Sales Tax Bulletin - No. 8

STB 8

Universities and schools

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Date of Issue: 1 October 1997

Valid from 1 October 1997

Replaces Sales Tax Bulletin No. 8 - Universities and schools issued on 1 September 1995

About this bulletin

This bulletin explains how the sales tax law applies to goods bought by universities and schools and their support bodies. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with this bulletin, and is current as at 1 October 1997.

Warning: We regularly revise our publications to take into account changes in the law so if you are seeking to rely on anything contained in this bulletin, you should make sure that this edition is the latest.

If, after reading this bulletin, you need more information on how the sales tax law affects universities or schools, contact the Tax Office on 13 28 66 for the cost of a local call.

What is a university or school?

The terms 'university' and 'school' are not defined in the sales tax legislation. The meaning of these words taken from dictionaries and based on judicial interpretation is set out in the following paragraphs.

University

A university is an institution formed for the promotion of education in the higher branches of learning, having the power of conferring degrees and similar privileges. Universities are generally established under State or Commonwealth legislation and in practice it will usually be clear whether an institution is a university.

To qualify for sales tax exemption, a university must be conducted by a non-profit body.

School

A school is a place or establishment where people come together for the purpose of being instructed in an area of knowledge or activity. Whether an organisation conducts a school is a question of fact in each case but a school might usually be expected to exhibit the following characteristics:

• • it is established and used for the purpose of giving knowledge or providing instruction;

• • it has syllabuses or programs for each course of instruction provided;

• • it has a physically identifiable location and its own administration; and

• • instruction is given by suitably qualified people.

To qualify for sales tax exemption, a school must also be conducted by a non-profit body.

What does 'conducted by a non-profit body mean'?

An organisation is a non-profit body where, by its constituent documents or by operation of law (for example, a statute governing the organisation), it is prevented from distributing its profits or assets among individuals while it is operating and on its winding-up. The organisation's actions must, of course, be consistent with the prohibition.

The fact that an organisation which runs a school is carried on to make a profit does not prevent the school from being eligible for sales tax exemption, as long as that profit does not find its way, directly or indirectly, into the hands of, or for the benefit of individuals.

Examples of establishments that are usually accepted as universities or schools

• • Bible colleges

• • business/secretarial colleges

• • correspondence schools

• • in-house training centres

• • pre-schools and kindergartens

• • schools of the air

• • Sunday schools

• • TAFE colleges

• • universities of the Third Age

Exemption from sales tax for goods for use by a university or school that is conducted by a non-profit body can be claimed under Item 109 in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992.

Examples of establishments that are usually not accepted as schools

• • boy scout and girl guide groups

• • child minding centres (but see 'What about child care bodies' below)

• • creches

• • playgroups

• • sporting clubs

What about child care bodies?

Goods for use by certain child care bodies qualify for sales tax exemption under Item 144A in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992. For more information, ask the Tax Office for a copy of Sales Tax Bulletin Number 20, titled Exemptions for Child Care Bodies.

How does a school conducted by our organisation apply for exemption?

Schools that are part of the general education system would generally qualify for exemption under Item 109 and need not formally apply. However, you can write to the Tax Office to seek an opinion as to whether your organisation conducts a school for the purposes of exemption Item 109. Please supply the following details with your letter in order to assist us in determining whether you conduct a school:

• (a) a copy of the organisation's constitution or rules which includes:

  • (i) an objects clause which is a clear and accurate reflection of its aims and purposes and indicative of its practical activities;

  • (ii) the machinery for the appointment of officers and calling of annual meetings;

  • (iii) a clause stating that all assets and funds of the organisation will be used solely to further the objects of the organisation and will not be distributed to members; and

  • (iv) a dissolution clause that states that in the event of the organisation being wound up, any remaining assets will be given only to an organisation which has similar objects and which is a non-profit body that conducts a university or school.

• (b) a copy of the school's syllabuses, programs or curriculum;

• (c) a copy of the latest financial statements showing the nature of receipts and payments for the preceding year (not a bank statement of deposits and withdrawals);

• (d) an outline of the methods used to assess student progress, whether written reports are prepared and the frequency of those reports;

• (e) details of the form of certification, qualification or competency provided to students on the achievement of a particular standard or level;

• (f) the number of students enrolled in each program;

• (g) the number of instructors employed for each program and their qualifications;

• (h) details of fees charged;

• (i) details of the facilities available for instruction including details of the rooms and/or buildings used; and

• (j) copies of any registration certificates received under the provisions of any State Government Education Act.

What kinds of goods can we buy free of sales tax?

There must be appreciable or significant use of the goods by the non-profit university or school for exemption to apply. This is determined by looking at:

• • what kind of goods they are;

• • how long they can be expected to last;

• • what they will be used for; and

• • how long they will be used for that purpose.

Goods which qualify for exemption because they are to be used by a particular person do not lose exemption because they are also to be used by others in non-exempt circumstances. For instance, if a non-profit school allows a community organisation to hold meetings in its hall once a month and use its stackable chairs, the chairs will still be exempt. Exemption depends on whether the exempt portion of the use is enough to enable the goods to be correctly described as goods for use by a non-profit university or school.

Art and craft materials

A non-profit university or school can still claim exemption where the person actually using the goods will be a student or a teacher. One example of this is art and craft materials. Exemption will be allowed where the materials are provided free of charge to the students. Exemption will also be allowed where subject fees or charges are collected to cover the cost of the materials used by the students in the course of their work, provided the payment of the fee or charge does not give the students the right of ownership of the materials or the goods produced from those materials.

However, this would not prevent a school allowing students to take the work home and to keep it provided that this is not something the student can do as a right, but is allowed to do at the discretion of the school authorities.

Goods lent to students or teachers

Another example is goods lent to students or teachers free of charge, or for payment of a nominal fee, where the goods are for use in school activities. These goods are exempt from sales tax if they remain the property of the non-profit school, for either two years or the useful life of the goods, whichever is less, and if they will be used in school activities. A typical example is the musical instruments which are lent to students during the school year.

What about goods we give away as prizes or awards?

As well as being able to claim exemption on goods used in the general running of the non-profit university or school, exemption may also be claimed on goods bought for use:

• • as tickets or prizes in a raffle or an art union held to raise money for the non-profit university or school; or

• • as awards for official presentation to students, teachers, parents, visiting speakers and the like.

How long must the goods be used for?

You can only buy goods free of sales tax if they are for use by the non-profit university or school. To satisfy exemption requirements, the goods must be used for a minimum period of:

• • two years; or

• • the normal working life of the goods if it is less than two years; or

• • a time the Commissioner of Taxation considers to be appropriate in special circumstances.

The two year minimum requirement does not apply to consumable goods.

How do we claim exemption?

Universities and schools that are conducted by non-profit bodies can buy taxable goods for their own use free of sales tax by giving an exemption declaration to the supplier. A blank copy of the form is shown on page 8. You can photocopy the blank form and use one each time you buy taxable goods. If you prefer, you can have the following wording printed onto your official order form:

Exemption declarations should be given to suppliers at, or before the time of purchase. To make it easier for you to order goods by phone the Tax Office has approved a two stage quoting process. This allows you to quote an exemption Item number over the phone when ordering goods and to provide a written exemption declaration within a reasonable time. In practice this will allow you to provide the written exemption declaration when paying the account.

If you wish, you can give your suppliers a periodic exemption declaration to cover all your tax free purchases in a period where that period does not exceed one year. The form to be used is at page 9.

Can we quote by facsimile?

You can quote by facsimile as long as you provide the full form of quotation as shown on page 8 or, if you are faxing pre-printed official order forms incorporating exemption declarations, the quotation in the form above.

Who can sign the exemption declaration?

Only authorised officers of the non-profit university or school should sign exemption declarations. You should keep proper controls to ensure that you only claim exemption to which you are entitled. You should also keep the blank exemption declarations in a safe place.

What if we claim exemption incorrectly?

If you claim exemption when you're not entitled to, you'll have to pay the sales tax on the goods. The sales tax law also provides for a penalty of $2 000 and/or double the amount of tax underpaid where you quote an exemption declaration when not entitled to, or in any other way falsely quote an exemption declaration.

What if a school leases goods to teachers, parents or students?

For sales tax purposes, a lease of goods includes letting, hiring (including short term hire and hire purchase) and renting goods.

There is no exemption where a school or university buys goods which it intends to lease to someone else, unless the person leasing the goods is able to claim exemption in his or her own right. A school or university might lease goods to a student or teacher who will actually use them for school purposes, but because the student or teacher is not entitled to exemption in his or her own right, there will be no exemption for those goods. The same principles apply if a school leases goods to be sub-leased to another person.

In some cases, it is difficult to distinguish a loan from a lease. Generally, a transaction will be a loan if the school or university keeps control of the goods (for instance, the school can always ask for them to be returned at any time) and if the fee (if any) charged for their use is only a nominal amount. However, whether there is a loan or a lease will depend on the particular circumstances.

Can students or teachers claim exemption?

The sales tax law does not allow students or teachers to claim exemption from sales tax on goods bought out of their own funds, for use in the classroom.

Although the equipment and materials bought are used in the classroom or for educational purposes, students and teachers cannot claim exemption because the goods belong to the student or teacher and not to the university or school.

This applies to all equipment, including computers, calculators, sporting equipment and musical instruments.

Are there any other goods that a university or school can't buy free of sales tax?

Exemption does not apply if goods are bought by a university or school for re-sale. This is because they are not intended to be used by the school for two years or their useful life.

Some common ways in which exemption does not apply are:

• • goods distributed to students or teachers in return for a charge, fee or levy where the ownership of the goods passes from the school to the student or teacher, e.g. stationery, computer disks and photographic supplies (but see the position with Art and craft materials discussed earlier);

• • goods sold to students or teachers through school tuck shops/canteens, or school and university bookshops;

• • goods sold by auction (as part of the university or school fund-raising);

• • goods sold at school fetes and other school or university functions; or

• • goods supplied for a fee or charge at school or university functions, e.g. taxable food and drink supplied at dinner dances, school formals etc.

What about motor vehicles?

A motor vehicle may be bought by a non-profit university or school free of sales tax, as long as it is intended for use by the university or school for two years or until it has travelled 40 000 kilometres, whichever comes first. Exemption from sales tax also applies to motor vehicles owned by a non-profit university or school that are provided to employees as part of a salary package for business and private use. In this case, the vehicles must be used by the university or school for two years or until they have travelled 40 000 kilometres.

However, there is no exemption available where a university or school buys motor vehicles which it intends to lease to its employees, unless the employees are able to claim exemption in their own right. Nor does exemption apply where a university or school leases motor vehicles that are to be sub-leased to their employees.

What about contractors and sub-contractors to universities and schools?

Where goods are bought for incorporation into property (such as buildings) owned by or leased to a non-profit university or school, a contractor or sub-contractor buying those goods can claim exemption from sales tax under Item 192. Similarly, where a contractor or sub-contractor buys goods to repair equipment owned by a non-profit university or school, exemption is available under Item 194.

In both of the above cases, exemption will apply only if the goods being bought are to form an integral part of the work being done under the contract. Exemption will not apply to equipment or tools used by the contractor or sub-contractor in doing the work.

To claim exemption the sub-contractor must complete and sign an exemption declaration and give it to the supplier at or before the time of purchase. A blank copy of the declaration is shown on page 8. The non-profit university or school will either have quoted an exemption declaration for the work, or will have evidenced the contract by some other means, e.g. supplied an official order form to the contractor or sub-contractor.

Goods for donation or loan to universities and schools

Goods bought for donation or loan to a non-profit university or school may be bought free of sales tax under Item 193. However, in the case of a loan, exemption only applies where the loan is for two years or the useful life of the goods, whichever is the shorter period.

Can organisations that support schools and universities claim sales tax exemption?

Exemption from sales tax is available in respect of goods for use by organisations established and maintained principally to promote :

• • the interests of a non-profit university or school, e.g. a parents' and citizens' association, university student unions (exemption Item 110 ); or

• • competitive sport among the students of a non-profit university or school, e.g. a combined public schools' sporting association (exemption Item 111 ).

If you think your support body may be eligible for exemption, please contact your local Tax Office on 13 28 66 for the cost of a local call.

Do you need more information?

If you have any questions or need more information about how the sales tax laws apply to you, please contact your local Tax Office:

• • by phone - on our national enquiry number 13 28 66. You can ring this number from anywhere in Australia for the cost of a local call; or

• • in person - by visiting the enquiry counter at your local Tax Office. Addresses for your local Tax Office are listed in TaxPack, as well as in the White Pages telephone directory.1

ATO references:
NO Nat 1768.10.97