Tax Deductibility for School Buildings Donations on Chopping Block

Tax perks for all donations might be next.
Jan 8, 2024
Tax deductibility of donations to schools is receiving the attention of the Productivity Commission.

Donations to school building funds are a significant source of income for high fee private schools, 50 of the most exclusive private schools in Australia received in $461 million in donations over the period 2017 to 2021, an average of $92 million a year. Much of this was through school building funds. In 2021, these schools also received $539 million in government (Commonwealth and state/territory) recurrent funding.

But in some bad news for schools touting STEM centres, gyms, architecturally designed teaching facilities and more as a way of attracting students, the Productivity Commission has recommended that school building funds no longer be eligible for tax deductible donations.

Tax deductibility for donations to building funds contributed to the $29 million library at Scots College in Sydney that resembles a Scottish castle and Cranbrook’s recent $120 million building spree on an aquatic centre, theatre and underground carpark.

In its Draft Report on Philanthropy, the Commission said there is no rationale for the Deductible Gift Recipient (DGR) system for school building funds tax and that the benefits accrue to individuals connected with the schools rather than providing community wide benefits.

This finding applies as much to other tax-deductible funds operated by private schools and the Draft Report states; ‘The potential for a donor to be able to convert a tax-deductible donation into a private benefit is especially apparent for primary and secondary education activities, particularly where students are charged fees. While such donations undoubtedly provide benefits, the likelihood that they generate broader community-wide benefits is reduced. Potential donors are most likely to be those directly involved with the organisation, such as students, their parents or alumni. This could lead to tax-deductible donations being directly converted into lower fees.’ [p. 188.]

It said that excluding these school building funds from DGR status ‘would refocus taxpayer support toward other activities that are likely to have a greater community-wide benefit’ [p. 190.]

The DGR system is designed to provide tax incentives for donations to eligible charitable organisations. School building funds are currently eligible for such tax concessions and they account for a high proportion of entities with DGR status. The Commission estimated that there are about 3,500 charities in the religion and/or education category that have DGR status for school building funds. Total donations to these charities were almost $800 million in 2021. The donations were heavily concentrated in a small number of these charities with 10% receiving about 80% of total donations. The Commission observed that these figures suggest that schools servicing communities with greater socio-economic advantage are more likely to benefit from DGR status for school building funds.

In contrast to the situation when the DGR system was introduced, private schools now receive government recurrent and capital funding.

In addition to government-subsidised donations, private schools also receive a range of tax concessions from Australian, state, territory and local governments including Fringe Benefit Tax exemptions and partial rebates, income tax exemption, franking credit refunds, GST concessions, land tax exemptions, stamp duty exemptions, payroll tax exemptions and rates exemptions. These exemptions are a form of indirect government support for private schools.

The principal of Pymble Ladies College in Sydney said the recommendation was “shortsighted” and that “we’re not in an industry that is ridiculously well funded”. The school charges $40,000 per student to attend and received $10.8 million in government funding in 2022.

Shadow Education Minister, Sarah Henderson, claims it is a “direct, ideological attack on independent and faith-based schools and will “devastate non-government schools” despite the fact that the biggest beneficiaries are the richest schools in the country. Sky News claimed that the Report would further erode Australia's Judeo-Christian values.