Taxation of grants, scholarships, awards for merit and other awards

Date of issue
3/29/2019
Record no.
VH/2871/00 01 00/2018
Validity
3/29/2019 - Until further notice

This translation into English is not official. For official guidance, please see the publications in the national languages Finnish and Swedish.

This guidance concerns the income tax, imposed on the receipt by natural persons, of various grants, scholarships, etc., within the meaning of the act on income tax (Tuloverolaki, 1535/1992).

This memorandum of guidance does not address the taxes on other awards, for example, if an employer or a “partner” enterprise gives an award to someone or if a prize is won in a competition in the arts, or in a competition organised for the student body of a school, etc. For information on those awards, see the “Tax treatment of income in the form of awards” – Palkintojen verotus (guidance in Finnish and Swedish, link to Finnish). In the same way, this guidance does not address the tax treatment of sportsmen’s scholarships, grants, awards, etc. Sports and income received from sports are discussed on a general level in the Tax Administration’s guidance “Taxation of income from sports” – Urheilusta saatujen tulojen verotus.

1 Introduction

Provisions on the liability to pay taxes on scholarships, grants and awards for merit are laid down in section 82 of the act on income tax (Tuloverolaki 1535/1992). The act does not further specify the meaning of the terms ‘scholarship’ or ‘other grant’.

According to section 82 of the act on income tax, 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 § 82, subsection 2 of the act on income tax, 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 act on income tax 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, grants were taxed as income for the year when they first become available for the beneficiary. Under § 82, subsection 2 of the act on income tax (as amended by statute no 13/2018), scholarships, study grants, other grants and awards will be taxable income for the year when the payor pays them.

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 (§ 82, subsection 2, act on income tax). The public entities referred to in this subsection include:

  • Finnish State
  • Municipalities
  • Joint municipal authorities
  • Evangelical Lutheran Church of Finland and the Finnish Orthodox Church
  • Bank of Finland
  • Social Insurance Institution of Finland (Kela)
  • 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. For purposes of taxation, neither public nor foundation universities are public entities.

In addition, the following are not treated as being among the public entities referred to in § 82, subsection 2 of the act on income tax:

  • 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 act on income tax, grants, scholarships and study grants received from a public entity or from the Nordic Council are exempt from tax, on the condition that they have been awarded for studies or for academic or artistic endeavour. In the same way, awards for merit granted by the parties referred to above, for academic, for artistic or for non-profit activities are tax-exempt. Payments for other purposes made under the name of the grant or scholarship are not tax-exempt income under § 82.

2.2 Grants and scholarships received from private entities

Scholarships and grants from 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 of Finland, after the deduction of the expenses for the production of 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 (§ 82, subsection 2).

Private grantmakers means all other parties except the public entities and the Nordic Council referred to in § 82, subsection 2.

Maximum tax-exempt amounts of grants awarded annually in different years:

 
Year Amount (€)
2019 €20,728.44
2018  €20,461.72
2017 €20,309.40
2016 €20,293.40
2015 €20,070.64
2014 €19,897.24
2013 €19,728.90

2.3 Determining whether the income is taxable

Only grants or scholarships awarded for studies, academic research or an artistic activity may be tax-exempt income (§ 82, subsection 2 of the act on income tax). 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, under the pertinent case-law, although the payor had designated and called an amount of money a scholarship, the fact that it was paid in compensation for a specific job made it taxable earned income for the beneficiary (Supreme Administrative Court's ruling no 1976/4136).

If necessary, the beneficiary (grant recipient) must provide information in order to explain why the grant is exempt from tax. Key information for this purpose may include the award decision or notification, i.e. a document where the grantor has set out the terms and conditions for awarding the grant, etc.

When deciding whether or not a grant must be taxed as part of the beneficiary’s taxable earned income, the following factors are important:

  • Who is the beneficiary?
  • Was an open call for grant applications held?
  • Does the beneficiary work for the grantor as an employee?
  • Is the grant otherwise related to any work done by the beneficiary?
  • Was the grant awarded without an application or request?
  • What kind of information was required of the beneficiary to present to the grantor by way of describing the beneficiary’s activities to be financed by the grant money?
  • Are there any special terms and conditions for awarding the grant?
  • Was the grant awarded by a non-profit entity?

The case-law regarding the tax treatment of grant income contains a court case where a grant awarded for studies was deemed taxable earned income because the circle of possible beneficiaries was restricted to the members of a certain family (Supreme Administrative Court's ruling no 2013:156).

2.4 Grants and scholarships received from the beneficiary’s employer

A grant or scholarship can only be exemptible from income taxes if it was awarded for studies or for an academic or artistic activity (§ 82, act on income tax). From the perspective of the payor, the grant or scholarship must be a payment made not as a remuneration in exchange for something; in other words, no financial or other benefit to the payor can be connected with the giving of the grant or scholarship.

Generally, if the grant is awarded by the beneficiary’s employer, the payment is compensation for work done. Even if an employer-provided compensation were called a grant, it is still treated as wages for purposes of taxation. However, if the grant is awarded for studies aimed at maintaining professional competence or for supplementary studies, it may be equated with employer-provided training (Supreme Administrative Court’s rulings 1988-B-587 and 1989-B-521). “Taxation of training provided by the employer” – Työnantajan kustantaman koulutuksen verotus (in Finnish and Swedish, link to Finnish).

The liability to pay taxes on a paid-out compensation for work cannot be evaded by measures like directing a payment intended for the person who carried out the research to the educational institution, which would then repay the amount on “as a grant” to the person who pursues academic studies there. When money is paid to an individual as a remuneration for any work that the individual has done, it is considered earned income for the beneficiary, i.e. the payee.

Remuneration is subject to tax when it is income earned by the university's research staff for the research they do. Research staff may, however, be awarded tax-exempt grants for research work in addition to their pay as research staff. Exemption from tax is conditional on the grants meeting the general criteria for exemption from taxes.

The following are examples of university posts in which the income earned is considered wages, i.e. remuneration for research staff:

  • Assistant and Research Assistant
  • Adjunct Professor
  • Amanuensis
  • 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.

2.5 Library grants

To pay out library grants (compensation for the right to have the books publicly available for lending) to writers, authors and translators is governed by the Act on Public Lending Right Compensation Grants and Subsidies (236/1961). Grants falling into this category are paid because works written by authors and translated by translators are made available in 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, no expenses incurred in artistic activities can be claimed against library-grant income.

However, a compensation based on the number of borrowed books, on the other hand, is income subject to tax. This type of compensation may be paid retroactively as a lump sum. In this case, to reduce taxes, the beneficiary can ask for income spreading. Read more about spreading and equalisation of income: “Income spreading agreements” – Tulontasaus ansiotulojen verotuksessa (in Finnish and Swedish, link to Finnish).

2.6 Public-display grant for artists

Grants can be paid to visual artists on the grounds of enabling the public display of the works they have made, and of the 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 a working grant and treated as tax-exempt income under section 82 of the act on income tax.

2.7 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 act on income tax. How they are treated for tax purposes depends on the true nature of the payment.

If an amount of money or a subsidy from the local municipality or some other corresponding financial support was actually granted for studies, academic research or artistic activities, it can be deemed a tax-exempt grant or scholarship, as defined in section 82 of the act on income tax, no matter what name has been given to it. 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 for the student receiving it, despite being granted on the grounds that the student is living in the municipality.

However, if the beneficiary is only eligible for receiving the money because he or she lives in the municipality or has started living there, the amount, scholarship, grant, etc. is not tax exempt. For example, incentives paid by municipalities to attract new residents to the community are not exemptible. Baby bonuses granted by municipalities are also treated as taxable earned income as referred to in sections 29 and 61 of the act on income tax. Eligibility for a baby bonus depends on the parents’ own choices and actions because it 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 gift, because a gift must be given without having received something in return.

2.8 The year treated as the tax year (periodization)

Up to 2018, grants were taxed as income for the year when they first become available for the beneficiary. As a result, for tax assessment purposes for 2018 or earlier, it does not matter when a grant was actually withdrawn to be available for spending.

Starting 2019, under § 82, subsection 2 of the act on income tax (as amended by statute no 13/2018), scholarships, study grants, other grants and awards will be taxable income for the year when the payor pays them.

It may be that a grant is awarded during one year but the expenses associated with it will materialise later. In that case, the beneficiary must pay tax when receiving the amount but cannot deduct expenses. In such a case, account can be taken of future expenses by setting up reserves as appropriate. Provided that the beneficiary presents a sufficient explanation of such a cost reserve, it can be deducted from the grant. Such expenses are often already known by the time when the Tax Administration assesses the taxes for the year.

Grantors of grants and awards for merit must send a report (guidance in Finnish and Swedish, link to Finnish) to the Tax Administration with regard to all paid-out scholarships, study grants, library grants, public-display grants and awards where the combined total value given to a single beneficiary during the calendar year is at least €1,000.

2.9 Accounting for the deductible 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 (§ 82, subsection 2, act on income tax). The natural deductions referred to in § 82, subsection 2 are research-related direct expenses such as expenses arising from purchases of learning materials, of the services of personal assistants, travel, typing.

If the scholarship or other grant was awarded for a specific job, trip or research project, no expenses can be deducted other than those relating to that job or research. 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 beneficiary was awarded a grant of €25,000 by a grantor that is not a public entity. In addition, an art works grant of €1,000 was awarded to him for a trip. However, the trip expenses reached €1,200. The €200 in excess of the art works grant cannot be deducted from the other grant money. Instead, the excess portion is deductible as general expenses for the production of 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 the purpose of subsistence (Supreme Administrative Court’s ruling 2.2.2007/230 and 2010:4). Instead, the costs are deductible from the grant 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 the artist’s 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. If the artist receiving the grant has no other income, the tax accounting for that year will result in an allowable loss for him or her.

2.10 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 grants received from public-sector organisations and private actors is greater than the annual state artist grant, the part of the exceeding amount received from the private sector is taxable.

In order to calculate the total amount of grants, expenses relating to the production of income must be deducted first (§ 82, subsection 2, act on income tax). In other words, the net amount of the grant is applied in the calculation.

If grant money was given to a beneficiary for the same research project, both by a public entity and by a non-public grantor, the research expenses must be divided between the received amounts as appropriate. If the grant money is given for different research projects, the related expenses must be separated.

Example 3: Calculating the taxable portion of a grant (tax year 2018)

 
Grants given and research expenses accounted for in 2018
Grant from a public entity €11.445
Grants from other than public entities €28,000
Total grants €39,445
Total expenses €8,255
 
Allocation of expenses to grants from a public entity, and other grants
Grant from a public entity:
(€11,445/€39.445) × €8,255
€2,395.20
Other grants:
(€28,000/€39,445) × €8,255
€5,859.89
 
Net amounts of grants
Grant from a public entity
€11,445.00 — €2,395.20
€9,049.80
Other grants: 
€28,000.00 — €5,859.89 
€22,140.11
Totals €31,189.91

A grant received from a public entity is fully tax-exempt. The taxable portion of a grant awarded by a party other than a public entity is €10,728.19 – in other words, the amount by which the total net grant money (€31,189.91) exceeds €20,461.72, the amount of the State artist grant (for 2018).

No expenses must be allocated for a subsistence allowance or a working grant intended for living expenses. Instead, expenses are primarily deductible from other received grants depending on what activities the expenses have supported. However, if the expenses are unrelated to research or work to be performed under other grants, the deductible expenses must be deducted from the beneficiary’s other earned income as general expenses for the production of income. Notwithstanding this, deductible expenses do not include the beneficiary’s normal living expenses.

2.11 Grants received by a research group

The group's shared expenses must first be deducted from a grant awarded to the group. The remaining portion is then allocated to the members, and they can also deduct their own research-related expenses from it. If a request for information is made to the group regarding how the grant money was divided and shared, further information must be provided. Grants awarded to groups of researchers can be treated as grant income only for the members who participate in the research work.

If the group of researchers hires assistants, the compensation paid to the assistants is treated as paid-out wages even if it were funded with a grant awarded to the research group expressly for the purpose of paying compensation to assistants.

3 Taxes on awards received for merits

The principles of taxability applied on awards for merit are the same as those on grants. An award for merit is tax-exempt on condition that it was awarded in recognition of academic, artistic or non-profit activities (§ 82, subsection 1, line 2, act on income tax). 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 (see the Central Tax Board’s preliminary ruling no KVL 243/1976), and cash or non-cash prizes given to Olympic winners by their hometowns.

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 (§ 82, subsection 3, act on income tax).

4 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 (§ 82, subsection 1, line 3, act on income tax). Such pensions may be granted on the basis of any of the following Government resolutions:

  • Government resolution (no 24.1.1974/75) on Supplementary Pensions for Artists
  • Government resolution (no 28.2.1974/216) on supplementary family pensions connected to supplementary artist pensions
  • Government resolution (no 6.1.1977/37) on Supplementary Journalist Pensions
  • Government resolution on supplementary pensions (official decision no 30.12.1959/Supplementary pension granted by the Government on special grounds according to §24 of the Ministry of Finance’s Circular no 6660).

If the beneficiary has a pension, falling into any of the above categories, granted 1 January 1984 or later, it is treated as taxable earned income.