Education and training providers — whether a private school, a Registered Training Organisation (RTO), or a commercial college — sit in one of the more nuanced GST environments in Australian tax law. Some revenue streams are GST-free; others are fully taxable; and the distinction determines not just how much GST is collected, but how much input tax credit (ITC) can be claimed on expenses. Layered on top is the compliance burden of VET Student Loans, state training subsidies, and ASQA's financial viability requirements. This guide sets out the practical bookkeeping disciplines required.
GST on Education Courses: The Section 38-85 Framework
Under section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply of an "education course" by an approved provider is GST-free. An education course includes a pre-school course, a primary or secondary course, a tertiary course, a professional or trade course, or an adult and community education course — provided it is delivered by an entity registered or approved under the relevant education legislation.
For RTOs, this means tuition fees for accredited courses delivered under a training package are GST-free. The fee is charged without GST, and the provider does not remit GST on those receipts. However — and this is critical — the GST-free status also limits the provider's ITC entitlement on expenses that relate to those GST-free supplies. Under Division 11 of the GST Act, ITCs are only available for acquisitions that are "creditable acquisitions," meaning they must relate to taxable activities. Expenses that relate exclusively to GST-free education courses have no ITC entitlement.
In practice, most RTOs have mixed supplies — some GST-free course revenue and some taxable revenue (facility hire, consultancy, commercial training for corporate clients). An apportionment calculation is required for shared overhead expenses.
Taxable vs. GST-Free: Where the Lines Are
The existence of GST-free course revenue does not make every activity the provider undertakes GST-free. The following supplies are taxable (10% GST applies):
- Canteen and food services operated on school or campus grounds — food and non-alcoholic beverages below the HST thresholds may be GST-free under the food provisions, but cafeteria-style meal services are generally taxable
- Facility hire to external parties — renting a training room, auditorium, or sports facility to a third party is a taxable supply of commercial premises
- Coaching or skills clinics open to the public that are not delivered as part of an approved education course under s.38-85
- Sales of textbooks, stationery, and uniforms — these are taxable supplies unless they fall within narrow GST-free categories
- Corporate training delivered under a commercial contract that is not an accredited course
Configuring the practice management or student management system to code each revenue stream correctly at setup is essential. Revenue coded incorrectly from day one creates BAS errors that compound over time.
VET Student Loans: Recording Commonwealth Obligations Correctly
VET Student Loans (VSL) replaced VET FEE-HELP from 2017 and provide Commonwealth-funded loans to eligible students at approved RTOs for diploma and above courses. From a bookkeeping perspective, VSL introduces several disciplines:
Revenue recognition: When a student enrols under VSL, the RTO receives tuition fee income — either directly from the Commonwealth (for the VSL-funded portion) or from the student (for any co-contribution). The Commonwealth payment is not received immediately; it is paid in tranches based on census dates and the student's continued enrolment. The bookkeeper must track the gap between census date obligation and receipt.
Revenue categories: Fee-for-service income, VSL-funded income, state-subsidised training (e.g., Skills First in VIC, User Choice in QLD), and JobTrainer payments must be recorded as separate revenue lines. These funding streams have different tax, audit, and compliance implications and must not be aggregated.
Repayment risk: If an RTO cancels a course after students have enrolled, or if a student withdraws before the census date, the VSL loan must be reversed. The RTO bears the repayment obligation to the Commonwealth. This creates a contingent liability that should be tracked and, where material, disclosed in financial statements.
Capital Expenditure and ITC Apportionment
Equipment purchased for training delivery — workshop machinery, computers, laboratory equipment, simulators — is a capital acquisition. The ITC entitlement depends on the extent to which the equipment is used in taxable supplies versus GST-free supplies.
A workshop used exclusively for accredited vocational training has no ITC entitlement on the equipment. The same workshop rented commercially to third parties at weekends has partial ITC entitlement, apportioned on a reasonable basis (hours of use, floor area, or another method that produces a fair result under ATO guidance).
The apportionment calculation should be documented at the time of acquisition, not reconstructed later. If the use changes materially in a later year, an adjustment may be required under the GST adjustment rules.
Staff Classification: Employees vs. Sessional Contractors
Education providers regularly engage casual sessional staff — trainers, assessors, facilitators, tutors — who may submit invoices as ABN contractors. The ATO's independent contractor test applies: the critical question is whether the RTO controls how the work is performed, not just what is delivered.
An RTO that specifies the curriculum, the learning materials, the delivery method, the timetable, the assessment tools, and the reporting requirements is almost certainly engaging an employee, not a contractor. The fact that the trainer submits an invoice and quotes an ABN does not change the analysis. Misclassification exposes the RTO to PAYG withholding obligations, superannuation guarantee charges, and penalties.
Review all sessional contractor engagements against the multi-factor test in ATO Taxation Ruling TR 2023/4. Where there is genuine doubt, treat as an employee.
Fee Refunds and Credit Notes
If a course is cancelled or a student withdraws after paying their tuition fee, the fee (or the relevant portion) must be refunded. From a GST perspective:
- If the original fee was GST-free (an accredited course), the refund has no GST impact — there is no GST to reverse
- If the original fee was taxable, the refund triggers a credit note, and the GST component of the refund must be adjusted on the next BAS (reducing the GST collected figure)
Keep a register of all cancellations and refunds against the relevant invoice. The student management system should flag refunds for BAS reconciliation.
ASQA Financial Viability Requirements
RTOs are required by the Standards for Registered Training Organisations (SRTOs) and ASQA's financial viability risk assessment tool to demonstrate adequate financial viability. This means:
- Audited financial statements (for RTOs above relevant thresholds)
- Working capital evidence — the RTO must demonstrate it can meet its obligations as they fall due
- Pre-paid fee protection for VSL students — the RTO must hold pre-paid course fees in a protected account or have approved insurance arrangements
The bookkeeper should be aware of these obligations even if the auditor manages the compliance process. Unreconciled accounts, overdrawn working capital, or unexplained movements in fee receipts will be flagged in any ASQA financial assessment.
End-of-Year Checklist
- Confirm all revenue is coded to the correct stream: fee-for-service, VSL, state-subsidised, corporate, and facility hire
- Review GST coding of all revenue lines — confirm GST-free education courses are under s.38-85 and not simply miscoded as zero-rated
- Calculate and document ITC apportionment ratio for mixed-use expenses
- Reconcile VSL receivables: census dates, Commonwealth payments received, and outstanding tranches
- Review all sessional contractor engagements against the employee/contractor test
- Confirm credit notes have been issued and BAS adjustments processed for all cancelled enrolments
- Prepare or support preparation of working capital statement for ASQA viability assessment
- Confirm pre-paid fee protection arrangements are in place for VSL students
- Reconcile year-end payroll to STP submissions; issue payment summaries via STP finalisation