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Accounting for GST on student fees
GST on student fees held in trust
The purpose of the Student Fee Protection Policy is defined as:
"to protect the interests of students, both domestic and international, in all circumstances that result in a registered private training establishment (PTE) ceasing to offer a course in which a student is enrolled. This protection covers all payments made to a PTE by or on behalf of a student and includes accommodation and living expenses, where applicable."
The definition is further expanded as follows.
"Student fee" means, in relation to a student, the total tuition and other course costs and other financial commitments directly associated with the course for which the student has enrolled and which are payable by the student, together with any other commitments that are required to be paid by the student to a PTE.
The fees paid by the student include GST. Therefore, this amount is included in the calculation of total tuition. It must be protected by the trustee and included in the pro rata drawdowns made by the trustee.
Accounting for GST on student fees
The New Zealand Qualifications Authority (NZQA) sought guidance on accounting for GST on student fees when the Student Fee Protection Policy was established.
The issue centres around the time at which PTEs are required to account for GST on student fees that are paid into independent trust accounts, and are in turn forwarded periodically to PTEs in accordance with an agreed payment schedule.
More specifically, the issue is whether GST is required to be accounted for by the PTE upfront (i.e. at the time the fees are paid by the student into the trust account), or whether the progressive supply provisions contained in the Goods and Services Tax Act 1985 (GST Act) allow for GST to be accounted for by PTEs progressively as funds are released from trust accounts.
The IRD’s response
The Inland Revenue Department (IRD) has advised that whether or not the progressive supply provisions apply will depend on the precise contractual arrangements between the PTE, the student and the account trustee. However, the IRD has issued a non-binding ruling in relation to the standard arrangements entered into between PTEs and the Public Trust, which confirm that the progressive supply provisions do apply to those arrangements.
The IRD has agreed that its interpretation of the provisions in relation to the Public Trust arrangements should extend to other account trustees who follow the same procedures. However, any variations from those procedures, particularly in relation to the key features outlined below, could result in the IRD concluding that the progressive supply provisions do not apply.
The positive non-binding ruling issued in relation to the arrangements with the Public Trust is based on the following understanding of arrangements between the PTE, the student and the Public Trust:
- A PTE appoints Public Trust trustee of their Student Fee Trust Account by signing a Participation Agreement. This Agreement effectively binds the parties to the Master Trust Deed between [NZQA] and Public Trust.
- A trust account is then established by Public Trust in the name of the PTE and internet access is given to PTE Internet user(s).
- PTE internet user(s) are then able to enter an individual student detail which enables the system to produce the individual student’s Trust Account and the mandatory Payment Schedule which details the amounts and dates the Trustee will pay the student fees to the PTE.
- All documentation must be signed by both the student and PTE and forwarded to Public Trust for verification before the Trustee will authorise the release of funds in accordance with the agreed Payment Schedule.
- Student fees are payable direct to the Public Trust by both domestic and international students. Bank deposit slips and/or telegraphic transfer forms contain unique identifiers enabling the Trustee to identify the PTE for which the funds are intended.
- The PTE, on entering student details in their Trust Account, allocates the funds received to individual students.
- If student fees are paid by a loan provider (student loan by Studylink) Public Trust is again able to identify such deposits through unique identifiers.
In confirming that the progressive supply provisions contained in section 9(3)(a) of the GST Act do apply to the above arrangements, the IRD has placed particular emphasis on the following points:
- The key issue is whether an agreement for periodic payment exists between the student and the PTE.
- The fact that the periodic payment schedule is signed by both the student and the PTE is critical. It constitutes an agreement for periodic payments. If the payment schedule is not signed by both the student and the PTE, the IRD considers that no progressive supply agreement would exist between the student and the PTE.
Position of individual PTEs
NZQA does not provide tax advice. The purpose of this information is to provide PTEs with an understanding of the IRD’s views based on discussions and correspondence with them. Any PTE that adopts the trust account procedures, which are other than in accordance with the Public Trust type arrangements as outlined above, should take their own independent advice and/or consider approaching the IRD if they are uncertain in relation to their own individual circumstances.