The NSW Government has amended the Education Act to strengthen the not-for-profit requirements for non-Government schools.  The rules have got tougher and non-compliance could result in a loss of funding.

What organisations does this affect? 

These changes affect all non-Government schools in New South Wales in receipt of funding from the NSW Government.

What other changes

Those in the sector will be familiar with the provisions of section 21A of the Education Act which provided that NSW Government funding would not be available to schools that operated for profit.  Section 21A(3) detailed what payments by a non-Government school would not affect its “non-profit” status.

The Government decided that these provisions were not sufficiently strong and Parliament recently approved an amendment to the Education Act which will come into effect from 29 January 2015.

The major changes to the not-for-profit requirements are contained in section 83C of the Act and they can be summarized as follows:

A school operates for profit if the Minister is satisfied that:

(a) The school owner’s assets are applied for purposes other than for the operation of the school.

(b) Payment is made to a related entity or other person which is more than reasonable market value for property, goods or services.

(c) Property, goods or services are procured which are not required for the operation of the school or the property, goods or services are considered to be unreasonable under the circumstances.

(d) Payment is made to persons in connection with their activities as a member of the governing body of the school (apart from reimbursement of expenses).

This tightens up the test in relation to payments from schools to related entities in particular.  These arrangements were not technically subject to the market value test under section 21A.

There is also a broad discretion in the Minister to determine that a non-Government school operates for profit where goods or services are “unreasonable in the circumstances having regard to the fact that financial assistance is provided to or for the benefit of the school by the Minister”.  This is open to broad interpretation.

Guidelines are expected to be issued by the Department early in the New Year which will hopefully provide greater insight into how the Minister will exercise powers under the new section.  The Department has produced a fact sheet to provide some information.

The amendments provide for an Advisory Council to be established and the Minister cannot make declarations that a school is non-compliant with the non-profit requirement unless so recommended by the Advisory Committee.  Notice to the school is required before the Minister can make a declaration of non-compliance or a “for profit” declaration.

Why is this important?

The rules have changed and the impact of failure to comply is significant, i.e. a potential loss of NSW Government funding for your school.

What may you have to consider?

You should give consideration to the nature of all payments made by or on behalf of the school to ensure that:

(a) They are not more than reasonable market value;

(b) They are for goods and services that are required for the operation of the school;

(c) There are no other circumstances relating to the goods or services which might be considered to be unreasonable;

(d) Payment is not being made to a person in connection with membership of the governing body of the school.

Should you have any questions in connection with this please do not hesitate to contact Mr Bill d’Apice of our office. We will advise when the Department issues Guidelines on the new provisions.