Donation Confusion at the PMSA
We have examined in many blogs and in the Good Governance series the complex, confusing and strange legal status of the PMSA, including concerns about the Letters Patent structure.
What we haven’t examined until now is why there are so many Australian Business Numbers (ABNs) used by the PMSA.
There is only one legal entity that runs the four schools - the Presbyterian and Methodist Schools Association (PMSA).
So why all the different ABNs?
At present the PMSA, the one legal entity, operates four trading names and each of those trading names have an ABN. They are:
Brisbane Boys College ABN 43 257 489 023
Clayfield College ABN 83 986 300 603
The Presbyterian and Methodist Schools’ Association – Sunshine Coast Grammar School ABN 40 192 147 977
The Trustee for the Presbyterian and Methodist Schools Association Somerville House ABN 72 347 198 980
The PMSA, when acting in its corporate head office capacity, uses the ABN 22 728 296 617. This is the ABN it uses on its consolidated financial reports.
How is this possible?
Well, the trading names (being the school names) have what is called ’non-profit sub-entity’ status
Non-profit sub-entity ABNs
To be eligible to elect to treat an activity as a non-profit sub-entity, the not-for-profit organisation must satisfy the following criteria:
the sub-entity must keep an independent accounting system;
the sub entity must be separately identifiable by the nature of its activities or by its location; and
a record must be held by the main entity indicating that the activity is treated as a non-profit sub-entity for GST purposes.
That status doesn’t mean they are separate entities – they are not. The status is merely a construct of the Goods and Services Tax (GST) legislation that large not-for-profits can take advantage of for GST purposes only.
An ABN for Somerville House does not mean it is legally separate from the PMSA – it is not. It merely means that when one of the non-profit sub-entity transacts with one of the other non-profit sub-entity ABNs, it does so just like external parties transact with each other for GST purposes only.
In plain English, when the trading name Somerville House invoices the trading name Brisbane Boys College, the transaction will be subject to the GST laws as if they were separate legal entities, even though they are not. In reality, it is just the PMSA transacting as the PMSA with the PMSA.
Somehow this mere fiction has carried through to the enrolment agreements at each school. The enrolment agreements do not refer to the legal entity – the PMSA - or its ABN, but only the trading name / non-profit sub-entity’s name and its ABN. I will leave it to the regulators to sort out if that is appropriate for a contract under Australian consumer law - in my opinion it would be correct for a legal agreement, such as an enrolment agreement, to have the full name and ABN of the legal entity - the PMSA – to be valid and enforceable.
Anyway, I digress.
There is also an interesting double up when you go and look at the various building funds, library funds, and scholarship funds run by the PMSA and the various Foundations at each school.
Remembering that each Foundation is a separate legal entity, separately constituted from the PMSA, with a mostly “separate” board of directors. Each Foundation’s constitution is slightly different, however most have the requirement of the involvement of some PMSA Councillors as Directors of the Foundation.
What is a Deductible Gift Recipient(DGR)
A DGR is an entity or fund that can receive tax deductible gifts/donations. It is a construct of taxation laws, which provide that, subject to certain factors being in existence, a contribution to a “DGR” fund gives rise to a tax deduction in the hands of the donor. The ability to give donors a tax deduction for contributions can be advantageous, so having and retaining the “deductibility” status via endorsement by the Australian Taxation Office is important.
As you can see from the detail below, there can be several types of DGR, with the ones more commonly associated with a non-government school being:
A building fund;
A library fund; and
A scholarship fund.
What is common to all three types of funds is that they must be a “public fund”.
What is a public fund?
A public fund is one to which it is intended the public will contribute and the public are invited to contribute. In fact, the public or a significant part of the public must in fact contribute for the fund to continue to be a “public fund”.
Further, the public must participate in the administration of the fund. For this, it is sufficient if the fund is administered by individuals or institutions who have a degree of responsibility to the community as a whole because of their tenure of some public office or position in the community. That is, the majority of those who control the fund must meet the responsible persons requirement. This is outlined in Taxation Ruling TR 95/27 and “responsible persons” in this context can be summarised as:
Church authorities
School principals
Clergymen
Solicitors
Doctors
Other professional persons
Majors, councillors, town clerks and members of parliament
Generally, they are persons who are acceptable as having a degree of responsibility to the community, are known to a broad section of the community because they perform a public function, or they belong to a professional body which has a professional code of conduct of ethics and rules.
Also, the Australian Taxation Office requires that a public gift fund must have an acceptable dissolution clause, that is, one which provides that on winding up, any surplus money or other assets must be transferred to some other DGR.
The ATO provides the following as an acceptable dissolution clause for a public fund:
In the event of the fund being wound up or dissolved, any surplus assets remaining after the payment of the fund’s liabilities shall be transferred to another fund, authority or institution, which has similar objects, and to which the income tax deductible gifts can be made. (emphasis added)
As outlined below, the PMSA operates seven public funds (building funds, library funds and scholarship funds) and the various school Foundations operate or are trustees for a further 6, according to the Australian Business Register.
The winding up clause in the PMSA constitution (remembering the PMSA operates seven public funds according to the Australian Business Register) states:
20. Income and Property
(a) The income and property of the Association shall be used and applied solely for the promotion of the objects of the Association and no portion of the income or property will be distributed, paid or transferred by way of dividend, bonus or otherwise amongst its members.
(b) On dissolution, the assets of the Association remaining after the satisfaction of all debts and liabilities shall be transferred to some institution having similar objects.
This seems to be missing the stated ATO requirement to distribute a public fund to another fund to which tax-deductible gifts can be made, on winding up.
The criteria to establish and maintain a school building fund is:
It must be a “public” fund (as above);
There must be a school (as defined);
There must be buildings and such buildings much be used as a school by a non-profit society or association (as well as by government or public authority); and
The use of the fund must be for acquisition, construction or maintenance of a building
The Australian Taxation Office outlines these requirements in more detail in their Taxation Ruling TR 2013/2.
The criteria to establish and maintain a library fund is:
It must be a “public” fund;
It must be a library;
The library’s collection is available to the public;
The library must be publicly owned and controlled; and
It is either a registered charity or operated by a registered charity.
The criteria as to whether the library’s collection is available to the public is satisfied by a school library which is run by government or religious bodies.
The criteria to establish and maintain a scholarship fund is:
It must be a “public” fund;
Established solely for providing money for eligible scholarships, bursaries and prizes such that:
Awarded only to Australian citizens or permanent residents
Open to individuals throughout a region of at least 200,000 people or at least an entire state or territory
For the recipients’ education
In an approved Australian course
Awarded on merit or for reasons of equity.
PMSA deductible gift funds
The PMSA ABN 22 728 296 617 (which is essentially the head office corporate cost centre) does not of itself have any deductible gift recipient funds.
In the PMSA Annual Report 2016, the PMSA disclosed the following DGR funds that it administers:
Foundation deductible gift recipient funds
Now this is where things do get interesting, because most of the Foundations associated with PMSA Schools also run their own DGR funds.
By researching on the Australian Business Register, we can identify the DGR funds administered by the various PMSA School Foundations:
So, some schools have a building fund administered by the PMSA and a building fund administered by the Foundation. At first, I thought I may have been seeing double. Is this double-up a mistake?
Let’s look at every school separately:
Brisbane Boys College:
As part of their school fees, parents contribute a “Family Capital Levy”, a compulsory levy which is not tax deductible.There is no separate accounting of this amount and it is unclear how the PMSA direct these funds to be spent.
Stakeholders also have the option to donate a tax-deductible amount to the Brisbane Boys College Building Fund (ABN 43 257 489 023).This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
Stakeholders also have the option to donate a tax-deductible amount to the Brisbane Boys College Foundation Ltd Building Fund (ABN 65 010 877 531).This is administered by the BBC Foundation and has a balance of $254,918.The Foundation Directors administer this fund separately from the PMSA and it is separately audited.
Stakeholders also have the option to donate a tax-deductible amount to the Brisbane Boys College Library Fund (ABN 43 257 489 023).This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
Stakeholders also have the option to donate a tax-deductible amount to the Brisbane Boys College Foundation Ltd Library Fund (ABN 65 010 877 531).This is administered by the BBC Foundation.The Foundation Directors administer this fund separately from the PMSA and it is separately audited.
Stakeholders also have the option to donate a tax-deductible amount to the Brisbane Boys College Foundation Ltd Scholarship Fund (ABN 65 010 877 531). This has a balance of $484,117 as at 31 December 2016.The Foundation Directors administer this fund separately from the PMSA and it is separately audited.
So, there are three buildings funds (only two of which are DGRs), two library funds and one scholarship fund. Why so many, and to what purposes are they put to?
As stated by the BBC Foundation Directors in their 2016 audited financials at page 1:
Support will ensure the College can direct funds to vital projects that otherwise might not receive funding. These contributions will help maintain and improve facilities, enhance academic and co-curricular programs and enrich the teaching and learning experiences of our students. Gifts provide the donor with tax benefits and Brisbane Boys’ College with critical resources to fulfil its mission.
As stated by the PMSA Councillors in relation to their tax-deductible funds and in relation the compulsory Family Capital Levy:
“ (purposely left blank) “
That is right, the PMSA does nothing more than list the funds in its audited annual reports. No strategic direction, account balances, plans or prior expenditure from those funds. Nothing.
Each donor will need to determine for themselves which disclosures give them the most comfort that the funds they donate to will be retained for the purposes of Brisbane Boys’ College and which funds provide the most accountability to stakeholders. But, I know which one I’d choose.
Clayfield College:
Stakeholders also have the option to donate a tax-deductible amount to the Clayfield College Brisbane Building Fund (ABN 83 986 300 603). This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
Stakeholders also have the option to donate a tax-deductible amount to the Clayfield College Library Fund (ABN 83 986 300 603).This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
Stakeholders also have the option to donate a tax-deductible amount to the Clayfield College Scholarship Fund (ABN 83 010 980 908).This is administered by the Clayfield College Foundation.The Foundation Directors administer this fund separately from the PMSA and it is separately audited.
At least at Clayfield College there is only one building fund, one library fund and one scholarship fund.
The net equity of the Clayfield College Foundation Ltd (ABN 83 010 980 908) is $905,423 as at 31 December 2016. The Directors of the Clayfield College Foundation Limited (ABN 83 010 980 908) state at page 2 of their audited financial report for the year ended 31 December 2016 under short and long-term objectives:
The Clayfield College Foundation was established in 1989 to provide financial support for the acquisition, construction and maintenance of buildings used, or to be used, by Clayfield College.In particular the Foundation seeks to assist in two broad areas:
To develop an investment portfolio to generate returns which will allow the College’s capital program to become independent of government funding and its restrictions as and when that becomes necessary; and
To act as the capital development co-ordination body for the College in providing expertise and funds to facilitate programs relating to the school’s buildings and capital assets.
The funny thing is that, according to the Australian Business Register, the Clayfield College Foundation does not have a DGR building fund or a DGR library fund - it only has a DGR scholarship fund. It may be, like Sunshine Coast Grammar, that such funds are in a separate trust, but if so it is not clear from the Australian Business Register or the ACNC searchable database what that trust is.
Perhaps the Clayfield College Foundation Directors can clarify this for the stakeholders of Clayfield College.
Lyndhurst Early Learning Centre
Things get even more confusing when you look at page 15 of the Clayfield College Foundation Financial report, where the Directors also state that it has, as trade and other payables, the Lyndhurst Rental Bond of $42,930 as at 31 December 2016. The Clayfield College Foundation Limited audited financial accounts also show the receipt of “rental income”, although it is unclear exactly what property that relates to. However, a strong indication can be found in the Clayfield College Foundation Limited noncurrent assets of $131,821, described at note 5 in those accounts as “leasehold improvements”.
Lyndhurst is the name of the building at 3 London Road Clayfield, home to the Lyndhurst Early Learning Centre.The PMSA is the registered owner of that property. The property has a registered lease dated 3 February 2014 between the lessor, stated to be “The Presbyterian and Methodist Schools Association” and a third-party lessee.The rental bond under that lease at clause 16 is payable to the “Landlord”, which, as per clause 1.1, is the lessor the PMSA, not the Clayfield College Foundation Limited.
So, the rental bond payable to the PMSA is now accounted for in the audited financial statements of the Clayfield College Foundation Limited?And the rental income legally payable to the PMSA and improvements to a property owned by the PMSA are very possibly accounted for in the audited financial statements of the Clayfield College Foundation Limited as well?
Why? Especially since the Foundation is a completely separate legal entity to the PMSA.
Perhaps the PMSA Councillors and the Directors of the Clayfield College Foundation Limited can enlighten us?
Somerville House:
Stakeholders have the option to donate a tax-deductible amount to The Presbyterian and Methodist Schools Association Somerville House School Building Fund (ABN 72 347 198 980). This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on. This is the fund that is shown on the parent Statement of Fees and, if you pay the voluntary building levy as part of your fees, is the fund to which it is deposited.
Stakeholders also have the option to donate a tax-deductible amount to the Somerville House Foundation: School Building Fund (ABN 81 168 804 199). This is administered by the Somerville House Foundation Limited and has a balance of $188,382 as at 31 December 2016.The Foundation Directors administer this fund separately from the PMSA and it is separately audited by an auditor who does not audit the PMSA accounts.
Stakeholders also have the option to donate a tax-deductible amount to the Somerville House Foundation: Scholarship Bursaries and Prizes Fund (ABN 81 168 804 199). This is administered by the Somerville House Foundation Limited separately from the PMSA and has a balance of $234,835 as at 31 December 2016.
So, there are two buildings funds and one scholarship fund.Why so many building funds?
If you were to pay your voluntary building fund contribution with your fees, it would be deposited into The Presbyterian and Methodist Schools Association Somerville House School Building Fund (ABN 72 347 198 980). At present, the amount of that fund and to what projects it has been utilised for is unknown, because of the PMSA’s refusal to report to stakeholders.
The net equity of the Somerville House Foundation Limited (ABN 81 168 804 199) is $7,360,997 as at 31 December 2016. As stated by the Somerville House Foundation Directors in their 2016 audited financials at page 4:
The Company’s objectives are:
To provide financial support for the educational purpose of the School in all possible ways
To create opportunities for the School to attract and retain the continuing interest and financial support of past students, parents of students or past students and friends
To solicit donations and gifts for the benefit of the School or any of its funds or accounts from past students, parents or friends and others
To raise finance for the acquisition of land or the acquisition, construction or maintenance of buildings to be used by the School
To promote or assist in educational, sporting, cultural and extracurricular activities of all kinds of the School and to disseminate information concerning the School and its activities
To provide financial assistance for the acquisition by the School of library books, works of art and educational plant and equipment of all kids for any of the purposes of the School
To promote financial assistance for the carrying out of research, the provision of scholarships and bursaries, the funding of visits from people with qualifications which enable them to contribute to the education of the students and teaching staff of the School
To attract and encourage gifts, bequests and all forms of deferred gifts to enable the fulfillment of these strategies
To act as trustee of trusts and funds which may be established for the benefit of the School
To undertake other types of fundraising activities to enable the fulfillment of these strategies.
As stated by the PMSA Councillors in relation to the tax-deductible fund for Somerville House, the fund in which the voluntary building fund levy is deposited if you pay this amount with your school fees:
“ (this has been purposely left blank) “
That is right, the PMSA does nothing more than list the funds. No strategic direction, account balances, plans or prior expenditure from those funds. Nothing.
Each donor will need to determine for themselves which disclosures give them the most comfort that the funds they donate will be retained for the purposes of Somerville House. But, I know which one I’d choose.
Should stakeholders wish to donate to the Somerville House Foundation building fund rather the PMSA building fund, please contact the Somerville House Foundation directly and do not pay this amount with your school fees.
For amounts which you have already paid to the PMSA building fund with your building fees, you can request in writing to the school that such amounts be transferred to the Somerville House Foundation School Building Fund should you wish to do so. Very interesting arrangements indeed.
I also note that the Somerville House Foundation Limited is the only Foundation to be audited by a firm separate to the firm auditing the PMSA accounts. Perhaps the Directors of the other school Foundations should consider a separate auditor for the accounts for the year ending 31 December 2018.
Sunshine Coast Grammar School:
Interestingly, Sunshine Coast Grammar School Foundation Limited (ABN 95 128 296 588) does not have any deductible gift recipient funds. It is however the Trustee of two separate funds, the Trustee for Sunshine Coast Grammar School Foundation Building Fund (with a separate ABN of 93 106 135 174) and the Trustee for Sunshine Coast Grammar School Foundation Scholarship Fund (with a separate ABN of 40 357 796 542).
It does require each of these trusts to have separate trust deeds, and to be separately audited each year. So for this Foundation, they incur three separate audit fees.
Stakeholders have the option to donate a tax-deductible amount to the Sunshine Coast Grammar School Building Fund (ABN 40 192 147 977).This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
Stakeholders also have the option to donate a tax-deductible amount to the Trustee of the Sunshine Coast Grammar School Foundation Building Fund (ABN 93 106 135 174).The Sunshine Coast Grammar School Foundation Limited is the trustee of this fund and has a balance of $261,645 as at 31 December 2016.The Foundation Directors as Directors of the Trustee company administer this fund separately from the PMSA and it is separately audited from the Foundation and the PMSA accounts.
Stakeholders also have the option to donate a tax-deductible amount to the Sunshine Coast Grammar School Foundation Library Fund (ABN 40 357 796 542).The Sunshine Coast Grammar School Foundation Limited is the trustee company and hence the fund is administered by that entity’s directors.The Sunshine Coast Grammar School Foundation Library Fund is separately audited from the Foundation and PMSA accounts.It has a balance of $32,692 as at 31 December 2016.
Stakeholders have the option to donate a tax-deductible amount to the Sunshine Coast Grammar School Library (ABN 40 192 147 977).This is administered by the PMSA and it is not clear what its current balance is and what funds are spent on.
The Sunshine Coast Grammar School Foundation Limited Financial report for the year ended 31 December 2016 (ABN 95 128 296 588) states as its long and short-term objectives:
The company was established on 2nd November 2007 to support the education services provided by the Sunshine Coast Grammar School. Nominated activities included the employment of teaching staff with special skills, carrying out of research, the provision of scholarships and bursaries, the acquisition of teaching resources and facilities, and the construction and maintenance of buildings and facilities.
Since 2007, the company has established and acts as Trustee for two, charitable public funds; the Sunshine Coast Grammar School Foundation Building Fund and the Sunshine Coast Grammar School Scholarship Fund. The funds were established to provide money for the acquisition, construction and maintenance of buildings to be used by the School in connection with its school activities; and to provide money and hold, on trust, money for Eligible Scholarships, Bursaries or Prizes awarded based on merit or equity.
During the year, the Company Secretary and the Directors developed a Business Plan, and this was approved by the PMSA Council in October 2016. The plan outlined the Foundation's signature project, supporting and assisting the School in raising funds for its Aquatic Centre, due for commencement in December 2016 and completion in 2017.
The Constitution provides that in the longer term the company may provide financial assistance and support to the Presbyterian and Methodists Schools Association. (emphasis added)
I imagine quite a few people have donated to the signature project, the Aquatic Centre. I hope the Sunshine Coast Grammar School Foundation Building Fund received lots of donations in the financial year ended 31 December 2017, because I expect the Aquatic Centre required more than the amount of $261,645 it had on 31 December 2016.
Another interesting aspect of the Sunshine Coast Grammar School Foundation Limited (ABN 95 128 296 588) is that as at 31 December 2016, it had a net balance of $1,620,102 in assets.
A review of the financials of the Foundation (which would exclude the assets in the Building Fund and Scholarship Trusts) shows that, in 2015, the Foundation received a donation from Grammar Early Learning Limited (A PMSA wholly owned entity) of $400,000. It also received a donation of $750,000 from ‘the School’, which is actually the PMSA. Was this donation from the PMSA – administered Sunshine Coast Grammar School Building Fund (ABN 40 192 147 977) or from another branch or business unit from within the PMSA?
Further, in 2016 a donation of $20,000 was made to the Foundation by the Sunshine Coast Grammar School Parents and Friends Association.
So, Sunshine Coast Grammar School Foundation Limited has had donated to it from other PMSA sources a total of $1,170,000 out of its net equity of $1,620,102.
It is absolutely extraordinary that a Foundation whose purpose is to “provide money …” received such a hefty donation of $750,000 from its own school/the PMSA towards it. It has “provided” a negative amount of ($750,000) in the financial year ended 31 December 2015 to the school, and no amount in the year ended 31 December 2016. I am concerned that it may not be succeeding in its stated mission to “provide money for the acquisition, construction and maintenance of buildings to be used by the School”.
And this is while the Foundations for the other three (3) schools have been donating back to the various schools (i.e. the PMSA), not the other way around. Simply extraordinary.
*****
There would seem to be too many funds, too much confusion, and not enough clarity around where donor funds are being spent.
At the end of the day there is also likely to be extra costs associated with the compliance activities around these “extra” funds, including accounting and auditing costs.
There are also serious questions around whether the PMSA Constitution is even adequate to be the governing document for seven of the PMSA run deductible gift funds (public funds) as the winding up clause is insufficient in light of ATO published guidelines.
Most other private schools only have deductible gift building funds in their Foundations, but again the PMSA operations in this area are unclear due to the consolidated and brief nature of its financial “reporting”.
We ask the PMSA, and independently each of the Foundations, to provide clarity on this as soon as possible.
