School Building Funds & Tax Deductions

Demands for parents to pay into school building funds are often thinly disguised tax abuses and should be reined in by the Australian Taxation Office, according to the public interest think tank The Australia Institute.

Executive Director Dr Clive Hamilton says tax deductibility for voluntary donations to school building funds was introduced to assist private schools, in particular fund buildings such as libraries and other facilities.

But the Institute study, Tax Deductibility of Donations to School Building Funds, has revealed that payments into some private and public school building funds may not meet the conditions required by the Australian Tax Office so that claims for tax deductions are not legitimate.

According to the study there is evidence to suggest donations to some private schools are not being given freely either because parents are unaware that the payment is voluntary or because they are pressured by the school to give.

These pressures may include perceptions that their child may be disadvantaged if they fail to make a ‘donation’.

In addition, there is anecdotal evidence that some donors to school building funds receive a benefit from the gift, namely the enrolment of their children ahead of others on the waiting list. In these cases, claiming a tax deduction for a donation to a school building fund may not be legitimate.

Private school fees are not tax deductible in Australia. Nor are fees or levies paid to public schools. However, many private schools and some public schools operate building or library funds to which parents and ex-students are encouraged to make tax-deductible donations.

These donations can increase substantially the funds available to the schools and thereby permit fees to be lower than otherwise.

The study outlines contrasts between the Australian Taxation Office guidelines, which state that donations must be voluntary and that donors must expect nothing in return, with the statements of some private schools.

The study uses the example of where school fee statements actually suggest or indicate that payments to building and library funds are compulsory and that the contributions are tax-deductible.

For example, the fee statement on the website of one college in Victoria provides no indication to parents that building fund donations (which are said to be tax deductible) are optional despite explicitly informing them that bus fees are optional.

It also says that the ‘composite fee’ which, like the tuition fee, is ‘payable in advance each term’, includes a Library Levy that is tax deductible. A ‘levy’ is not usually seen as a donation.

Another college goes even further, telling parents that payments to its building fund are an essential part of the cost of educating their child.

Public policy researchers Deb Wilkinson and Richard Denniss conclude that parents should be formally notified by all private schools about the voluntary nature of all tax-deductible payments and that the ATO should investigate the practice of structuring school fee payments in order to reduce tax.

The researches say that many, perhaps most, schools scrupulously adhere to the spirit and the letter of the law in relation to school building funds. However, there is evidence to suggest that some private schools are urging or facilitating parents to claim tax deductions for contributions to building funds to which they are not entitled.

They say other schools, perhaps with the benefit of advice from tax experts, do not make false claims but nevertheless apply intense pressure on parents to make ‘voluntary’ contributions.

As a result of these practices, they say Australian taxpayers are funding additional payments to schools and tax breaks to parents of children at schools to which they are not entitled under law. There is therefore a need for the Federal Government to enforce the tax laws more rigorously.