Summary – Taxation Ruling 2013/2 was released last week clarifying the way in which s 30-15 and Item 2.1.10 of the table in s 30-25(1) of ITAA1997 apply to persons who make a gift or contribution to a public fund which purports to be a school building fund.
Last week the ATO on behalf of the Commissioner of taxation released TR 2013/2 regarding school building funds.
In particular, the ruling discusses factors relevant to determining:
- What a school or college is for the purposes of Item 2.1.10;
- Whether a building is used as a school or college by an entity; and
- Whether a fund has been established and is being maintained solely for providing money for the acquisition, construction or maintenance of a building used as a school or college.
What is a School (or College)?
A school must be an educational organisation with a distinct identity (ordinarily have its own name, have a quality of permanence and a governing body) and provide regular, ongoing and systematic instruction amounting to the creation of a qualification or status which is recognised outside of the organisation.
Practical examples of what may qualify as a school are provided in paragraphs 130-145. For example, a child care centre is not a school as it lacks regular, ongoing and systematic instruction imparting a course of education, however, a preschool kindergarten may qualify as a school if it involves regular and systematic instruction and this is its primary function or essential purpose.
What is a School Building?
A school building is a permanent structure, which provides protection from the elements. Importantly, a “school building” may be part of a building so long as it is separately identifiable. General principles are set out in paragraphs 30-35.
In order for a building to be a school building its school use must be substantial. Factors in determining whether the school use is substantial include:
- The amount of time the building is put to school use relative to the amount of time it is put to non-school use;
- The number of people involved in the school use relative to non-school use;
- The physical area of the building put to school use relative to non-school use; and
- The extent to which the building has been modified on order to accommodate its school or non-school use.
Where a church (or other group) carries on a school, it is necessary to have regard to the extent to which the school organisation is able to control the use of the building.
What if the School Building is also used for other purposes?
The view of the Commissioner in regards to whether a building is a “school building” if it is also used for other purposes has changed over the last few years and it is important to note this difference.
Prior to TR 2011/D5 (draft) the Commissioner’s view was that as long as other use constituted less than 50% of the use of the building on a time basis, this was permissible. However, this was revised in TR2011/D5 which stated that the previous 50% rule was incorrect and that any other use of the building must either be integral to its use as a school or be only minor or occasional. This position has been relaxed in the current taxation ruling which requires that the use as a school building must be substantial (see above) and its “non-school use” must not materially limit, detract from or otherwise be incompatible with its school use.
Guidance on multipurpose buildings and complexes is provided commencing at paragraph 254.
Payments from the School Building Fund
The Ruling confirms that a school building fund must be established and maintained solely to provide money for the acquisition, construction or maintenance of a building used as a school by a qualifying body. This sole purpose test is set out in paragraphs 58-73 of the Ruling.
Disbursements from the School Building Fund
The fund can make disbursements for:
- acquiring or constructing a school building for school use;
- maintaining a building for school use;
- investing or lending money for the acquisition, construction or maintenance of a school building; or
- administering the fund.
The investment or lending of money was not part of the draft TR2011/D5, and details regarding when a school building fund can undertake an investment (including a loan) are set out in paragraphs 86-88. Specifically, any loan made by the school building fund must be commercial (at arm’s length) and we advise that any interest free loans should be considered carefully before they are entered into to ensure they comply with the ruling.
Because the old ‘50% rule’ will no longer apply, if a fund has committed to acquisition or construction arrangements prior to 13 February 2013, they will not be subject to the new ruling. Additionally, gifts or contributions to a school building fund are able to be paid on the old basis up to 1 July 2013 where there is such a commitment prior to 13 February 2013. For more information on transitional arrangements see paragraphs 114-119.
Practical examples of the above are provided in the Ruling in order to assist with compliance.
Should you require any further information or clarification in relation to the Ruling, or school building funds generally, please contact Bill d’Apice or Anna Lewis.