A recent Civil and Administrative Tribunal decision in NSW has reemphasised the importance of Non-government Schools understanding their core registration requirements and the appropriate structuring of their relationships with related parties, to ensure they do not jeopardise their school registration status and their receipt of government funding.

In that decision, the Tribunal confirmed the NSW Department of Education’s decision to demand an Australian Federation of Islamic Council (AFIC) school repay over $11 million in funding to the Department.

The school was found to have been operating ‘for profit’, a breach of its school registration and funding conditions. The Tribunal concluded that the school had enjoyed the benefit of the public funds while operating on a ‘for profit’ basis, and was not entitled to this funding during the 2014 and 2015 calendar years. The Tribunal disregarded the school’s arguments that it had changed its ways, and that forcing the school to repay the funding years later would cause hardship to present students (due to a likely increase in school fees).

This decision accords with the community expectation that public funding provided to a school for education purposes should be recovered and returned to taxpayers when the school misuses or was not entitled to that funding.

The well publicised conduct of AFIC and its schools represent the extreme end of non-compliance with school regulation (leading to this demand for funding repayment by the NSW Department of Education). However, the operators of all Non-government Schools should be mindful that less intentional breaches of registration requirements can also lead to serious audit or compliance actions for their schools.

Non-government Schools registered in Victoria and NSW are required to be operated on a strict ‘not-for-profit’ basis. This school registration requirement governs how the assets or income of a school or its proprietor may be applied or utilised, particularly in dealings with related parties.

This necessitates careful consideration of all manner of agreements a school may enter into, from loan agreements, lease agreements and the operation of other undertakings in addition to the school (including, commonly, early learning centres).

The Victorian Registration and Qualifications Authority (VRQA) – the primary regulator of non-government schools in Victoria – has recently strengthened probity around this not-for-profit requirement for Non-government Schools, with Macpherson Kelley’s Not-for-Profit Team assisting many Non-government Schools through the audit process or taking corrective action before the commencement of an audit.

The school regulators in both NSW and Victoria have also recently updated their guidelines for non-government schools, and all schools are now required to be aware of and compliant with the requirements in those guidelines.

The activities of AFIC and its affiliated schools also triggered a compliance investigation by the Commonwealth charity regulator – the Australian Charities and Not-for-Profits Commission (ACNC) – which ultimately resulted in enforceable undertakings being given to the ACNC by AFIC.

Not all breaches of the States’ ‘not-for-profit’ requirements will necessarily be a concern for the ACNC however, as the State based requirement is distinct from the ACNC not-for-profit status that proprietors or schools may enjoy through registration with the ACNC as a registered charity.

Accordingly, proprietors of Non-government Schools should not rest on their charity registration as a tick of compliance with their relevant State requirement, and should ensure the transactions and other arrangements they enter into are consistent with both Commonwealth and State Governments’ primary objective of ensuring education funding is kept within, and applied strictly in furtherance of, the education sector in Australia.