Hundreds of Brisbane medical students, some underpaid during the Queensland Health pay debacle, now face paying up to $16,000 on scholarships believed to be free.

Earlier this month, an Australian Tax Office ruling on the Queensland Health Bonded Medical Scholarship left 235 Queensland medical students in tax debt.

Around 200 medical students, the recipients of the Queensland Health scholarships are being forced to pay tax on it.

Stipends of over $20,000 a year were granted to graduating students for agreeing to spend six years in regional Queensland.

The Australian Medical Association (AMA) has called upon the Queensland Health to sort out the situation that had students being told tax would be imposed on their scholarship funds.

Letters received by the students said ‘the allowance is taxable and must be declared as income’.

Queensland Health sought a ruling from the tax office whether PAYG tax applied to the scholarships, with the rulings saying the money is not to be considered as wages, meaning PAYG tax has not to be withheld by Queensland Health, though the amount is still taxable.

However, a spokeswoman for Queensland Health said the department was unable to withhold tax from scholarships, advising scholarship holders to seek independent taxation advice.

Students have agreed to work for Queensland Health as part of the scholarship deal, which will see them working in priority areas for the first six years after graduation.