Edited version of your written advice

Authorisation Number: 1051234559593

Date of advice: 7 June 2017

Ruling

Subject: GST-free education supplies and GST refunds

Question 1

Is your supply of language courses to primary and secondary school students GST-free under section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of language courses that you provide to primary and secondary school students are GST-free under section 38-85 of the GST Act.

Question 2

Are you entitled to a GST refund for the relevant tax periods?

Answer

No. You are not entitled to a refund of excess GST for the relevant tax periods.

Relevant facts and circumstances

You are registered for goods and services tax (GST) and you have reported GST on a quarterly basis since 1 July 2000.

You are a body corporate operating on a not-for-profit basis and you are registered with the Australian Charities and Not-for-profits Commission.

You operate a Language School providing language courses on weekends to primary and secondary school children.

You confirmed that your principal aim is to teach courses in languages other than English.

You have received funding for more than 10 years from a State Government Department under a Community Language School Program.

To obtain this funding you were required to satisfy certain eligibility criteria.

You remitted GST to the ATO on the education courses you provided due to an original mischaracterisation error made prior to 2007 and this accounting error was repeated over time.

You do not have any documents prior to that date to demonstrate that GST was never considered, or included, when establishing the price of your education courses.

You have not issued any invoices for the language courses you provide as invoices have never been requested by your students. Your enrolment forms and website do not detail that GST is included in the cost of your language courses.

You have not reimbursed any overpaid or excess GST to your students, nor do you intend to reimburse them, as you have said it would be administratively too difficult to do so.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 38-85

A New Tax System (Goods and Services Tax) Act 1999 Division 142

Reasons for decision

Unless stated otherwise all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999.

Question 1

The supply of an education course is GST-free under section 38-85.

The term 'education course’ is exhaustively defined in section 195-1 to include amongst other things, a primary course and a secondary course.

In this case, you supply language courses to primary and secondary school children on weekends.

In 2004, the Federal Education Minister issued A New Tax System (Goods and Services Tax) (Language Other Than English – LOTE – courses offered by ethnic schools) Determination 2004 (LOTE Determination) with effect from 1 January 2002.

This determination, states that a LOTE course that is provided to primary school students by an ethnic school is a primary course for the purposes of the GST Act and also that a LOTE course that is provided to secondary school students by an ethnic school is a secondary course for the purposes of the GST Act.

Under the LOTE Determination, a LOTE course that is provided to primary (or secondary) school students by an ethnic school is a primary (or secondary) course for GST purposes where the LOTE course 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.

A State Government Department, through a Community Languages Schools Program, provide funding to eligible not-for-profit incorporated community organisations. This funding is granted to those organisations for the purpose of operating out-of-school hours language classes that support school-aged students to learn and use a community language.

To obtain funding under the Community Languages Schools Program you were required to satisfy certain eligibility criteria.

Of relevance is that this eligibility criteria includes three of the four criteria that determine whether a course is a primary or secondary course under the LOTE Determination, namely that 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, and

● has close links with a community whose first/heritage language is not English.

The receipt of this funding means that you satisfied the relevant eligibility criteria and are recognised to provide community language courses. As the payer is 'the State authority responsible’ for that approval this recognition means that you satisfy the final, fourth criteria of the LOTE Determination.

Therefore, providing you continue to receive funding for the language courses you provide to primary and secondary school children they are respectively GST-free primary courses and secondary courses under section 38-85.

Question 2

During the relevant tax periods, you treated the language courses you provided to primary and secondary school students as taxable supplies and remitted GST to the ATO. It has now been determined that these courses were in fact GST-free during that period.

You have asked for a refund of the GST paid during these tax periods.

Division 142 applies to tax periods starting on or after 31 May 2014 and operates to ensure that a supplier is not entitled to a refund of excess GST, and therefore does not get a windfall gain, if the GST was passed on to their customer and the customer has not been reimbursed that amount.

Section 142-10 provides that the excess GST that has been passed on to a recipient is taken to have always been payable and payable on a taxable supply, until the recipient has been reimbursed for the passed-on excess GST.

The issue of whether GST has been passed on is discussed in detail in Goods and Services Tax Ruling GSTR 2015/1: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1).

Paragraph 24 of GSTR 2015/1 states that the GST Act envisages that the supplier 'passes on’ the GST to the recipient of the supply. That is, there is a general expectation that, in the ordinary circumstances, GST is passed on to the customer. However, the particular facts and circumstances of an individual case may demonstrate that the GST has not in fact been passed on.

Where a supplier claims a refund because it considers that the GST has not been passed on, the supplier must 'clearly substantiate the ground on which it claims the refund’. That is, the supplier has the onus of proving that its circumstances are outside the ordinary and that it did not pass on the GST. The question of passing on is one of fact and not fairness.

The same expectation applies to not-for profit entities which are considered at paragraph 125 of GSTR 2015/1:

While it is common for not-for-profit entities to set prices so as not to recover all costs, each case must be assessed on its merits to determine whether the cost of GST has been passed on to recipients. Similar to other entities, it is appropriate to consider the conduct of the not-for profit entity in setting prices based on their knowledge at the relevant time, including any belief that GST is a real cost.

Paragraph 28 of GSTR 2015/1 outlines matters relevant in determining whether or not GST has been passed on, namely:

● the manner in which the excess GST arose

● the supplier's pricing policy and practice

● the documentary evidence surrounding the transaction, and

● any other relevant circumstance.

In this case, you have said that the overpaid or excess GST arose due to an accounting error where your language courses were incorrectly treated as taxable supplies in your activity statements. This error continued being made undetected for more than ten years by successive staff and during that time you remitted GST to the ATO on a quarterly basis.

Your website and language school enrolment form do not detail GST and you have never issued a tax invoice for any course provided. However, these facts are not evidence that GST was not originally considered and included in your language course pricing when the prices were originally established.

As you are unable to provide any documentary evidence concerning the original pricing policy decisions for your language courses you cannot show that GST was not considered when determining the original price.

GST was introduced in Australia from 1 July 2000 and its introduction was widely publicised at that time. It is reasonable to conclude that your language courses were subject to GST in 2000 and were originally classified correctly as taxable supplies at that time. This is because the LOTE Determination, issued in 2004, applied only from 1 January 2002. Therefore, the status of your language courses may only have changed after the introduction of the LOTE Determination, or when you received funding.

In the absence of any evidence that the GST was not passed on, it is reasonable to rely on the general expectation that in the circumstances the price of your language courses included a component of GST and that this was passed on the students. As such, the GST was borne by the students rather than by you and therefore, the GST component should be reimbursed to them.

As you have said that you will not reimburse your past students, section 142-10 is satisfied and the excess GST that you have paid is considered to have always been payable. Accordingly, you are not entitled to a refund of excess GST for the relevant tax periods.