New draft NSW Guidelines provide handy reference for Victorian schools

In NSW, the Not-For-Profit Guidelines for Non-Government Schools (2019) (the ‘NFP Guidelines’) were launched to assist schools to understand their not-for-profit obligation with reference to common transactions schools experience.

The NFP Guidelines recently underwent Ministerial review and public consultation of the exposure drafts and was completed in late 2023, together with a proposed draft Regulatory Framework for the Oversight of Assistance provided to NSW Non-Government Schools.

The NFP Guidelines provide a useful reference point on the types of common transactions schools face and the records they are expected to maintain and make available to the Minister to make determinations of compliance with section 83C.

They are extremely useful to schools in Victoria as a further reference in relation to considering potentially prohibited arrangements.

Regulatory Context

Non-government schools must operate for a not-for-profit purpose. In NSW, this is required to be eligible for financial assistance from the NSW government. In Victoria, the not-for-profit requirement is a condition of school registration. Regulations in both states establish the not-for-profit obligation and a requirement to only enter into not-for-profit transactions “for the conduct of the school” (Vic) or for the “operation of the school” (NSW) or otherwise risk being deemed to be for-profit and non-compliant with financial assistance or registration conditions.

What does not-for-profit mean?

In Victoria, the ‘not-for-profit’ criteria for schools are set out in regulation 7 of the Education and Training Reform Regulations 2017 (“ETR Regulations”).

In brief,

  • a school cannot have a for profit purpose;
  • money and property received by the school or the proprietor of the school can only be applied toward the conduct of the school and cannot be used for any other purpose; and,
  • the school and its proprietor cannot be party to a prohibited agreement or arrangement (PAA) under regulation 5. The PAA provisions cover the nature of transactions that would make them ‘for-profit’ and explain certain types of transactions which are not deemed to be ‘for-profit’. 

Section 83C of the NSW Education Act 1990 operates in a similar way, drafted from the position of when a school would be deemed to operate for-profit in relation to its use of “income” or “assets”, and “payment” for property, goods and services.

Guidance for schools

The NSW requirements are broadly mirrored in Victoria by the ETR Regulations with explanatory guidance provided in the Guidelines to the Minimums Standards for School Registration (2022) (‘Minimums Standards Guidelines’).

Whilst not binding in Victoria, The NFP Guidelines offer a useful external reference for Victorian registered schools particularly in relation to measures that can be taken to avoid PAAs or demonstrate that transactions are not made for-profit.

How do they compare?

We have provided a summary analysis of the proposed changes to the NFP Guidelines that support schools to comply with s83C, and the equivalent Victorian PAA requirements. View our summary table.

What’s new in the NFP Guidelines?

The exposure draft NFP Guidelines incorporate both examples of common transactions and provide further explanatory guidance to distinguish when a school “will likely be operating for profit” or “may be operating for profit”. Although they do not set a precedent, they are useful to understanding where we have seen or are likely to a similar interpretation to “reasonable market value”, and what is “reasonably required” adopted for Victorian schools.

Characteristics of transactions that can be considered as not for the operation (or conduct) of the school or otherwise considered as operating for a profit can arise where:

  • the value of school assets disposed of are at less than reasonable market value. The value of the asset is also relevant where there might be a disposal for less than the reasonable market value. For example, end of life school computers will generally not be considered a “valuable asset”, whereas school real property or larger assets like vehicles are more likely to be valuable assets. A similar approach is taken in Victoria for high value assets.
  • Where rent for unimproved land is determined based on the value of any improvements which are to be made by the tenant. We know this is consistently found to be a non-compliant arrangement in Victoria. Similarly, if a school has made improvements to leased land or premises as the tenant, and subsequently does not receive a proportionate return on investment at the time of sale by the owner, then this can also have the effect of not being for the operation of the school.
  • Where the transfer of school assets or income to related or unrelated third parties are for the purpose of placing them beyond scrutiny by the Minister there must be documentation to show that it is for the purposes of the operation of the school e.g. to be used to purchase assets to be held on trust for the school. The existence of appropriate legal instruments between related and unrelated third parties is also a subject of greater inquiry in Victoria.
  • Where a school is engaged in the business of lending money or making investments using school income with limited (or no) evidence that the loans are for the operation of the school. The risk associated with these types of transactions will also count toward determining if it is for the purpose of the operation of the school or otherwise for profit.

New examples include:

  • New section 4.11. Proposed introduction of Guidelines Preschool, Early Learning and Out of School Hours Care subject to approval of the new Regulation by the Minister for Early Education and Early Learning.
    • In Victoria, in the context of ELC, there is a specific exception to the not-for-profit requirement which allow for the use of school money or property for the purpose of conducting an ELC or providing boarding premises where certain conditions are satisfied.
    • We await the release of the NSW Guidelines which may influence the operational expectations of ELCs and related activities.
  • 4.22 Compensation, settlements, and other one-off payments. It is no surprise that specific guidance is provided on these types of transactions given the climate of increased exposure to claims against schools.
    • Schools can expect greater scrutiny around the appropriateness of these types of transactions. Records detailing the reasons for any settlement offers must support any formal settlements and other payments including legal documentation consistent with legal advice or orders by a relevant tribunal or court.
    • Delegation and segregation of duties in relation to decision making on these matters is also relevant and school governing documents should reflect how these are enabled.
    • It is important that Victorian schools consider any settlements and one-off payments through the lens of PAA requirements prior to preparing legal documentation.
  • 4.23 National Redress Scheme for Institutional Child Sexual Abuse. Clarifies that schools are not operating for-profit in the context of contributions made to the National Redress Scheme for Institutional Child Sexual Abuse provided that the school can demonstrate that the funding contribution is not sourced from government financial assistance.

What can Schools do?

The NSW Department of Education is currently considering feedback on the exposure drafts and has not provided a release date. Schools should consider the proposed updated Guidelines as part of their 2024 business planning, reflect on the records requirements as a tool to assess the maturity of their operating practices and recordkeeping to identify any areas for improvement or rectification.

How we can help

Our Education team can work with you to assist with:
• Advice on the application of the regulations for specific transactions.
• Review of existing arrangements that pre-date the regulations in both NSW and Victoria.
• Policy and procedure review or development to enable compliant transactions.
• Board and key personnel training on NSW S83C and Victorian PAA requirements

Contact us

Please contact us for more detailed and tailored help.

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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.