Chapter 5: Education

Date

13 November 1998

The Government’s policy

In its policy document, Tax Reform: not a new tax, a new tax system, and in the associated ‘fact sheet’ the Government said the following educational services are to be GST-free:

tuition at or through a pre-school, primary school or secondary school;
tuition provided at a college, TAFE, university or other recognised institution that leads to a degree, diploma, certificate or other similar qualification;
the provision of accommodation at boarding schools;
accommodation at University Colleges will be input taxed in line with the treatment of other long-term accommodation.

Some education-related activities such as recreational and short occupational courses, holiday camps, sporting and craft programs will be taxable.

Additional activities that would normally be taxed will not become GST-free simply because a school acts as a purchasing agent. Goods and services sold or leased to students by an educational institution will be taxable in the normal way. Taxable activities include:

the food component of boarding fees and food and school tuck-shop sales;
school uniforms and bus services;
fees charged for equipment hire; and
sales of goods for fundraising purposes.
If fundraising is done by an organisation below the threshold for registration ($100,000 for non-profit bodies) the GST will not apply to the sales.

The Prime Minister also stated in a letter dated 24 September 1998 to the Australian Vice-Chancellors’ Committee:

‘…tuition includes all activities…as part of providing tuition. Thus research and scholarship activities of universities and school provided services which contribute to the achievement of the National Goals of Schooling are all GST-free.’

‘A distinction is drawn between boarding accommodation provided at schools for school-age students and accommodation at tertiary institutions because the latter directly competes with accommodation provided outside the institution.’

‘Courses which are preparatory to the educational courses which are GST-free are also GST-free. …It is not necessary that a student actually take out a certificate or a qualification provided that the tuition provided could contribute to such a certificate or qualification…’

‘…overseas students studying in Australia will not pay GST on education services which are GST-free for Australian students.’

In its policy document, Tax Reform: not a new tax, a new tax system, the Government said that the precise range of recognised institutions and courses that qualify as GST-free will be finalised following advice from the Tax Consultative Committee.

The Committee’s framework for assessing the scope of GST-free education

In its policy document the Government provided the rationale for making educational services GST-free. It stated that:

‘Like health and medical care, education receives significant government assistance. Public primary and secondary education is provided free of charge and significant assistance is given to private schools and tertiary and vocational education. Applying the GST to education would discriminate against private providers.’

This also accords with the Committee’s Terms of Reference, which requested it to:

‘…ensure the tax system minimises any discrimination between private and public provision of goods and services in the GST-free areas.’

Many submissions argued that education was a ‘public good’ and on this basis alone should receive special tax treatment. The Committee, while recognising the ‘merit’ argument, chose to focus on the level ‘playing field’ guidelines given to it by the Government. Its recommendations are framed in the context of the necessity to ensure that recognised public and private providers of educational goods and services are equitably treated.

Key issues for consideration

A mechanism for defining GST-free courses and institutions

The Committee did not accept the proposal by a number of organisations that some form of ‘blanket’ GST-free status be granted with reference to a class of institution, including the desire by some organisations that such institutions be exempted from having to pay GST up-front on their purchases (or inputs) as is the case under the current Wholesale Sales Tax provisions. As noted earlier, to do otherwise would run counter to the Committee’s Terms of Reference and the overall design of the GST, where tax is levied at each point in the supply chain and where those entities who are GST-registered are then able to claim a tax credit for the GST paid on their inputs.

In determining the scope of GST-free courses and institutions, the Committee has taken the approach that it is most desirable, where possible, to use existing legal definitions and to add to these to the extent necessary. Such an approach is more likely to result in the Government receiving recommendations which are in a form that is readily transferable into legislation. It also adds to simplicity and clarity in understanding the Committee’s recommended scope of GST-free education.

After due consideration, the Committee came to the view that an appropriate way to define the scope of many of the courses and institutions qualifying for GST-free treatment is by reference to the Education Minister’s Determination of Education Institutions and Courses under Subsections 3(1) and 5(D) of the Student Assistance Act 1973.

The Minister for Education, Training and Youth Affairs Minister retains the power, under the Student Assistance Act 1973, to make determinations identifying approved education institutions and courses. These determinations are referred to in the Social Security Act 1991 to identify courses which qualify for particular types of assistance (for example, Youth Allowance).

The Determination defines the following classes of educational institutions:

Secondary Schools Government schools or non-Government schools (excluding private-for-profit schools) that are recognised by the Government;
Special Schools as for secondary school but conducted for students with a disability;
Technical and Further Education (TAFE) institutions an organisation or training institution registered by the State or Territory in accordance with the Australian Recognition Framework to provide vocational education and training and conducted by a Government authority;
Higher Education Institutions recognised under specified parts of the Higher Education Funding Act 1988;
Non-Government Higher Education not listed in the relevant parts of the Higher Education Funding Act 1988 but recognised by the State or Territory Government; and
Non-Government Registered Training Organisations organisations or training institutions registered by the State or Territory in accordance with the Australian Recognition Framework to provide vocational education and training and not conducted by a Government authority.

In addition, the Determination provides schedules of types of courses that are to be considered approved secondary or tertiary courses conducted in approved educational institutions. In general, the approved courses rely on accreditation by the relevant State or Territory registration authority. The Determination specifically excludes ‘hobby’ and ‘leisure’ courses.

The Determination also covers English as a Second Language, Adult and Community Education, bridging, preparatory and remedial literacy and numeracy courses provided they are accredited with the rele
vant State or Territory accreditation authority and are not classified as ‘hobby’ courses. This State and Territory registration and accreditation process is a tested and accepted mechanism for ensuring the value and quality of courses around Australia.

While the Determination forms a useful basis for defining those courses and institutions which should attract GST-free treatment, the Committee has identified additional courses and institutions warranting GST-free treatment.

Institutions and courses not included in the Determination and which would need to be included in the GST legislation, or brought within the ambit of the Determination, include:

recognised kindergartens, pre-schools and primary schools;
private-for-profit schools delivering curriculums recognised by the relevant State/Territory Education Department;
special education centres;
These centres cater to the severely disabled and their prime focus is on providing therapeutic assistance but they also offer some educational instruction which might be either curriculum-based or preparatory to schooling.
Government and non-government centres are defined in Schedule 9 to the State Grants (Primary and Secondary Education Assistance) Act 1996.

Government centre means a place conducted by or on behalf of the Government of a State at which special education is provided.
Non-government centre means a place in a State that provides special education, is conducted by a non-government body, is not conducted for profit, and is not a school.

Masters and Doctoral level courses and other post-graduate qualifications from recognised universities; and
English language courses for overseas students (for example, those provided by ELICOS centres), or combination English language and other courses for overseas students provided by an approved provider accredited to provide English language courses to overseas students by the designated State or Territory authority.

Other issues

In considering the application of GST-free treatment to the education sector, the Committee has formed the view that, as a necessary adjunct to this, some additional definitional issues need to be addressed. These include:

the definition of ‘tuition’, including consideration of how private tuition should be treated;
This includes consideration of the extent to which the concept of ‘tuition’ should encapsulate a limited range of materials which are used in the process of teaching and delivering a course of study.
the definition of ‘boarding school accommodation’.

Other issues that arose during the course of the Committee’s deliberations included how a GST should apply to:

research and scholarship activities within educational institutions;
Block Grant Authorities in the non-government school sector and School System Authorities in the government and non-government school sector;
professional development activities; and
the compliance impact on the educational sector.

Defining ‘tuition’

The Committee recommends that the GST-legislation reflect the notion that ‘tuition’ provided by an educational institution extends to include any activity undertaken by the educational institution which occurs during the delivery of a course and is directly related to the curriculum. This would include goods and services (as listed below) for which no GST would be payable, even if a separate charge is made in respect of these:

teaching the course;
activities associated with the course, such as library and computer access; and
course materials such as photocopied educational materials, taped lectures, lecture notes.

The Committee considered the issue of the tax treatment to be given to the supply by the institution of goods that are necessarily consumed or transformed as part of the course. Because of the difficulty in defining such items, a proposal was put before the Committee to impose a tax-free threshold for such materials. While the Committee is aware that the Government is concerned to avoid the situation where students can access goods GST-free simply because they are supplied by an educational institution, the Committee was not attracted to this proposal.

Accordingly, the Committee recommends that materials which are essentially consumed as a part of the activity of undertaking an approved course of study and which are integral to the teaching of that course of study should be GST-free.

Examples of such materials would be the provision of cooking ingredients in a home economics class or the supply of wood in a manual arts course.

The Committee notes the Government’s intention that items provided by the institution as part of the tuition fee (for example, textbooks, computers etc), and which become the property of the student, and which would attract GST if purchased or leased elsewhere, would be taxable.

The Committee considered a number of other related matters requiring consideration. It recommends that activities associated with the following be GST-free:

the assessment and issuing of qualifications relating to the course;
curriculum related field trips and excursions;
This would apply to payments for primary and secondary school excursions (including travel but excluding the food component) and to tertiary excursions (excluding the food and short-term accommodation components). Both must directly relate to the curriculum being undertaken.

The Committee rejects the notion that GST-free status not apply to those field trips and excursions undertaken outside the school term as many of these are in furtherance of the curriculum.
However, again the Committee is cognisant of the Government’s concern that activities not be GST-free simply because a school acts as a purchasing agent. To this end, the Government should make clear to schools that this is the intent of the policy, and should ‘non-educational’ activities be arranged, then GST is payable.

compulsory administrative charges, including general service fees (other than fees for membership to an association); and
the assessment and issuing of qualifications by an organisation or education institution that is registered by the relevant State or Territory training recognition authority in accordance with the Australian Recognition Framework to provide skill recognition (assessment only) services.

Private tuition

In terms of private tuition, the Government’s policy documents are silent. It could be argued that that private tuition should be subject to the GST because:

private tuition is outside of the ‘recognised’ sector;
the Government’s intention was to tax such things as private sports tuition, and private ballet and music lessons which are not necessarily curriculum-related; and
it is practically difficult for a private provider of tuition to link private tuition to the school curriculum. That is, it would be administratively difficult for private tutors to determine whether or not the subject matter being taught is directly related to the school curriculum and it would be inappropriate to place this onus on them.

Bearing these factors in mind, the Committee has decided not to recommend that private tuition be GST-free. This would include private tutors operating as a business as they are outside the ‘recognised’ sector.

This approach is consistent with the approach taken elsewhere in this report a guiding principle is whether the course or institution is accredited, or ‘recognised’.

However, the Committee considered that there may be circumstances where a recognised institution engages private tutors, for example music or sports sp
ecialists, to provide tuition within the context of the institution’s educational programs.

Under these limited circumstances, the Committee concluded that such tuition should be GST-free. That is, if an institution engages a private tutor to deliver teaching services on behalf of the institution, the institution would pay a GST-inclusive price to the tutor but would not pass the GST cost on to the student.
The rationale for this is that it could reasonably be considered that the private tuition had been brought within the bounds of the recognised educational sector.
The Committee recommends that this treatment should extend to private tuition provided within University Colleges.
The Committee noted that, in relation to private tutors, the $50,000 GST registration threshold will ensure that most tutors will not need to charge GST on their services since they will not need to be registered. In this event, they will effectively be input-taxed, that is they do not charge tax on their supplies, and are unable to claim back GST paid on their business purchases.

Defining ‘boarding school accommodation’

The Government has distinguished between boarding accommodation at primary and secondary schools and accommodation provided by tertiary institutions (see the Prime Minister’s letter to the Australian Vice-Chancellors’ Committee of 24 September 1998).

The basis for this concessional treatment of boarding schools is that they are often the only readily available, or acceptable, form of accommodation for school-age students from rural and remote areas. In contrast, older students can often choose whether to use a University College, university sponsored flats or hostels, or to board or rent in the broader community.

The Committee notes this decision of the Government and recommends that:

the supply of accommodation by an educational institution, on its premises, to students of the institution, provided the institution is a recognised primary or secondary school, should be GST-free;
while accommodation provided by tertiary institutions to students undertaking a tertiary course or a post-graduate course will be treated as residential accommodation (that is, input taxed);
Educational and religious services should remain GST-free where provided by a University College.
if boarding school accommodation or university accommodation is provided to a person who is not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to ordinary short term or long term residential accommodation.

The Committee also had regard to the tax treatment of rural student hostels which are specialised services catering to students from rural and remote areas. The Committee recommends that these be GST-free, as are boarding schools.

A rural student hostel might be defined as:

a hostel in a State or Territory that is conducted by a government or non-government body and whose primary purpose is to provide accommodation for students from rural areas who are undertaking an educational course.

For the purposes of determining GST-free status:

as for boarding schools, the boarding school element of boarding costs at an accredited rural student hostel should enjoy GST-free status in respect of students attending primary and secondary schools recognised under the Determination and who reside in the hostel in school term time.
If the hostel provides accommodation to a person who is not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to other commercial accommodation.

Research activity

Some submissions were concerned that research activities undertaken within a university may be subject to GST. However, the Prime Minister’s letter to the Australian Vice Chancellor’s Committee of 24 September 1998 made it clear that such activities will be GST-free.

Typically such research is simply carried out and there is no ‘supply’ of this research to another agent for a ‘consideration’. That is, the research is not sold to another party and therefore no GST is payable. As with any other activity conducted by an educational institution, any materials or inputs purchased by the institution to enable it to perform the research, and on which GST has been paid, would attract a tax credit as with all other GST paid on its inputs the institution could offset this against any GST it has collected in relation to its sales, or outputs.

However, research which is undertaken as part of a commercial transaction should be subject to GST. That is, contracted research or research that results in intellectual property that is sold should be subject to GST.

This general treatment in relation to research should apply equally to independent, non-profit research institutes.

The GST will only have a net impact when there is a sale to an unregistered entity, which may include private individuals. Where a transaction occurs between registered entities, then while GST is paid, it will simply be a credit for the entity paying the GST-inclusive amount. For example, a GST-registered business (not including an input-taxed business) contracts a university to provide research on a particular issue. The university charges the business $10,000 for the research and an additional $1000 GST so that the business pays the university a total of $11,000. The university remits to the tax authorities $1,000 in GST. The business is able to claim the $1,000 it has paid in GST as an input tax credit and offset this amount against any GST it has to remit to the tax office from GST collected on its sales. Effectively, the business pays, and the university receives, the same amount for the research that they would have done in the absence of a GST.

Block Grant Authorities and School System Authorities

As with research activities the Committee was concerned that Block Grant Authorities (BGAs) and School System Authorities (SSAs) in the non-government school sector might perhaps be subjected to GST when they are essentially helping educational institutions in the delivery of educational services.

BGAs and SSAs are recognised under the State Grants (Primary and Secondary Education Assistance) Act 1996. Some are individual body corporates under Corporation Law. A prime purpose of each is to make payments to schools within their responsibility.

The application of the GST to these bodies will, in part, depend on their structure. The Committee recommends as follows:

should these bodies and the schools they service be separate legal entities then they would register separately for GST purposes. All the educational services they provide will be GST-free. However, where these organisations engage in commercial transactions, these will be GST liable; or
if in the event the relevant body and a school are considered to be a single entity for GST registration purposes then GST does not apply to internal transactions which may be carried out for internal accounting purposes only.

Professional recognition and development activities

The Committee also considered the GST status of professional recognition and development activities.

The professions in Australia may be considered in two groups, those that are registrable by a State or Territory regulatory authority and those that are self-regulated.

Registrable professions include those such as medicine, nursing, law and architecture and registration is generally reserved for those professions where there is a need to protect public rights, safety or health.

The unregulated professions are generally not covered by specific State or Territory legislation, but there may be a degree of self-regulation imposed by a professional association. The typical
example of the latter is engineering where an engineer does not have to be a member of the Institution of Engineers (Australia) in order to practice, but most employers impose IE (Aust) membership as a requirement for employment. Other professional bodies, such as the Australian Computer Society exert less influence over the employment market.

Professional recognition

Education and training requirements for the registrable professions generally require a university, or in some cases, a TAFE degree or diploma. There are instances, particularly in medicine and law, where practice in a specialty is further regulated by additional education or training. For example, in the case of medicine, a doctor may only be recognised as a surgeon under the Medicare arrangements if he or she has completed the examinations and been admitted to the Royal Australian College of Surgeons. In law, a law graduate may work in general employment, but will only be admitted to practice if they have completed a practice training course provided by a university or private provider.

Professional development

In the case of the unregulated professions, the professional bodies may insist on the completion of professional development units in order to maintain membership. Such units of study may include employment experience, non-award courses or tests administered by the professional association or a private provider, or award courses administered by a university or TAFE on behalf of the professional association. In a small number of cases, such as engineering and some homeopathic professions, there is an increasing acceptance of the need for specialist training in order to work in selected activities that have implications for public safety even though no formal registration Act is in place.

Professional qualifications which are not obtained by completing a recognised course in a recognised educational institution will not qualify for GST-free status.

There are then, two broad types of professional development activity:

the first may be classified as pursuit of qualifications in order to enter a profession; and
the second may be more of the nature of maintaining skills.
In many instances, expenses associated with these activities are receiving concessional treatment through the income tax system. Where such activities incur GST and are borne by a business the GST paid can be claimed as an input tax credit.

Further, the Government made it clear that it wished to tax short occupational courses.

Having considered the issues the Committee felt that recommending special provisions for professional development activities would be beyond the scope of the policy as set out by the Government. The Committee has been required to draw the boundaries of GST-free education and in doing so has relied on the formal educational institution framework.

Compliance impact

The Committee is concerned that, as with businesses, the education sector will experience additional costs associated with the implementation of a GST and there will be additional compliance costs.

In terms of equitable treatment with the private sector, for which the Government has earmarked some $500 million, the Committee feels that the education sector should also share in this pool of funds. To do otherwise may result in valuable resources being diverted from the delivery of education services.

The Committee is mindful of the additional compliance costs institutions may face should those institutions have a significant mix of input-taxed, GST-free and taxable activities. These costs could be minimised if an institution is allowed to claim credits on the basis of a simple apportionment rule whereby the institution claims credits based on the proportion of its total activities which are not input-taxed.

Some submissions advocated raising the $100,000 GST-registration threshold applying to parent associations. Consideration of this issue was outside the Committee’s Terms of Reference.

To help minimise the compliance costs of the GST, the Committee recommends that where an organisation has no income tax liability, such organisations be allowed to account for the GST on the same basis as they maintain their accounts.

Conclusions

The Committee is satisfied that its recommendations in relation to the application of a GST to educational services represent a comprehensive and workable framework for the Government to implement its taxation policy.

In arriving at its recommendations the Committee has had due regard to the Government’s overall policy intentions and believes that its proposals:

will ensure the tax system minimises any discrimination between the private and public provision of goods and services in the education sector;
represent a simple and clear application of a GST to the education sector; which
will help to minimise the resulting compliance and administrative costs.

The Committee believes that the Government should be aware that the GST treatment of education may need to be reviewed from time to time and the Committee believes that there should be scope for necessary changes to be made as the need arises. This will be inevitable as the education sector is in a constant state of evolution.

Recommendations

The Committee recommends:

That courses and institutions qualifying for GST-free treatment be determined by reference to, but not limited to, the Education Minister’s Determination of Education Institutions and Courses under Subsections 3(1) and 5(D) of the Student Assistance Act 1973.
In accordance with the Determination GST-free treatment to apply to:
recognised secondary schools;
recognised special schools;
recognised Technical and Further Education institutions;
recognised Higher Education institutions;
recognised Non-government Higher Education institutions;
recognised Non-government Registered Training Organisations;
approved Secondary or Tertiary courses conducted in approved educational institutions. In general, the approved courses rely on accreditation by the relevant State or Territory registration authority;
accredited vocational educational and training courses excluding recreation leisure and personal enrichment courses activities, or ‘hobby’ courses;
English as a Second Language, Adult and Community Education, bridging, preparatory and remedial literacy and numeracy courses provided they are accredited with the relevant State or Territory accreditation authority and are not classified as ‘hobby’ courses.
In addition to those institutions and courses identified by the Determination, additional legislative provisions should be made so that GST-free treatment apply to:
recognised kindergartens, pre-schools and primary schools;
private-for-profit schools delivering curriculums recognised by the relevant State/Territory Education Department;
recognised special education centres;
recognised Masters and Doctoral level courses; and
English language courses for overseas students, or combination English language and other courses for overseas students provided by an approved provider accredited to provide English language courses to overseas students by the designated State or Territory authority.
The GST legislation needs to reflect the notion that ‘tuition’ provided by an educational institution extend to include any activity undertaken by the educational institution which occurs during the delivery of the course and is directly related to the curriculum. This would include:
teaching the course;
activities associated with the course, such as library and computer access;
course materials such as photocopied educational materials, taped lectures, lecture notes;
t
he supply by the institution of goods that are necessarily consumed or transformed as part of the course;
the assessment and issuing of qualifications relating to the course;
curriculum related field trips and excursions;

This would apply to payments for primary and secondary school excursions (including travel but excluding the food component) and to tertiary excursions (excluding the food and short-term accommodation components). Both must directly relate to the curriculum being undertaken.

compulsory administrative charges, including general service fees (other than fees for membership to an association); and
the assessment and issuing of qualifications by an organisation or education institution that is registered by the relevant State or Territory training recognition authority in accordance with the Australian Recognition Framework to provide skill recognition (assessment only) services.
That private tuition be taxed except where a recognised institution, including University Colleges, engages private tutors, for example music or sports specialists, to provide tuition on behalf of the institution.
In terms of accommodation:
the supply of accommodation by an educational institution on its premises to students of the institution, provided the institution is a recognised primary or secondary school, be GST-free; and
accommodation provided by tertiary institutions to students undertaking a tertiary course or a post-graduate course is to be treated as residential accommodation (that is, input taxed);

Educational services should remain GST-free where provided by a University College.

If boarding school accommodation or university accommodation is provided to a person who is not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to ordinary short term or long term residential accommodation.
The GST-free status of rural student hostels to be:
as for boarding schools, the boarding school element of boarding costs at an accredited rural student hostel should enjoy GST-free status in respect of students attending schools primary and secondary schools recognised under the Determination and who reside in the hostel in school term time.

A rural student hostel might be defined as a hostel in a State or Territory that is conducted by a government or non-government body and whose primary purpose is to provide accommodation for students from rural areas who are undertaking an educational course.
If the hostel provides accommodation to a person who is not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to other commercial accommodation.

In terms of equitable treatment with the business sector for which the Government has earmarked some $500 million, the Committee feels that the education sector should share in these funds.
In the case of institutions which have a mix of taxable and non-taxable activities, the Government consider introducing a simple apportionment rule whereby the institution claims credits based on the proportion of its total activities which are not input-taxed.
The Committee assumes that the GST-registration threshold of $100,000 which applies to non-profit organisations, such as parents and citizens associations, will be reviewed from time to time by the Government.
To help minimise the compliance costs of the GST, the Committee recommends that where an organisation has no income tax liability, such organisations be allowed to account for the GST on the same basis as they maintain their accounts.
Independent non-profit research institutes be entitled to the same treatment as universities with regard to their research activities.