Sato Transpacific Pty Ltd v Australian Trade Commission

(1996) 45 ALD 658

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(Decision by: McMahon B J, DP)

Sato Transpacific Pty Ltd v
Australian Trade Commission

Tribunal:

Member:
McMahon B J, DP

Subject References:
EXPORT MARKET DEVELOPMENT GRANTS
whether qualifying export development expenditure pursuant to Export Market Development Grants Act 1974 s11Z(6)
meaning of "courses of study" in Schedule 5 of Regulations

Legislative References:
Export Market Development Grants Act 1974) - 11Z(6)
Acts Interpretation Act 1901 - 15AA

Case References:
Export Market Development Grants Regulations r 8, Schedule 5 -
Federal Commissioner of Taxation v The Leeuwin Sail Training Foundation Ltd - (1996) 96 ATC 4721

Hearing date: 22 August 1996
Decision date: 5 September 1996

Sydney

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Decision by:
McMahon B J, DP

1. The Applicant is a company incorporated in Australia. On 30 November 1994 it lodged a claim for a grant under the Export Market Development Grants Act 1974 for the years ending 30 June 1993 and 1994. The claimed eligible expenditure consisted of monies spent in relation to air and ground fares, overseas visit allowance, literature and other advertising, communications and overseas representation. The claim having been rejected, this application has been brought to review the Respondent's decision.

2. In the years in question the Applicant was involved in organising cultural and educational exchange programs between Japan and Australia. It offered a number of programs both to Japanese and to Australian persons.

3. There were six programs offered to Australians wishing to participate in activities in Japan. Clearly these programs could not generate eligible expenditure, having regard to terms of the statute and the regulations to which I will later refer. If any part of the claim relates to these programs then, at best, there will need to be an apportionment made.

4. The programs on which the Applicant relies are five in number. The first is entitled "Australian Retreat and Cultural Homestay" (ARCH). This program enables Japanese students to live with an Australian family, learn English in structured morning lessons, take part in full and half day excursions, and participate in cultural and sporting events. Participants stay with host families. The program is generally conducted during July, August or September coinciding with the Japanese school holidays.

5. Mr Sato, the Managing Director, has a background in teaching. In the early stages of the Applicant's activities he spent much of his time in Australia setting up the organisation. He made visits to Japan from time to time to meet with headmasters, parents and students and other educational bodies. As the program developed Mr Sato began to spend more time in Japan and has now set up an office in Hakodate. He is in constant touch with the Sydney office of the Applicant by way of E-Mail, facsimile and telephone.

6. The second program is entitled "Academic Year Exchange Program" (AYEP). This is intended for Japanese senior high school students wishing to study at an Australian high school for one academic year. They also have the benefit of living with an Australian host family. They are placed in a typical Australian high school and attend the same classes as the other students. There were only three such participants in 1995 and two in 1994. Although area representatives are engaged by the Applicant, the evidence was that they have now been phased out because of duplication. All their activities were supervised by the head office staff of the Applicant. The company now places students in a year appropriate for their academic levels. Students are interviewed by Mr Sato in Japan, who also makes suitable arrangements with their Japanese and Australian schools. Often there are direct reciprocal arrangements between both schools. The students attend all classes, including English classes, unless their command of English is not sufficient to enable them to understand the subject. The Applicant determines which school and class the student will attend. A fee is paid to the Applicant by the parents of the student in Japan.

7. The third program is called "High School Integration and Preparatory Program" (HIPP). This is designed for those Japanese students who wish to study at an Australian independent high school for a least one academic year. It is necessary in most cases for the students' English to be of a sufficient level for them to understand the content of each class. Some schools provide their own ESL (English as a second language) classes while others require the student to attend an English language school prior to the commencement of their formal study. The Applicant assists students in improving their English ability to enable them to gain acceptance into Australian schools.

8. There were 10 to 15 students in this program in 1994 and 10 in 1995. Arrangements have been made with a large number of schools throughout Australia to accept suitable students. The student looks for credit in taking the course and returns to Japan without an obligation to repeat the year.

9. The fourth program is entitled "Australian Youth Adventure Program" (AYAP). This is a 10 day "Wilderness Program" for young Japanese people (including junior and senior high school students). It is generally conducted in December and January. The program is aimed at giving young Japanese people the chance to experience Australian outdoors and to appreciate the beauty that the country has to offer. They take part in a wide range of activities including canoeing, absailing, caving, bush walking, horse riding, swimming, boat cruising and camping. The program is designed to teach the students useful bush skills and to help them gain confidence in their abilities as they participate in the various activities.

10. For all programs, Mr Sato personally designs the itineraries including all activities, arranges for hosts, arranges for the appointment of language teachers where required and arranges for transportation and other necessities. In circumstances where the teaching of English is provided for, the teachers are provided with a handbook. This has been individually prepared and printed by Mr Sato and his staff and contains a full text of the subject matter of the English classes and the material that is to be taught.

11. Under the ARCH program this syllabus is in constant use. English is taught to groups of up to 40 but on an individual basis, having regard to the assessed levels of competence in the language. The Applicant does not actually carry out the teaching but finds the appropriate teacher and guides him or her as to the syllabus and levels of achievement of the various students. The teacher has a discretion to choose appropriate lessons having regard to his or her experience of the capacity of the students.

12. The fifth program is called "English Learners Apprenticeship Program" (ELAP). This provides an opportunity for Japanese University graduates to improve their English by living, working and studying in Australia for approximately one year. Under this program they work as assistant Japanese language teachers in primary or high schools. As assistants they receive no salary. Their school is expected to provide them with their basic living requirements such as accommodation and meals. It may be in the school boarding- house or in a home with a family of a school teacher or student. Participants teach Australian students about the culture and language of Japan through music, art, cooking, drawing and assisting with everyday conversation. They themselves, of course, benefit by improving their conversational English.

13. In this program there are no groups. Individual teachers are placed in individual schools. They do not undertake any formal course of study except for an intensive period of orientation when they arrive in Australia. In lieu of the salary which a teacher might expect, the Applicant pays a school contribution fund of $60 per week. The school may pass this on to a host family or it may use the money to buy material to assist in teaching Japanese associated subjects.

14. The way in which students are recruited and inducted into each program was set out in an affidavit of Ms Culbert in these words:

"7.

The procedure in establishing a student in one or other of the various programs offered is as follows:-

(a)

Mr. Sato through his considerable contacts in Japan with schools, parents and other educational bodies would interview the parent and the individual student and establish their perception of what their needs and requirements were. The student's intellectual levels are assessed by Mr. Sato, who is a teacher of many years experience both in Japan and in Australia. He also assesses their expectations of the program and whether their personalities and emotions are suitable. Having carried out a full assessment Mr. Sato thereafter makes recommendations to students and their parents as to which programs would suit them best based upon those assessments.

(b)

Having established the eligibility of the student to participate in one or other of the programs Mr. Sato would then have the student and their parent complete an Application Form, depending upon which program is involved. Sample Application Forms are contained in the Index of Documents. In addition to the Application Forms the students and their parents are required to complete other documentation relating to health, guardianship appointments, fee structures and other related documentation.

(c)

All documentation is then sent to the Applicant's office here in Australia and is dealt with by the administrative staff currently made up of four Australians and four Japanese, all of whom are bi-lingual.

(d)

The Australian staff deal with the administrative work involved in implementing the individual student requirements. There is a selective process involved in establishing what school can best meet the program requirements of the students. The Applicant has between approximately 20 to 25 schools throughout Australia involved in the programs and a great deal of care is taken in selecting the school for the individual student. The individual participating schools are required to sign a Memorandum setting out the terms and conditions of the Agreement. The Applicant reserves the right to terminate, change or modify the student's participation in the individual school's activities.

(e)

In some cases the students are accommodated in the facilities offered by the school. In other cases they are accommodated in home stay situations. The selection of the appropriate home stay host is undertaken by the Applicant's staff. Various people are interviewed to determine their suitability for the individual student concerned. Many things are taken into account including the age of the hosts and other persons living in the home, the accommodation available, the proximity of the school, availability of transport, social attitudes of the host family, opportunities for the student engaging in sporting and social activities, together with other considerations essential to create the right climate and atmosphere for the accommodation of the student during the time that she or he is to undertake courses of study at the school concerned.

(f)

After completion of all schooling, accommodation, flight and transportation arrangements, the students, having already entered into a contract with the Applicant and their parents having paid the set fee, the students arrive in Australia at which time all their transit and transportation needs are accommodated by the Applicant.

(g)

Having arrived at the school the Applicant thereafter liaises with the school by letter, telephone and facsimile and with the host families if relevant to ensure that the transmission runs as smoothly as possible. In addition the Japanese members of the staff make direct contact with the students and give them every support and reassurance that may be required and to ensure that they are comfortable and content. In addition the Japanese members of the staff are constantly available to the Japanese students who may telephone with a problem either to do with the school, some subjects which they might have difficulty with or any other personal or educational problem. This liaison continues throughout the course of the student's participation in the various programs.

(h)

It is very common for students to come into conflict with the particular educational activities of the various schools or their accommodation arrangements. In these circumstances the student's requirements are assessed against the facilities provided by the schools and should it be considered necessary arrangements are made for that student to be transferred to another school better able to cater for the individual student's needs. This involves additional administrative work and contact with all concerned."

15. The Applicant claims the amount expended as qualifying export development expenditure pursuant to subsection 11Z(6) of the Act. This is in the following terms:

"11Z.(6)

Expenditure is qualifying export development expenditure of a person to whom this section applies if:

(a)

in the Commission's opinion, it is incurred primarily and principally for the purpose of:

(i)

creating or seeking opportunities for; or

(ii)

creating or increasing demand for;

the supply, by that person, of eligible internal educational services to persons resident outside Australia; and

(b)

the supply by that person is for reward and in the course of carrying on business in Australia."

16. Regulation 8 provides:

"Services of each kind specified in Schedule 5 being services of an educational nature supplied to students in Australia are declared to be eligible internal educational services."

17. Schedule 5 of the Regulations is in the following terms:

"Services of an educational nature supplied to students in Australia, being -

(a)

services in respect of the provision of approved courses;

(b)

services in respect of the provision of courses of study prepared by arrangement with individual clients outside Australia, being courses that are administered or intended to be administered individually to those clients; or

(c)

services in respect of the provision of courses of study related to the training of persons having responsibility for the training of other persons."

18. "Approved course" is defined in the regulations but "courses of study" referred to in paragraph (b) is not. The Applicant relies upon paragraph (b).

19. To succeed, the Applicant must therefore show that the expenditure was incurred primarily and principally for the supply of eligible internal educational services. These must have the following hallmarks:

1.

They must be services of an educational nature in respect of the provision of courses of study.

2.

The courses of study must be prepared by arrangement with individual clients outside Australia

3.

Those courses are to be administered individually to those clients.

20. The second requirement is clearly met. Arrangements are carried out by Mr Sato in Japan with individual students and their parents and with individual schools where appropriate.

21. The third requirement was questioned by the Respondent because on occasions (particularly in ARCH) English was taught to classes and therefore, it was submitted, the course could not be said to be administered individually to each student. I do not accept this submission. On the evidence, each client or student is given individual attention. An assessment is made of the capacity of each student and appropriate arrangements are made for his or her instruction. Individual agreements are signed by students with the Applicant and it is to the Applicant that the student turns if there are any problems involved either in his or her courses or, on a personal level, with families with whom they are boarded. It does not follow that because instruction is given in a formal class that the individual students are not treated as individuals and that the course is not administered individually. The evidence in this case leads me to believe that this condition is complied with.

22. The real issue in the case is whether the programs constitute "courses of study" and whether they are of an educational nature.

23. Educational is defined in the Macquarie Dictionary as pertaining to education. That noun is in turn defined to mean "the act or process of educating; the imparting or acquisition of knowledge, skill, etc; systematic instruction or training". The appropriate definition of "course" in the same dictionary is "a systematised or prescribed series". This definition is illustrated by the phrases "a course of studies, lectures, medical treatments, etc".

24. It seems to me that these definitions are wide enough to encompass the activities carried out under the various programs. A course of study is not necessarily confined to formal lessons given in a class-room for a finite period. Whilst the term implies some structure, the content of the course need not in my view be necessarily limited to formal study of a subject such as English or of any other conventional subject, proficiency in which is commonly examined externally. In a promotional leaflet published by the Applicant, it is claimed that the programs give:

"young people the opportunity to travel aboard, to experience a different culture, language and customs, and to bear the fruit of such an experience is so important for them in gaining a broader, more informed look on life. They can learn so much just through spending time with young people from other countries, and exchanging ideas and customs amongst themselves."

25. Clearly the programs are designed to achieve these objects. The fact that some of the programs (particularly AYAP) are conducted out of doors does not diminish their value as means of obtaining these stated objectives. The fact that formal instruction is given only for a few hours per day similarly does not diminish the educational nature of the whole program. Obviously students cannot be taught formally in any one subject for 24 hours per day. The fact that some programs mix formal instruction with outdoor activities does not detract from the fact that the expenditure is directed primarily and principally to the provision of eligible internal educational services as defined.

26. The situation here is analogous to that considered by a Full Court of the Federal Court in Federal Commissioner of Taxation v The Leeuwin Sail Training Foundation Ltd (1996) 96 ATC 4721. In that case the company operated a square rigged ship for the purpose of conducting a number of programs. These were directed to personal development, corporate team building, disabled youth, school maritime studies and eco-adventure. The court held that these activities constituted a "school" for the purposes of the Sales Tax legislation. The court unanimously dismissed the Commissioner's submission that "school" should be limited to a place where boys and girls receive instruction. To read the term down to mean only an institution performing a relatively accepted core function in the educational area was contrary to a true construction of the relevant item then under consideration. In the present case, the functions which the program serves include formal instruction (carried out by an agent, namely the school or other individual teacher) and also other activities which promote learning of non core subjects.

27. The object of the Act stated prior to the short title is to make provision for grants for the purpose of providing incentives for the development of export markets. Section 15AA of the Acts Interpretation Act 1901 requires a construction that would promote the purpose or object underlying the Act in preference to a construction that would not promote that purpose or object. The series of programs under consideration provide export earnings for Australia based upon our educational capacities. The programs are structured and disciplined. They do not end when the students enter Australia. Supervision and accountability are present during the whole of the student's stay. An unstructured program which provided merely for arranging visits of Japanese students who were then to be left to their own devices after entering the country would not fall within the concept of the provision of courses of study. While the structure is in place it seems to me that the content of the courses of study should not be limited and that the cultural and social experiences, as well as the formal tuition, are capable of being understood within the terms of the Regulation and should be so applied.

28. The quantum of the grant will need to be recalculated. It was conceded in evidence that an amount of $2,150 for promotional material was incurred after the relevant date and an amount claimed of $2,921 for commissions was conceded as not being eligible expenditure. Furthermore, as I have indicated, an apportionment should be made (possibly on an hourly basis) so as to exclude expenditure incurred in relation to the programs offered to Australian persons.

29. The decision will therefore be to set the decision under review aside and to refer the matter back to the Respondent for calculation of the amount of grant payable to the Applicant in accordance with these reasons.