Edited version of your private ruling

Authorisation Number: 1012450848014

Ruling

Subject: Whether martial arts classes are input taxed

Question

Is your supply of martial arts classes a taxable supply?

Answer

Yes, the martial arts classes you provide are a taxable supply.

Relevant facts and circumstances

You are registered as a privately owned registered training organisation ('RTO'). You are registered for GST.

You deliver training courses, some of which lead to formal qualifications, such as Certificate III ('Cert III') and Certificate IV ('Cert IV') qualifications. You also run other programs. These qualifications and programs have not been considered as part of this ruling.

You also provide numerous martial arts classes. Anyone in the community can take these classes, but the classes can also form part of the Cert III and Cert IV qualifications. However, it is not necessary to complete martial arts classes to successfully complete the Cert III or Cert IV qualifications. You informed that completion of the martial arts classes alone do not qualify a person for any formal qualification, but that taking a number of martial arts classes can act as credit towards the Cert III or Cert IV qualifications that you already offer.

The martial arts classes provided by you are often attended by potential martial arts instructors intending to learn about martial arts or existing instructors who intend to build their professional knowledge and experience. However, anyone from the general public can attend any classes and classes can contain members of the general public, potential instructors, current instructors and people completing a formal qualification. If the class is entirely composed of instructors, you may teach more advanced topics that the general public is unlikely to obtain benefit from, but members of the general public are welcome, though unlikely, to attend these.

You provide handbooks and materials to students who take martial arts classes. By way of example you provided a student handbook. These materials specify your vision, mission and values, the philosophy and the requirements for the different ranks. You stated that the specific skills and objectives of the martial arts classes 'aren't really specialised, they're more contextualised' in what you're doing.

You also provide martial arts classes to children. Children with disabilities can also attend the martial arts classes. You indicated that you may have a higher instructor to student ratio when a number of children with disabilities attend a particular class. However, no special classes are run for these clients and each class may contain a mix of children from the general public or children with disabilities. You do not provide classes as private tuition.

You applied for a private ruling asking whether the supply of martial arts classes is GST-free. You contended that the supply is GST-free.

This ruling will only address the 'martial arts classes' and 'children's martial arts classes' you provide.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 7-1, 9-5, 38-85 and 195-1.

Reasons for decision

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you must pay GST on any taxable supply that you make.

Section 9-5 of the GST Act defines a taxable supply. It states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

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

(* denotes a defined term at section 195-1 of the GST Act).

In your case, you make a supply of martial arts classes and children's martial arts classes for consideration, which are connected with Australia, in the course of an enterprise you carry on and you are registered for GST. So, your supply of martial arts classes will be taxable unless they are GST-free or input taxed.

There are no provisions of the GST Act that make your supply input taxed. It must now be determined whether the supply is GST-free.

Section 38-85 of the GST Act states:

A supply is GST-free if it is a supply of:

(a) an *education course; or

(b) administrative services directly related to the supply of such a course, but only if they are supplied by the supplier of the course.

'Education course' is defined in section 195-1 of the GST Act as:

(a) a *pre-school course; or

(b) a *primary course; or

(c) a *secondary course; or

(d) a *tertiary course; or

(e) (Repealed by No 143 of 2007)

(f) a *special education course; or

(g) an *adult and community education course; or

(h) an *English language course for overseas students; or

(i) a *first aid or life saving course; or

(j) a *professional or trade course; or

(k) a *tertiary residential college course.

It is clear that the martial arts classes and children's martial arts classes do not fall within any of the categories of 'education course' in the GST Act. However, the categories (f), (g) and (j) appear immediately relevant.

Special education course

'Special education course' is defined in section 195-1 of the GST Act to mean a 'course of education that provides special programs designed specifically for children with disabilities or students with disabilities (or both).'

Paragraph 19 of Goods and Services Tax Ruling GSTR 2002/1 Goods and services tax: supplies that are GST-free as special education courses provides guidance on when a program is a 'special program':

A program is a special program if it is:

· designed specifically to meet the special needs of children or students with disabilities;

· designed specifically to reduce or prevent the impact of disabilities for children or students with disabilities; or

· not made available to people generally.

You have indicated that children with disabilities attend the martial arts classes. You also indicated that you may have a higher instructor to student ratio when a number of children with disabilities attend a particular class. However, you do not run specific programs for children with disabilities. The children's martial arts classes can be attended by any member of the public and each class contains a mix of people from varying backgrounds and of varied physical ability. The children's martial arts classes have not been specifically designed for children with disabilities or students with disabilities.

Hence, the children's martial arts classes are not a special education course.

Adult and community education course

'Adult and community education course' is defined in section 195-1 of the GST Act to mean a course of study or instruction that is likely to add to the employment related skills of people undertaking the course and:

(a) is of a kind determined by the *Education Minister to be an adult and community education course and is provided by, or on behalf of, a body:

(i) that is a *higher education institution; or

(ii) that is recognised, by a State or Territory authority, as a provider of courses of a kind described in the determination; or

(iii) that is funded by a State or Territory on the basis that it is a provider of courses of a kind described in the determination; or

(b) is determined by the *Education Minister to be an adult and community education course.

To be considered to be providing an adult and community education course, the Education Minister (meaning the Minister administering the Student Assistance Act 1973) must determine that you are providing such a course. Without this determination, this definition of an education course would not be applicable to you.

At subsection 5(2) of the A New Tax System (Goods and Services Tax) (Adult and Community Education Courses) Determination 2000 the Education Minister states that an adult and community education course must:

(a) not be any other education course defined in section 195-1 of the GST Act

(b) be available to adults in the general community

(c) not be provided by or at the request of an employer to employees of that employer

(d) not be provided by or at the request of an organisation to members of that organisation, except an organisation for which membership is open to adults in the general community, and

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

Your course is not of a kind mentioned in any other paragraph of the definition of an education course in section 195-1 of the GST Act. The martial arts classes are also available to adults in the general community. Although you may conduct classes for martial arts instructors at the request of a martial arts organisation, the martial arts classes are not generally provided by or at the request of an employer to its employees, nor are the classes generally provided by or at the request of an organisation to its members. You do not offer any private tuition. Hence, on the facts provided, the martial arts classes are of a kind that is determined by the Education Minister to be an adult and community education course.

You are a RTO, so are recognised by the State as a provider of such courses as determined by the Education Minister.

It must now be determined whether the martial arts classes are likely to add to the employment related skills of people undertaking them. Paragraph 15 of Goods and Services Tax Ruling GSTR 2000/27 Goods and services tax: adult and community education courses; meaning of 'likely to add to employment related skills' (GSTR 2000/27) provides that this is an objective test and not dependent on the subjective intention of the providers of the course or the recipients. Paragraph 15 of GSTR 2000/27 provides that we consider that the course satisfies the test of whether the course is likely to add to the employment related skills if:

a) It is directed at people who want to add to their employment related skills; and

(i) The objectives of the course specify the employment related skills that participants will acquire in undertaking the course; and

(ii) The means of imparting the skills to the participants are clearly identified prior to the commencement of the course; and

(iii) There is a reasonable expectation that the skills being developed will be used in the course of being an employee, or working in a business, occupation, profession or trade, rather than for recreational, hobby, artistic or cultural endeavours.

Additionally, paragraph 16 of GSTR 2000/27 provides that the following factors must also be considered:

(a) How the course is marketed.

A course that markets the employment related skills that will be acquired by undertaking the course will support your conclusion that the course will, on the balance of probabilities, add to the employment related skills of the participants.

(b) Whether the course is similar to an accredited vocational education and training (VET) program.

If you can clearly demonstrate that a majority of the course content is the same as part or all of a recognised VET program, this factor will support your contention that the course is likely to add to employment related skills of people undertaking the course.

(c) The outcomes of the course.

If you can present evidence that the majority of people undertaking your course are gaining employment relevant to the skills they have acquired in the course, this would also demonstrate that the course is likely to add to the employment related skills of people undertaking the course. There must be a reasonable expectation that the course is going to "add to the employment related skills of people undertaking the course".

In your case, the martial arts classes are not generally directed at people who want to add to their employment related skills; they are open for anybody to attend as a recreational pursuit. The objectives of the course do not specify any employment related skills that participants will acquire in undertaking the classes, nor are the means of imparting the skills to the participants clearly identified prior to the commencement of the course. Any requirements specified before or during the course are for skills developed for a recreational pursuit or hobby.

You have indicated that you conduct martial arts classes that are directed at martial arts instructors and may be too advanced for the general public. However, the objectives of these classes do not specify the employment related skills that participants will acquire in undertaking the classes, as you have indicated that the objectives are more 'contextualised' in what you're doing. Additionally, the employment related skills that will be acquired by undertaking the martial arts classes directed at martial arts instructors are not marketed; you have not demonstrated that the classes are similar to an accredited vocational education and training program; and there is no evidence to suggest that the majority of people undertaking the martial arts classes are gaining employment relevant to the skills they have acquired in your classes.

Additionally, the fact that a component of the Cert III or Cert IV can be made up of some martial arts classes does not make the martial arts classes themselves an adult and community education course. You indicated that you do not need to complete any martial arts classes to receive the Cert III or Cert IV and you do not receive any formal qualification if you solely take martial arts classes.

Thus, on the facts provided, the martial arts classes are not an adult and community education course.

Professional or trade course

'Professional or trade course' is defined in section 195-1 of the GST Act to mean a course leading to a qualification that is an essential prerequisite:

(a) for entry to a particular profession or trade in Australia; or

(b) to commence the practice of (but not to maintain the practice of) a profession or trade in Australia.

'Essential prerequisite' is defined in section 195-1 of the GST Act to mean:

a qualification is an essential prerequisite in relation to the entry to, or the commencement of the practice of, a particular profession or trade if the qualification is imposed:

(a) by or under an *industrial instrument; or

(b) if there is no industrial instrument for that profession or trade but there is a professional or trade association that has uniform national requirements relating to the entry to, or the commencement of the practice of, the profession or trade concerned - by that association; or

(c) if neither paragraph (a) nor (b) applies but there is a professional or trade association in a State or Territory that has requirements relating to the entry to, or the commencement of the practice of, the profession or trade concerned - by that association.

You advised that there is no one peak professional association for the martial arts industry. You advised that there are no nationally recognised requirements relating to the entry into the profession of martial arts instructor. The martial arts classes you conduct are not accredited in any way by a martial arts association.

As such, the martial arts classes are not a professional or trade course.

Conclusion

As the martial arts classes and children's martial arts classes are not within the scope of an 'education course' as defined in section 195-1 of the GST Act, they are not a GST-free supply of an education course under section 38-85 of the GST Act.

Thus, you make a taxable supply of martial arts classes and children's martial arts classes.

Apportionment

We did not consider whether the Cert III or Cert IV courses are a GST-free supply of an education course. If the Cert III or Cert IV courses meet the requirements of a GST-free supply of an education course, the following information about apportionment will be relevant to you.

You advised that you supply martial arts classes as part of the Cert III and Cert IV courses. If you make a GST-free supply of an education course when you supply the Cert III and Cert IV courses, you will need to apportion the taxable component and the GST-free component of your supplies.

Paragraphs 37 and 38 of Goods and Services Tax Ruling GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses provides guidance on how you are to apportion the supplies:

Single units that are not from an approved tertiary course are referred to as 'non-accredited units'. These units do not satisfy the requirements of the Education Minister's Determination under the Student Assistance Act 1973 ['The Student Assistance Act (SAA) Determination (No. 2002/1) - Determination of Education Institutions and Courses under subsection 3(1) and 5D(1) of the Student Assistance Act 1973'] because the Determination only covers accredited courses. Non-accredited units delivered by you will be subject to GST.

Non-accredited units, that form part of any course developed by you that comprise a combination of accredited and non-accredited units, will be subject to GST on an apportionment basis. You will be required to use a reasonable basis to determine the portion of the course that is non-accredited and levy GST on that component. What is 'reasonable' will depend on the facts in each case. However, the Commissioner would consider that the calculation of the taxable proportion based on the time taken for each unit would be reasonable.