 6/15/2018 - 3/28/2019
This guidance concerns the income taxation of different grants, scholarships, awards for merit and other awards made to natural persons.
This guidance does not address the taxation of coaching or training grants, scholarships or awards for merit made to top athletes. The taxation of athletes is discussed in a separate guidance issued by the Tax Administration.
This guidance has been updated due to the amendment of Section 82, subsection 2 of the Income Tax Act (Tuloverolaki 1535/1992). Under the amended Section 82, subsection 2 of the act amending the Income Tax Act (Laki tuloverolain muuttamisesta 13/2018), as of the assessment of tax year 2019, scholarships, study grants, other grants and awards will be taxable income for the year during which they are paid.
Provisions on the liability to pay taxes on scholarships, grants and awards for merit are laid down in Section 82 of the Income Tax Act (Tuloverolaki 1535/1992). The Act does not further specify the meaning of the terms 'scholarship' or 'other grant'.
According to Section 82 of the Income Tax Act, the following are not taxable income
- a scholarship or other grant awarded for studies, academic research or artistic activities
- an award for merit for academic, artistic or non-profit activities.
Under Section 82, subsection 2 of the Income Tax Act, scholarships, study grants, other grants and awards of the government, a municipality, another public entity or the Nordic Council, for example, are tax-exempt without any upper limit. Notwithstanding this, scholarships, study grants, other grants and awards of other than public entities or the Nordic Council are taxable insofar as, during the tax year, their total amount, when combined with the total amount of scholarships, other grants, study grants and awards of public entities and the Nordic Council exceeds the amount of the annual artist grant awarded by the State after the deduction of expenses incurred in acquiring and maintaining the income. The Arts Promotion Centre Finland confirms the tax-exempt amount of the artist grant annually.
Also considered as tax-exempt grants under Section 82, subsection 4 of the Income Tax Act are the grants and subsidies ("library grants") referred to in section 1 of the Act on Public Lending Right Compensation Grants and Subsidies (236/1961).
Up to 2018, a grant is always considered income for the tax year in which it is available for withdrawal. Under Section 82, subsection 2 of the act amending the Income Tax Act (Laki tuloverolain muuttamisesta 13/2018), as of the assessment of the tax year 2019, scholarships, study grants, other grants and awards will be taxable income for the year in which they are paid.
This guidance also addresses the taxation of art competition awards (Section 83, Income Tax Act), school competition awards (Section 84, Income Tax Act) and lottery prizes (Section 85, Income Tax Act).
2 Grants and scholarships
2.1 Grants and scholarships awarded by a public entity or the Nordic Council
Grants, scholarships and study grants awarded by a public entity or the Nordic Council are fully exempt from taxation (Section 82(2), Income Tax Act). The public entities referred to in this subsection include:
- Finnish State
- Joint municipal authorities
- Evangelical Lutheran Church of Finland and the Finnish Orthodox Church
- Bank of Finland
- Social Insurance Institution of Finland
- Central Arts Council
- Regional art councils
- State scientific committees collectively referred to as the Academy of Finland
- Finnish Work Environment Fund, operating under the auspices of the Ministry of Social Affairs and Health.
According to the Universities Act (558/2009), as of 2010, Finnish universities and higher education institutions have not been public entities. Most universities are independent institutions under public law, while certain universities are foundations governed by private law. Neither public nor foundation universities are public entities for tax purposes.
The following are also not included in the public entities referred to in Section 82, subsection 2 of the Income Tax Act
- Foreign states
- Foreign public entities
- Government-owned or municipality-owned corporations, such as limited liability companies, because they are not legal entities under public law
- Private-sector associations and foundations, registered associations and political parties
- The Finnish Cultural Foundation.
Pursuant to Section 82 of the Income Tax Act, grants, scholarships and study grants disbursed by a public entity or the Nordic Council are exempt from tax on condition that they have been awarded for studies or for academic or artistic activities. Any award for merit granted by such parties for academic, artistic or non-profit activities is similarly tax-exempt. Payments for other purposes made under the name of the grant or scholarship are not tax-exempt income, as defined in the above-mentioned section.
2.2 Grants and scholarships awarded by private entities
Scholarships and grants disbursed by private entities for academic, artistic or non-profit activities are exempt from tax if their total amount, when combined with the total amount of the scholarships, other grants, study grants and awards disbursed by public entities and the Nordic Council, is at most equal to the amount of the annual artist grant awarded by the State after the deduction of the expenses incurred in acquiring and maintaining the income. If the net amount of grants etc. during the tax year was more than the maximum amount of the annual artist grant, the portion exceeding the maximum limit is taxable earned income (Section 82(2), Income Tax Act).
Private grantmakers means all other parties except the public entities and Nordic Council referred to in Section 82, subsection 2 of the Income Tax Act.
The maximum tax-exempt amounts of grants awarded annually were as follows:
2.3 Clarification of taxability
Only grants or scholarships awarded for studies, academic research or an artistic activity may be tax-exempt income (Section 82, Income Tax Act). Grants and scholarships awarded for other purposes are always taxable earned income, regardless of the granting party.
The taxability of scholarships and grants is determined on a case-by-case basis. It is important to distinguish academic and artistic activities from working for others. When working for others, the grant is considered wages, regardless of what name is given to the compensation when it is paid. For example, despite calling it a scholarship, compensation paid for performing a specific job was deemed taxable earned income in case law (Supreme Administrative Court's ruling 29.10.1976/4136).
If necessary, the beneficiary (grant recipient) must clarify why the grant is exempt from tax. Key clarifying information includes the award decision or grant notification in which the grantor and the terms and conditions for awarding the grant are specified.
The assessment of the factors affecting the taxability of a grant must take account of the following:
- Who is the beneficiary?
- Was an open call for applications held for the grant?
- Is the beneficiary employed by the grantor?
- Is the grant given as consideration for work done?
- Was the grant awarded without an application?
- What clarifying information did the beneficiary have to present?
- Are there any special terms and conditions for awarding the grant?
- Was the grant awarded by a non-profit entity?
A grant awarded for studies was deemed taxable earned income in case law based on overall consideration, as the circle of beneficiaries was actually limited to the members of a certain family (Supreme Administrative Court's ruling No 2013:156).
Supreme Administrative Court's ruling No 2013:156
Person A was given a grant of €15,000 for studies in a university of applied sciences by a family fund. The fund was established based on a testamentary disposition by Person B, who died in 1952. According to the disposition, the fund was to annually distribute its net profits as financial support for the children of the testator's siblings and their lineal descendants born in marriage, or adopted children, or the children's descendants, who are in need of financial support for their education. The provisions of the will required a call for applications to be published annually in at least two newspapers.
In 2006–2009, 44–60 people applied for financial support from the fund, and in that same time period, financial support was granted to 44–51 people. In 2008 and 2009, financial support was granted to all 44 and 51 applicants who submitted an application in those years. The amounts of grants awarded in 2007 were €5,000 for studies in general upper secondary school, €10,000 for vocational studies, and €15,000 for university studies. Person A had also been given a grant by the family fund in 2002–2006 for studies in general upper secondary school, for example. The Supreme Administrative Court ruled that the grant could not be deemed tax-exempt income for Person A. Tax year 2007.
3 Special circumstances
3.1 Grants and scholarships awarded by employers
A grant or scholarship is tax-exempt only if it was awarded for studies or an academic or artistic activity (Section 82, Income Tax Act). The grant or scholarship must also not be paid by the payer as a consideration; in other words, no financial or other advantage may be incurred by the payer from awarding the grant or scholarship.
If the grant is awarded by the beneficiary's employer, the payment is usually compensation for work done. In such a case, even if the compensation was called a grant, it is still wages. If, however, the grant was awarded for studies aimed at maintaining professional competence or supplementary studies, it may be equated with training provided by the employer (Supreme Administrative Court's rulings 1988-B-587 and 1989-B-521). Taxation of training provided by the employer.
The liability to pay taxes for compensation for work cannot be evaded by, for example, directing a payment intended for the person who carried out the research to the education institution, which then forwards the payment to the person studying at the institution, calling it a grant. When the payment is actually remuneration for work, it is considered earned income for the payee.
Remuneration is subject to tax when it is income earned by the university's research staff for doing research. Research staff may, however, be awarded tax-exempt grants for research work in addition to any remuneration they are paid as research staff. Exemption from tax is conditional on the grants meeting the general criteria for exemption from taxes.
The following are examples of posts in which the income earned is considered remuneration for research staff:
• Assistant and Research Assistant
• Adjunct Professor
• Research Professor
• Senior Researcher and Junior Researcher
• Academy Research Fellow and Academy Professor [research posts referred to in section 9 of the Act on the Academy of Finland (922/2009)].
Some of the above titles have been replaced with new ones. Currently, the most common titles of university research staff are: doctoral student (PhD student), Post-doctoral Researcher, Research Scientist, Early-Stage Researcher, Project Researcher, University Researcher and Senior Research Scientist.
3.2 Library grants
The payment of library grants (lending right compensation) is based on the Act on Public Lending Right Compensation Grants and Subsidies (236/1961). Library grants are paid because works written by authors and translated by translators are made available in public libraries free of charge.
Pursuant to Section 82, subsection 4 of the Income Tax Act (Tuloverolaki 1535/1992), library grants are tax-exempt income. A library grant is a working grant intended for covering living expenses. For this reason, it must not be used to cover expenses incurred in artistic activities.
Lending right compensation based on the number of borrowed books, on the other hand, is income subject to tax. Lending right compensation may be paid retroactively, which may make it subject to income equalisation. Read more about income equalisation here.
3.3 Public display grant for artists
A grant may be paid to visual artists on the grounds of enabling the public display of works they have made and works that are under public ownership (Act on Compensation Grants to Visual Artists 115/1997). Such a public display grant funded by the State is by nature a working grant and tax-exempt income under Section 82 of the Income Tax Act.
3.4 Grants and subsidies awarded by municipalities to their residents
Municipalities may grant subsidies to their residents (e.g. student financial aid or baby bonus) which are not deemed tax-exempt social benefits under Section 92 of the Income Tax Act. How they are treated for tax purposes is determined on the basis of the true nature of the payment.
If a subsidy granted by the municipality or some other corresponding financial aid payment was actually granted for studies, academic research or artistic activities, the payment may be deemed a tax-exempt grant or scholarship, as defined in Section 82 of the Income Tax Act, no matter what name has been given to the payment. A scholarship or other grant awarded by the municipality is not income subject to tax on the grounds of the municipality only awarding them to its residents. Notwithstanding this, the criteria for tax exemption must be met.
Example 1: A municipality grants a scholarship to a student for pursuing their studies. The scholarship is tax-exempt despite being granted on the grounds that the student is living in the municipality.
However, if the recipient is only eligible for the scholarship based on living in the municipality or becoming a resident there, the scholarship or other grant is not tax exempt. For example, incentives paid by municipalities to attract new residents to the community are not exempt from tax. Baby bonuses granted by municipalities are also earned income subject to tax, as referred to in Section 29 and Section 61 of the Income Tax Act (Tuloverolaki 1535/1992). Eligibility for a baby bonus depends on the parents' own choices and actions, as the baby bonus is paid to the parents of a newborn for having the baby while living in the municipality. This means that the bonus cannot be deemed a monetary gift paid without a consideration.
4 Expenses deducted from grants
4.1 Tax year of grant (deferral)
Up to 2018, a grant is always income for the tax year in which it is available for withdrawal. As a result, for tax assessment purposes for the tax year 2018 or earlier, it does not matter when the grant is actually withdrawn.
Under the amended Section 82, subsection 2 of the act amending the Income Tax Act (Laki tuloverolain muuttamisesta 13/2018), as of the assessment of tax year 2019, scholarships, study grants, other grants and awards will be taxable income for the year during which they are paid.
The way the grant was awarded may prevent the deduction of the expenses associated with it during the grant's year of assessment. In such a case, account can be taken of expenses incurred in a later year, in such a manner that any cost reserves are deducted from the grant on the basis of clarifying information. Such expenses are often already known by the time the tax year's assessment is implemented.
Grantors of grants and awards for merit must report to the Tax Administration with regard to all scholarships, study grants, library grants, public display grants and awards, where the combined total value given to a single recipient during the calendar year is at least €1,000.
4.2 Allocation of expenses
To calculate the taxable portion of a grant disbursed by a public entity or the Nordic Council, any natural deductions from the grant must be made first (Section 82(2), Income Tax Act). The natural deductions referred to in Section 82, subsection 2 include expenses arising from the acquisition of learning materials, the use of personal assistants, travel and transcription, as well as other research-related direct expenses.
If the scholarship or other grant was awarded for a specific job, trip or research, no expenses other than those associated with said job or research shall be allocated to it. A scholarship or grant awarded for a specific work of art, on the other hand, is commonly referred to as an art works grant.
Example 2: The recipient has been awarded a grant of € 25,000 by a party other than a public entity. In addition to the grant, the recipient has also been awarded an art works grant of € 1,000 for a trip. The travel expenses associated with the trip amounted to € 1,200. The € 200 in expenses in excess of the art works grant are not deductible from the other grant money. Instead, the excess portion is deductible as general expenses incurred in acquiring or maintaining income.
The other types of grant include a subsistence allowance or working grant, which are intended to cover living expenses. Pursuant to case law, it has been ruled that costs associated with research work are not deductible from a working grant awarded for securing subsistence (Supreme Administrative Court's ruling 2.2.2007/230 and 2010:4). Instead, the costs are deductible from the recipient's other income.
Expenses incurred in artistic work may not even partly be allocated to an artist grant awarded by the State for securing and improving working conditions (Supreme Administrative Court's ruling 1983-B-II-516). In other words, expenses incurred in artistic work may not be allocated to a subsistence allowance or working grant. Instead, they are deductible from the artist's other income. In the absence of other income, a loss will be realised for the artist for tax purposes.
4.3 Calculating the taxable portion of grants
If the recipient's grants were disbursed by both a public entity and private parties, the total amount of the grants will affect whether the portion received from a private party is taxable or tax-exempt income. If the total amount of grants received from public entities and private parties is higher than the amount of an annual artist grant, the portion of the exceeding amount received from private grantmakers is subject to tax.
In order to calculate the total amount of grants, the amount of expenses incurred in acquiring and maintaining income must be deducted from the grants first (Section 82(2), Income Tax Act). In other words, the net amount of the grant is applied in the calculation.
If grant money was awarded to the recipient for the same research by both a public entity and another party, the research expenses shall be allocated in proportion to the amounts of the grants received. If the grant money is allocated to different research studies, expenses must also be allocated separately for each research project.
Example 3: Calculating the taxable portion of a grant (tax year 2015)
|Grants and research expenses in 2015|
|Grant disbursed by a public entity||€ 11,445|
|Grants disbursed by parties other than public entities||€ 28,000|
|Total grants||€ 39,445|
|Total expenses||€ 8,255|
|Allocation of expenses to grants disbursed by a public entity and other grants|
|Grant disbursed by a public entity:
(€ 11,445/€ 39,445) * € 8,255
(€ 28,000/€ 39,445) * € 8,255
|Net amounts of grants|
|Grant disbursed by a public entity
€ 11,445 – € 2,395.20
€ 28,000 – € 5,859.89
A grant disbursed by a public entity is fully tax-exempt. The taxable portion of a grant awarded by a party other than a public entity is € 11,119.27, i.e., the amount by which the total net amount of the grant money (€ 31,189.91) exceeds the amount of artist grant awarded by the State € 20,070.64 (in 2015).
No expenses are allocated for a subsistence allowance or working grant intended for covering living expenses. Instead, expenses are primarily deductible from other grants based on how and where they are allocated. However, if the expenses are unrelated to research or work to be performed under other grants, the deductible expenses must be deducted from the recipient's other earned income as general expenses incurred in acquiring or maintaining income. Notwithstanding this, deductible expenses do not include normal living expenses.
4.4 Research group grants
The group's common expenses are first deducted from grants awarded to research groups. The remaining portion is then allocated to the research group's members, and they can also deduct their own research-related expenses from it. If necessary, clarifying information must be provided on how the grant was allocated among the research group's members. Grants awarded to research groups should only be allocated to those members of the research group who participate in the actual research work.
If the recipient research group hires assistants, the compensation paid to the assistants is considered wages even if the wage payments were funded with a grant awarded to the research group for the purpose of paying compensation to assistants.
5 Taxability of other awards
5.1 Awards for merit
The principles of taxability applied to awards for merit are the same as those applied to grants. An award for merit is tax-exempt on condition that it was awarded in recognition of academic, artistic or non-profit activities (Section 82(1)(2), Income Tax Act). Awards for merit are given afterwards, whereas scholarships and other grants are usually given beforehand.
Examples of awards for merit in recognition of non-profit activities include an ore exploration award (Central Tax Board's preliminary ruling KVL 243/1976), and cash or non-cash prizes given to Olympic winners by their municipality of residence.
Based on an application, the Ministry of Finance may decide that an award given in recognition of academic, artistic or non-profit activities by a party other than a public entity or the Nordic Council is fully tax-exempt income (Section 82(3), Income Tax Act).
5.2 Pension for meritorious service
A pension for meritorious service in academic, artistic or non-profit activities, or a family pension connected thereto, granted by the government before 1 January 1984, is also tax-exempt income (Section 82(1)(3), Income Tax Act). Such pensions may be granted on the basis of any of the following Government resolutions:
- Government Resolution on Supplementary Pensions for Artists (75/1974)
- Government resolution on supplementary family pensions connected to supplementary artist pensions (Päätös ylimääräisiin taiteilijaeläkkeisiin liittyvistä ylimääräisistä perhe-eläkkeistä 216/1974)
- Government Resolution on Supplementary Journalist Pensions (37/1977)
- Government resolution on supplementary pensions (Päätös ylimääräisistä eläkkeistä 30.12.1959/Supplementary pension granted by the Government on special grounds according to Section 24 of the Ministry of Finance's Circular 6660).
If any of the above-mentioned pensions was granted on 1 January 1984 or later, it is taxable pension income counted as earned income subject to income tax.
5.3 Art competition awards
According to Section 83 of the Income Tax Act, an award won in a significant national or international competition in the field of art is not taxable income. On the basis of a proposal by the Ministry of Education and Culture, each year the Ministry of Finance announces all the competitions in which the awards given are tax-exempt (Decree of the Ministry of Finance on the exemption from tax of art competition awards, VvMa taidekilpailupalkintojen verovapaudesta).
Awards won from other competitions in the field of art form part of the recipient's earned income subject to income tax.
5.4 School competition awards
Non-cash or cash-equivalent awards of competitions organised for pupils at an upper secondary school, evening upper secondary school, vocational school or other corresponding educational institution are not taxable income (Section 84, Income Tax Act).
Based on a list of examples, the educational institutions referred to in Section 84 of the Income Tax Act have been limited to institutions that offer lower secondary education. According to Section 2 of the Universities of Applied Sciences Act (932/2014), universities of applied sciences belong to the higher education system. Since universities of applied sciences and universities form the higher education system, they cannot be equated to the education institutions listed in Section 84 of the Income Tax Act.
An award won from a school competition is always subject to tax if it is given directly in cash or a cash equivalent, such as a gift card chosen by the winner or an investment fund portion. Although the awards referred to in the provision are usually of low value, such awards cannot be determined subject to tax, on the grounds of the possibility of their value being higher in some cases. A car won by a student for a year may therefore be a tax-exempt school competition award. In such a case, an external party (the car dealership) gives the student use of the car on the grounds that he or she did well in the competition. The award is therefore given to the student based on competition success rather than work performance.
5.5 Lottery prizes
Prizes won in a lottery, as referred to in Section 2 of the Lottery Tax Act (Arpajaisverolaki 552/992), or in a lottery implemented in an EEA Member State in accordance with its relevant legislation, are not taxable income under Section 85 of the Income Tax Act (Tuloverolaki 1535/1992). However, lottery prizes that can be deemed reasonable consideration for a specific performance, or wages, as defined in the Tax Prepayment Act (Ennakkoperintälaki 1118/1996), are income subject to tax.
Any income on which the Lottery Tax Act applies is exempt from income tax. The organiser of the lottery pays the lottery tax on such income. Read more about the application of the Lottery Tax Act here.
5.6 Other awards
Awards or prizes other than those referred to in sections 5.1–5.5 are taxable income for the recipient if the Lottery Tax Act (Arpajaisverolaki 552/1992) does not apply to them, or if they were not won in a lottery implemented in an EEA Member State in accordance with its relevant legislation.
In other words, payments made under the name of an award or a prize are taxable income for the recipient if
- the payment is made as a consideration for work or another performance
- the payment is made by an employer
- winning the prize was not based on chance
- the source was not what is known as a public draw
- the prize was won on the grounds of doing well in a competition
- the prize was won in a lottery implemented in a non-EEA country.
For example, prizes won from quizzes and sports, ice fishing and other competitions are taxable income for the recipient if the prize was won on the grounds of doing well in the competition (placement or performance). If this is the case, the recipient must report the award or prize on their tax return. The competition organiser reports the awards and prizes it has given out on an annual information return (VEROH 7801) using payment type code H4. The annual information return is only used to report awards or prizes valued at € 100 or more.
A trip abroad, or an equivalent benefit of monetary value disbursed by the employer by organising a draw among the staff, constitutes earnings for the employee. Similarly, prizes won from sales, customer acquisition and other similar competitions organised by the employer are employee earnings.
However, for tax purposes, non-cash prizes that are won during a sports day or in a fitness challenge organised by the employer for staff or in a lottery implemented during another type of staff event are tax-exempt benefits, as referred to in Section 69, subsection 1, paragraph 4 of the Income Tax Act (Tuloverolaki 1535/1992). The value of a tax-exempt non-cash prize must not exceed € 100.
5.7 Non-cash awards from competitions
Taxable non-cash awards from competitions are valued at the fair value, in other words, based on the value of the goods if they were sold immediately. The valuation is made from the recipient's perspective. If the received non-cash award is of no use to the recipient and the award cannot easily be converted to cash, its monetary value should be determined while moderating the value based on the relevant clarifying information.
Awards disbursed by foreign sources are valued at their far value, by assessing them against the price level in Finland. If import tax is payable on a foreign-source award, the amount of tax is deducted from the goods' fair value and the difference is taxable income for the recipient.