A short lesson on the Education Act
Over the past few months we have seen an increase in requests for advice on the effect of s.83C of the Education Act 1990 (NSW) (Act) from entities that operate schools, or who have agreements with schools. If you were not already aware, the 2014 changes to the Act regulate the use of the income of non-government schools and the eligibility for government funding for schools operated on a “not-for-profit” basis.
You may have the following questions.
Can I be paid if I am a director on the board of the school Company?
The answer to this question is simply – No.
To quote the Second Reading Speech in relation to the Act of Parliament that inserted section 83C into the Act: “Section 83C(2)(c) ensures that no payments are made to directors in connection with their activities as members of the governing body of a school beyond reasonable out-of-pocket expenses”.
It is important that entities operating the school review their governing documents to ensure they comply with the requirements of section 83C of the Act, in that regard.
Does all income from the school have to be used by the school?
The answer to this question is – Yes.
In order for an entity that operates the school to be considered operating on a “not-for-profit” basis, it must use school income and school assets ONLY for the operation of the school. This means that ALL income of the school such as funds generated from fees, assets and donations and not just funds received from the NSW Government, must be used for the purpose of operating the school.
I am a third party providing services to the school; can the income from the school be used to pay for the services?
The answer to this question is – Yes.
However, there are certain conditions that must be met.
The NSW Government Guidelines state that the entity operating the school must “ensure all payments for property, goods or services (including related parties) are at no more than reasonable market value. There are factors that must be considered when determining what is “reasonable market value” – for property, goods or services.
A common example of this situation is where the owner of the land upon which the school operates is quite often a related party of the entity operating the school. Where there is a Lease or Licence between the land owner and the school operator, and the rent charged under this Lease or Licence is for no more than reasonable market value, the school can pay that rent without breaching the Act.
How we can help
If you are operating a school, or are a related entity of a school entity, or a director or responsible person and want to ensure the financial transactions of the school are compliant with the Act, then please contact us for further information.