Edited version of private ruling

Authorisation Number: 1011847046845

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Ruling

Subject: GST and supply of a language other than English (LOTE) course

Issue 1

Question 1

Is the supply of community language course to pre-school students GST-free under section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the community language course supplied to pre-school children is not GST-free under section 38-85 of the GST Act.

Question 2

Is your supply of community language course to primary and secondary students GST-free under section 38-85 of the GST Act?

Answer

Yes, the community language course supplied to primary and secondary school children is GST-free under section 38-85 of the GST Act.

Question 3

Is your supply of community language course to adult participants GST-free under section 38-85 of the GST Act?

Answer

No, the community language course supplied to adult participants is not GST-free under section 38-85 of the GST Act.

Issue 2

Question 1

Are you making a taxable supply to a government department in return for the grant received from them, such that you are liable to pay GST?

Answer

Yes, you are making a taxable supply to the government department therefore you are liable to pay GST for the grant received.

Relevant facts

You are a non-profit organisation and are registered for goods and services tax (GST).

You are an ethnic school teaching community language to pre-school, primary and secondary school students. There are also classes for the adult participants.

The adult classes are open to the general public and the adult students are mainly professionals who, in their work environment require some knowledge in the community language.

You receive periodically, from the government department, a grant under an agreement between you and them.

Reasons for decision

An education course is GST-free under section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The term education course is defined in section 195-1 of the GST Act to include, amongst other things, a pre-school course, primary course and a secondary course. The definition also includes courses such as adult and community education courses. In deciding whether the Chinese language course conducted is an education course, we have considered whether the course satisfies the definition of a pre-school, primary or secondary education course or an adult and community education course.

Issue 1 Question 1

Goods and Services Tax Ruling GSTR 2000/30 discusses supplies that are GST-free for pre-school, primary and secondary education courses.

Pre-School Education Course

To be a pre-school course, the course must be delivered in accordance with a pre-school curriculum recognised by the education authority of the State or Territory in which the course is delivered and be delivered by a school that is recognised as a pre-school under the law of the State or Territory in which the course is delivered.

From the facts provided, you are an ethnic school teaching community language. You are not recognised as a pre-school in your relevant State therefore the pre-school community language course cannot be a pre-school course. As such the supply of the pre-school community language course is not GST-free under section 38-85 of the GST Act.

Issue 1 Question 2

Primary or Secondary Education Course

Under section 195-1 of the GST Act a 'primary course' means:

(a) a course of study or instruction that is delivered:

(i) in accordance with a primary curriculum recognised by the education authority of the State or Territory in which the course is delivered; and

(ii) by a school that is recognised as a primary school under the law of the State or Territory; or

(b) any other course of study or instruction that the Education Minister has determined is a primary course for the purposes of this Act.

The Education Minister has determined, under paragraph (b) of the definition of a primary course in section 195-1 of the GST Act that a Language Other Than English (LOTE) course that is provided to primary school students by an ethnic school is a primary course for the purpose of the GST Act.

Under section 195-1 of the GST Act a 'secondary course' means:

(a) a course of study or instruction that is a secondary course determined by the Education Minister under subsection 5D(1) of the Student Assistance Act 1973 for the purposes of that Act; or

(b) any other course of study or instruction that the Education Minister has determined is a secondary course for the purposes of this Act.

The Education Minister has also determined, under paragraph (b) of the definition of a secondary course in section 195-1 of the GST Act that a LOTE course that is provided to secondary school students by an ethnic school is a secondary course for the purpose of the GST Act.

A LOTE course is provided by an ethnic school if it is provided by, or on behalf of, a school that:

· is a body corporate that operates on a not-for-profit basis

· has as its principal aim the teaching of languages other than English

· has close links with a community whose first/heritage language is not English, and

· is licensed, recognised, accredited, or in any way approved to provide such courses by a State or Territory authority responsible for that approval, in the manner applicable within the relevant State or Territory.

You must satisfy conditions (i) to (iii) above and be an ethnic school that has been approved for funding by the relevant authority within that State responsibility for that approval, in the manner applicable in that State in order to make GST-free supplies of a LOTE course as a primary or secondary course in that State.

In this case, you are a non-profit organisation. Your principal aim is to provide community language courses to primary and secondary school children. You advised that you are approved to provide the community language course by a government department as you receive funding from them. You furnished documentation of the accreditation from that department for your community languages school.

Accordingly, you satisfy all of the conditions listed above. Therefore, your community language courses, when supplied to primary or secondary students, satisfy the definition of a primary course or a secondary course and are GST-free under section 38-85 of the GST Act.

Issue 1 Question 3

Adult and Community Education Course

The definition of an education course in section 195-1 of the GST Act includes an adult and community education course (ACE).

An adult and community education course is a course of study or instruction that is likely to add to the employment related skills of people undertaking the course and:

· is of a kind determined by the Education Minister to be an adult and community course and is provided by, or on behalf of, a higher education institution, a recognised provider of the course, or a body funded by a State or Territory; or

· is determined by the Education Minister to be an adult community education course.

To be an adult and community education course, the course of study or instruction must:

· not be any of the other courses covered by the definition of an education course under section 195-1 of the GST Act, and

· be a course that is available to adults in the general community, and

· not be a course that is provided by, or at the request of an employer to the employees of that employer; and

· not be a course that is provided by, or at the request of an organisation to the members of that organisation, unless membership for the organisation is open to adults in the general community; and

· not be a course that is provided by way of private tuition to an individual.

Goods and Services Tax Ruling GSTR 2000/27 discusses the meaning of 'likely to add to employment related skills'. Paragraph 22 of GSTR 2000/27 states:

Whether an adult and community education course achieves its objectives and attracts its targeted participants will depend on the nature and content of the course, not on the actual prospects of individual persons undertaking the course. On the balance of probability there must be a reasonable expectation that the course will add to the employment related skills of people undertaking the course. There must be a reasonable expectation that the course will develop skills that can be used by participants in employment, or in a business, occupation, profession or trade.

A language course will only be GST-free if the language course is likely to add to the employment related skills of those undertaking the course and all of the requirements referred to above are satisfied.

You advised that the community language course for adult (adult classes) is open to the general public and the participants are mainly professionals who, in their work environment require some knowledge in the community language.

The adult classes you provide is mainly aimed at recreational and/or cultural pursuits rather than principally directed to add to the employment related skills of the participants. The adult classes therefore do not satisfy the aspect of adding to the employment related skills of people undertaking the course. As such, the adult classes are not an ACE course and therefore not GST-free.

Issue 2 Question 1

Grants

The application of GST to grants of financial assistance and funding is discussed in GSTR 2000/11 grants of financial assistance.

Paragraphs 9 and 10 of GSTR 2000/11 provide that the GST treatment of grants depends primarily on whether the grant represents consideration that has the relevant connection with a taxable supply. GST is payable in respect of taxable supplies. Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply which is a taxable supply.

Under section 9-5 of the GST Act you make a taxable supply if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· the supply is connected with Australia; and

· you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Therefore to satisfy the first requirement of a taxable supply in paragraph 9-5(a) of the GST Act, there must be a supply and consideration, and there must be a connection between the two.

Supply

Essentially, a supply is something which passes from one entity to another. The supply may be one of particular goods, services or something else which is reflected in an agreement by one party to do something for another.

'Supply' is defined under section 9-10 of the GST Act. The definition includes an entry into, or release from, an obligation to do anything; or to refrain from an act; or to tolerate an act or situation but excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money.

Where the provider of the grant and the grantee enter into a grant agreement which establishes rights and obligations between the parties, the acceptance by the grantee to fulfil such obligations will establish a supply made to the grant provider. That is provided that the grant is made for the purpose of those services being delivered.

As you have agreed to provide the services stated in the Agreement in order to obtain the grant, the provision of these services meets the definition of a supply.

Consideration

'Consideration' is defined under section 9-15 of the GST Act. The definition extends beyond payments to include such things as acts and forbearances to act. A payment will be consideration for a supply if the payment is in connection with, in response to or for the inducement of a supply.

Paragraph 9-15(3)(b) specifically excludes a gift made to a non-profit body from being consideration for a supply. Paragraph 61 of GSTR 2000/11 states:

a grant that is made as a function of government, and does not have the characteristics of benefaction and detached, disinterested generosity, is not a gift.

The grant, in your case, is not a gift, as there is a direct link between the payment of the grant and the agreed conditions applying to that grant in the Agreement between the government department and you.

As you receive funding on the condition it is used for the purposes specified in your Agreement, this is considered to be consideration as set out in section 9-15 of the GST Act.

Nexus between supply and consideration

Paragraphs 85 to 86 of GSTR 2000/11 state:

Many grants are paid in exchange for the grantees entry into an obligation to do something with the grant. The grant is sufficiently connected with the supply of such an obligation if the obligation is something which goes to the purpose for which the grant is made.

Conditions that a grantee may enter into include a requirement to use the granted funds in a particular manner, such as to deliver specified services to the community in furtherance of an objective of the grants program. Provided that the grant is made for the purpose of those services being delivered, the acceptance by the grantee of an obligation to fulfil such conditions will establish a supply to the grantor in connection with the grant.

Under the Agreement, there is a substantial nexus between the supply and the consideration as the grant was given to you on the condition you agreed to provide services as stated in the Agreement.

Therefore, there is a supply for consideration.

In that respect, all of the conditions under section 9-5 of the GST Act have been satisfied. That is, there is a supply for consideration, it is made in the course or furtherance of an enterprise that you carry on, it is connected with Australia and you are registered for GST. The supply is neither GST-free or input taxed.

Therefore, as the grant received is consideration and all other conditions of a taxable supply are satisfied, the grant is subject to GST.