Part D3: Appendix – Common transactions and areas of operation – Management and utilisation of school assets and infrastructure
D3.1 Leasing school owned property and assets
Proprietors/schools may lease school-owned property and assets to third parties and remain eligible for NSW funding, however the lease must be for the operation of the school (see B1) and at least at reasonable market value. This includes leasing the school canteen, uniform shop or other operation related to the education of students at a school to a private operator. A lease may also be for the purpose of the operation of the school where its purpose is to generate income to be used for the operation of the school (see D4.3). Where a proprietor/school contracts services such as canteens to a third-party/private operator, and the school receives a commercial return, the income generated must be used for the operation of the school.
Reasonable subsidisation of canteen and like services
Many schools operate on-site services to support the education of students and the operation of the school, such as canteens or uniform shops. Services provided by not for profit entities can be considered a non-financial benefit to the school because the service directly supports the operation of the school.
Schools should take care when entering into these arrangements with related parties to ensure that these transactions are made at arm’s length as they can often pose a higher risk of for profit activity. Any arrangement should not be designed for the purpose of enriching other persons or entities or creating a profit.
- Written lease agreements supporting all leasing of school assets.
- Documents evidencing registration of the lease (where applicable).
- Records evidencing the reasonable market value of the lease.
- Where appropriate, evidence that the terms of the lease are reasonable in the circumstances.
- Evidence that the lease is for the purpose of the operation of the school.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D3.2 Disposal (sale) of school assets
Proprietors/schools may sell school assets. Any income from the sale must be used for the operation of the school. The disposal of school assets must be at least at reasonable market value.
In some cases, the reasonable market value of a school asset may be less than the asset’s book value, for example, where there is limited demand for the school asset being disposed of. Therefore, the identification of the reasonable market value of a particular asset will depend on the circumstances.
Schools may donate (i.e. at little or no cost) depreciated or redundant equipment to other schools, charities and not for profit entities without operating for profit (see B5.7).
Land and school facilities
There may be circumstances where a proprietor is not the owner of land but nevertheless makes improvements to the land for the purpose of operating the school, such as by paying for the construction or upgrade of buildings on the land. Any payment or use of school income/assets towards the improvement of the land must comply with the not for profit requirements. Where the land is leased, the lease agreement should clearly address ownership of improvements and whether the school will receive fair compensation for any unrecouped investment if the lease ends or the property is sold. If the owner disposes of the land and the school does not receive a proportionate return on its investment at the time of sale, in some circumstances, this could raise concerns about compliance with the not for profit requirements of the Education Act.
All the facts of the particular case will be considered when determining whether the sale of the land and its improvements has caused the school to operate for profit, such as:
- the terms of any lease or licence setting out the agreement between the proprietor and the landowner (whether the school/proprietor has secured proportionate access/use to the property within reason)
- the nature and reasonable value of the improvements to the land
- the time elapsed since those improvements were made.
- Records evidencing that the asset was sold at least at reasonable market value.
- Evidence that the disposal of the asset was for the purpose of the operation of the school.
- Documentary evidence that conflicts of interest and relationships with related parties (if any) have been appropriately identified and managed.
- If relevant, any written lease or licence governing the relationship between the landowner and the proprietor.
- A school asset register listing the details of all school assets above a nominated value appropriate within the context of the school.
- Appropriate evidence of annual asset stocktakes being completed by the school or evidence of other reviews of valuable assets being conducted by the school in line with the normal annual audit process.
- Policies and procedures for disposing or writing-off (depreciation/amortization) school assets.
- Appropriate records supporting the disposal or write-off (depreciation/ amortization) of any school asset, including that the disposal or write-off was approved by a person with authority within the school.
It is suggested that asset registers should include:
- a description of the asset
- the serial number of the asset if applicable
- the date and cost of purchase of the asset
- the invoice number for the purchase
- the location of the asset
- the date and method of disposal (if applicable)
- any amount recovered at disposal (if applicable).
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D3.3 Transferring school assets and income
A school will operate for profit if any part of the school’s income or assets is used for any purpose other than for the operation of the school (see B1). Transferring school assets or income to related or unrelated third parties for the purpose of placing them beyond scrutiny by the Minister, and which could prevent recovery of any financial assistance (where applicable), may be considered as a use of school income or asset that is not for the operation of the school and could amount to operating for profit.
All of the circumstances of a particular transaction will be considered when determining whether a school operates for profit.
School trusts
School income and assets may be held in a trust, or allocated to a trust, as a way to manage resources or generate additional income for the school through careful investments. To comply with the not for profit requirements, the trust must be controlled by the school or proprietor and all activities of the trust, including any income it generates, must be used solely for the operation of the school.
- The trust deed and other governing documents which demonstrate that the proprietor/school has authority over decisions made in relation to the trust and its operations.
- Documents that specify how any income resulting from the operation of the trust is to be used for the operation of the school.
- Records that income generated from the trust has been used for the operation of the school.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D3.4 Building and related works
Proprietors/schools may use school income and assets and make payments for building and related works that are for the operation of the school (see B1). Payments for building and related works must not be above reasonable market value (see B2) and not be unreasonable having regard to the fact that funding is provided to or for the benefit of the school (see B3).
Other factors that may also influence reasonable market value relevant to payments for building and related works also include timeliness, quality of the building finish and materials, availability and reliability of contractors.
- Written quotes received by the school for all building and related works (excluding routine maintenance work covered by contracts) that appropriately details the scope of works, obtained in accordance with the school’s procurement policies.
- Appropriate approval to proceed from the authorised school staff after reviewing all quotes.
- A contract between the proprietor and the service provider, clearly setting out the services to be provided.
- Appropriate records supporting all payments for building and related works made by the school (including all supplier invoices).
- Appropriate records supporting any payments for building or related works that could be considered unusual because of their higher value (for example, work to heritage-listed buildings or land remediation).
- Documentary evidence that conflicts of interest and relationships with related parties (if any) have been appropriately identified and managed.
- A policy that gives authority to enter into building contracts to appropriately senior staff only and which requires the governing body to sign off on higher levels of expenditure.
- In relation to high value, new buildings or other substantial works:
- grant applications
- copies of development consent and stamped plans
- copies of construction or occupation certificates
- comparative analysis to ensure that the school is getting good value for the services the contractor will provide
- business records as evidence of prior governing body approval.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
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