The decision leaves Malek Fahd, which has more than 2000 students, facing closure.



The federal Department of Education revoked funding from Malek Fahd after a 2015 review found it was operating for profit.



Malek Fahd appealed the decision, severed constitutional ties with the Australian Federation of Islamic Councils (AFIC) and elected a new board in March 2016.

In May, 2016, the AAT ordered public funding be temporarily restored to the school while an appeal was heard. This allowed Malek Fahd to remain open until the end of the school year.

But in a decision on the appeal dated December 23, 2016, the AAT found in favour of the government.

"Even if I accept the financial policies and procedures are substantially compliant... the totality of the material before me suggests [Malek Fahd] is still being conducted for profit, and that it will continue to be conducted for profit into the foreseeable future," wrote deputy president Bernard J. McCabe.



McCabe acknowledged the school had made changes, but said he was still concerned by the "ongoing burden of the uncommercial arrangements" with AFIC.

Previously, McCabe found, Malek Fahd had diverted "significant amounts" of funding to AFIC.

"That is a hard outcome for MFISL, and for the students and community it serves. But the ultimate responsibility must be laid at the door of the previous management of MFISL," McCabe wrote.

At a press conference on Thursday, education minister Simon Birmingham said whether or not Malek Fahd closes is "entirely a matter for the school and the school community".

He added that his department had been working with its NSW counterparts to be ready for "any and all contingencies Malek Fahd may undertake", including the transition of students to other schools in the area.

"Our attention now turns to working with the students and their families, the teachers and the whole school community about how we best support them through this difficult time," Birmingham said in a statement earlier on Thursday.



"The Australian Education Act 2013 requires, amongst other obligations, that all school authorities operate not-for-profit, be financially viable, be a ‘fit and proper person’, and ensure that funding provided is used only for school education," he said.

"All school authorities in Australia (must) meet these requirements in order to receive Australian Government funding. Australians rightly expect that every taxpayer dollar committed to school education is genuinely expended on school education."





