Private ruling: School building fund - eligibility of expenditure
Date of advice: 24 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Does the construction of the building fall within the allowed scope of expenditure for the building fund under Item 2.1.10 of the table contained in subsection 30-25(1) of the Income Tax Assessment Act 1997 ? | A1: Yes. | Q2: Does the acquisition and installation of all of the proposed assets listed in Schedule A fall within the allowed scope of expenditure for the building fund under Item 2.1.10 of the table contained in subsection 30-25(1) of the Income Tax Assessment Act 1997 ? | A2: No. The proposed assets which will be installed using mounting brackets or general purpose bolts or screw fittings are not considered to be fixtures for the purposes of Item 2.1.10. Accordingly, the assets do not fall within the allowed scope of expenditure for a building fund under Item 2.1.0 of the table contained in subsection 30-25(1) of the Income Tax Assessment Act 1997 . | Q3: Does the acquisition and installation of all of the proposed assets listed in Schedule B fall within the allowed scope of expenditure for a building fund under Item 2.1.10 of the table contained in subsection 30-25(1) of the Income Tax Assessment Act 1997 ? | A3: No. | Q4: Will the building fund retain its deductible gift recipient status as established under Item 2.1.10 of the table contained in section 30-25(1) of the Income Tax Assessment Act 1997 where it receives funds and makes payments in respect of the items mentioned above in: (a) Question 1; (b) Question 2; and (c) Question 3? | A4: (a) Yes. (b) The building fund will retain its deductible gift recipient status where it does not expend monies on assets which fall outside the allowed scope of expenditure. Refer to the table in Question 2 for the details of the assets which are not allowable. (c) No.

Relevant facts and circumstances: The school operates a main campus in Australia. The school also operates an outdoor education centre at a different site. The school was registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). The board of trustees of the school ('the Board') established the school building fund under the constitution and rules of the building fund pursuant to legislation. The building fund is registered with deductible gift recipient status. The objects of the building fund contained in the constitution and rules are as follows: to raise and provide moneys for the acquisition, construction and maintenance by the Board of a building or buildings used or to be used as part of the School. The Board intends to build a building at the outdoor education site. The proposed observatory building will be a standalone structure. It will have a roof, walls and flooring that will provide protection from the elements. Use of the proposed building for education curriculum purposes The building facilities will be used by the school in teaching subjects in the education curriculum, within the Australian Science curriculum and Physics. The equipment will operate unattended during every cloud free night to service the needs of students studying the above subjects. Sensors detect if the sky is clear and automatically open the roof to allow the telescope/camera systems to take images. Use of the proposed building by the school's science club Members of the school's science club will use the scientific data collected by the telescopes to pursue their special interest in astronomy. Proposed assets to be acquired The building will have a roll-off roof and deck which form part of the permanent structure built on the land. I.T. infrastructure will be constructed, including connection to the existing school network. Electrical wiring and hardware will be fixed internally to the permanent building structure. Telescopes will be acquired by the Board for the building. The telescopes will be attached to the building by way of bolting the telescopes to mounts which are in turn bolted to a concrete footing. The Board will also acquire mounting equipment used to attach the telescopes to the mount with bolts or screws. Other attachments and equipment will be acquired which will be attached either by way of mounting brackets or general purpose bolts or screw fittings. The Board will also acquire other portable items of equipment, furniture or software which are readily removable.

Relevant legislative provisions: Income Tax Assessment Act 1997 , Section 30-15 | Income Tax Assessment Act 1997 , Section 30-25

Reasons for decision: Summary: The school building fund is permitted to use donated funds for the construction of the building and the acquisition of assets which are classed as fixtures. The proposed assets which will be installed using mounting brackets or general purpose bolts or screw fittings are not considered to be fixtures for the purposes of Item 2.1.10. Accordingly, those proposed assets which will be installed using mounting brackets or general purpose bolts or screw fittings do not fall within the allowed scope of expenditure for buildings funds under Item 2.1.10 of section 30-25 of the Income Tax Assessment Act 1997 . Furthermore, portable assets such as equipment or software do not fall within scope of allowed expenditure for a school building fund as they are not fixtures. Accordingly, it is considered that where the school building fund expends monies on those assets which do not fall within the scope of allowed expenditure of a school building fund that the fund is not being maintained for the requisite purpose within the terms of Item 2.1.10. Consequently, the school building fund will be ineligible to receive tax deductible gifts under section 30-15. | Detailed Reasoning - Question 1 and Question 2: A gift or contribution to a school building fund is deductible under section 30-15 of the ITAA if: • the gift is money or property of the kind covered by column 2 of item 1 of the table in subsection 30-15(1); • the value of the gift is $2 or more; • the fund is in Australia; • if the property is to be valued by the Commissioner - the requirements in section 30-212 are satisfied; • the fund, the entity that legally owns the fund, or the government body constituted by the persons who control the fund, is endorsed under Subdivision 30-BA; and • the fund satisfies the requirements of Item 2.1.10 of the table in subsection 30-25(1). Taxation Ruling TR 2013/2 Income tax: school or college building fund ('TR 2013/2') provides that there are key requirements which must be satisfied in order for Item 2.1.10 to apply to provide for the deductibility of contributions to the fund, to donors. Paragraph 10 of TR 2013/2 lists the following factors: • there must be a school • there must be a building • the building must be used as a school • the building must be used as a school by a qualifying body • there must be acquisition, construction or maintenance; and • the fund must be established and maintained for the requisite purpose. | Detailed Reasoning - There must be a school: Paragraph 14 of TR 2013/2 provides that in order for there to be a school for the purposes of Item 2.1.10, there must be an educational organisation which: • has a distinct identity; and • provides regular, ongoing and systematic instruction in a course of non-recreational education. The school has a distinct identity and its primary function is the provision of regular, ongoing and systematic instruction in a course of education. Accordingly, there is a school for the purposes of Item 2.1.10. | Detailed Reasoning - There must be a building: For Item 2.1.10 to apply there must be a building or an objective intention to acquire or construct a building. Paragraph 21 of TR 2013/2 states that the word 'building' carries its ordinary meaning for the purposes of Item 2.1.10, as follows: A building is a permanent structure, roofed and usually with walls and flooring, that provides protection from the elements. Paragraph 24 of TR 2013/2 further provides that a building includes fixtures which become a permanent addition to a building for the purposes of Item 2.1.10. | Detailed Reasoning - Deductible building fund expenditure: Paragraphs 156 to 161 of TR 2013/2 discuss the view of the common law in respect of the circumstances in which a chattel is considered to have become a fixture. TR 2013/2 makes reference to the case of Australian Provincial Assurance Co. Ltd. v. Coroneo (1938) 38 S.R. (N.S.W.) 700. In that case, Sir Frederick Jordan stated: The question whether a chattel has become a fixture depends upon whether it has been fixed to land, and if so for what purpose. If a chattel is actually fixed to land to any extent, by any means other than its own weight, then prima facie it is a fixture;… the test of whether a chattel which has been to some extent fixed to land as a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period … or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose… Paragraph 159 of TR 2013/2 refers to the test in Holland v. Hodgson (1872) LR 7 CP 328, which provides that whether a chattel has become a fixture depends on the intention of the party bringing the item on to the land, having regard to the degree of annexation and the object of annexation. Paragraph 160 of TR 2013/2 provides that 'the fact that an item cannot be detached from the building without substantial damage to the item or to the building is a strong indication of the item being attached to the land as a fixture'. In the present case, the school has indicated that it intends to construct a building. The building will be a permanent structure, with walls and flooring and a roll-off roof. It is accepted that the roll-off roof and the deck will be permanent additions to the building. Electrical wiring and hardware will be fixed internally to the permanent building. IT infrastructure will consist of the installation of a connection to the existing school network below ground level. It is accepted that the electrical and IT infrastructure will be wrought into or attached to so as to form part of the building. Installation by way of bolting to a metal pier which will in turn be bolted to a concrete footing is considered to support an inference that items are intended to remain in position permanently or for an indefinite or substantial period. As this method will have the effect of securing telescopes and telescope mount in a permanent position and would prevent the item from being detached from the building without substantial damage to either the items or to the building, these items may be considered to be attached to the land as fixtures. Accordingly, assets which are considered to be permanent additions to the building for the purposes of Item 2.1.10 are eligible for the use of monies donated to the school building fund. | Detailed Reasoning - Non-deductible building fund expenditure: It is considered that the proposed methods of installation by way of a mounting bracket attached to a wall or by way of attaching items using general purpose bolts or screw fittings do not satisfy the requisite degree of annexation so as to enable the items to be attached to the land as fixtures. Whilst mounting brackets will secure items to a wall of the building, the mounting brackets are readily removable and can be detached from a wall if it is necessary to remove the item for repairs and maintenance, for example, without causing substantial damage to the item or the building. Similarly, as general purpose bolts and screw fittings can be easily assembled and disassembled to allow for items to be removed from the items they are attached to, this method of installation would support an inference that it was not intended that item remain in position permanently or for an indefinite or substantial period. The proposed assets which have been attached to the relevant telescopes by way of bolts or screw fittings or mounting brackets are considered to be akin to laboratory equipment which can be easily removed or altered. As such, these assets are not considered to be permanent additions to the building for the purposes of Item 2.1.10 and are ineligible for the use of monies donated to the building fund. | Detailed Reasoning - Eastern Nitrogen v. Commissioner of Taxation: Reference has been made to the case of Eastern Nitrogen v. Commissioner of Taxation [1999] FCA 153 (' Eastern Nitrogen '). In that case, the Federal Court was required to consider whether an ammonia plant was a fixture to the land for the purposes of determining whether the taxpayer could claim deductions for rental payments made to financiers under a sale and leaseback arrangement. The Federal Court held that the ammonia plant was a fixture to the land occupied by the taxpayer, and accordingly, the lease could not confer on the taxpayer the right to possession and the use of the plant to carry on its income-producing activities. As such, the taxpayer was not eligible for deductions for the rental payments. Although it was accepted that the whole plant was capable of removal, Drummond J considered the ammonia plant to be a fixture to land consisting of: a series of structures, interconnected by process- and services- piping and electrical conduiting. The component elements of the plant, some of them very large structures, are bolted to concrete slabs. We consider that the finding of the Court in Eastern Nitrogen is confined to the particular factual circumstances of the case, namely, the operation of an ammonia plant. Drummond J considered that there were significant factors which enabled an ammonia plant to be characterised as a fixture, as follows: The configuration in plan of all these slabs was described as the plant's "footprint" on the land and the evidence is that each ammonia plant has its own unique footprint. The plant has to be securely fixed to the ground for its proper functioning: the structures comprising it are securely bolted to their foundations to prevent movement that would otherwise occur because of vibration during operation. In the present case, the proposed building structure will operate in a manner that is distinct from the operation of an ammonia plant. Whilst the installation of electrical and IT infrastructure that is essential to the operation of the building forms part of the building, the operations of the proposed building can be distinguished from the nature of the operations of an ammonia plant on the basis that the integration of the structures and piping and electrical conduiting of an ammonia plant are essential for the proper treatment of chemicals in the production of ammonia; such that it may be necessary to characterise its individual components as a fixture in totality. The plant needed to be securely fixed to the ground to prevent movement that would otherwise occur because of vibration during operation and, indeed, was securely bolted to the foundations in the Eastern Nitrogen case. As these factors are absent from operation of the proposed observatory in the present case, the building structure and all of the proposed assets cannot be considered to comprise a fixture to the land. Moreover, unlike the removal of the series of structures and piping and electrical conduiting comprising the ammonia plant, which is likely to cause considerable damage to the floor of the plant premises and may necessitate dismantling parts of the building structure, the assembling and disassembling of the proposed equipment in the building is unlikely to cause considerable damage to the building structure. Accordingly, there is a building for the purposes of Item 2.1.10. However, the proposed assets which will be attached to the relevant telescopes by way of general bolts and screw fittings or mounting brackets, are not considered to be fixtures which have become a permanent addition to the building for the purposes of Item 2.1.10. | Detailed Reasoning - The building must be used as a school: Paragraphs 30 to 34 of TR 2013/2 provides guidance in respect of determining whether a building is used as a school for the purposes of Item 2.1.10. Paragraph 30 provides that a weighing of various factors is required to determine whether a building has the character of a school building. Paragraph 31 of TR 2013/2 requires school use of the building to be substantial in order for Item 2.1.10 to apply. Paragraph 33 of TR 2013/2 states that a building will not be regarded as a school building where its non-school use is of such kind, frequency or relative magnitude as to preclude the conclusion that the building has the character of a school building. Paragraph 34 lists the following factors as relevant to determining whether a building is used as a school: • 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 of the building relative to the number involved in its non-school use; • the physical area of the building put to school use relative to the physical area put to non-school use; and • the extent to which the building has been adapted or modified in order to accommodate its school or non-school use. In the present case, the building will be used by the school in providing instruction in the Astronomy unit covered within the Australian Science curriculum and the Physics curriculum. Whilst members of the school's science club will use the scientific data collected by the telescopes to pursue their special interest in astronomy, it is considered that the extra-curriculuar use of the building will not materially limit or detract from its use by the school in providing instruction in its educational curriculum. As the school use of the building is used for the purpose of providing instruction in Science and Physics educational curriculums, the school use of the building is considered to be substantial and has the character of a school building. | Detailed Reasoning - The building must be used by a qualifying body: Item 2.1.10 requires that the use of a building as a school be by a government, a public authority, or a society or association which is carried on otherwise than for the purposes of profit or gain to its members. Paragraph 48 of TR 2013/3 provides that: One or more trustees do not, as such, constitute a society or association. However, where trustees carrying on a school act for and according to the purposes of a society or association, that society or association may be regarded as carrying on the school through the trustees. In this regard, the Board which operates the school building fund may be regarded as carrying on the school through the trustees. | Detailed Reasoning - There must be acquisition, construction or maintenance: In order for Item 2.1.10 to apply, an entity must acquire, construct or maintain a building or have an objective intention to do so. In the present case, the observatory building will be constructed and the Board will maintain a legal interest in the building as trust property which is sufficient to enable it to control the building's use. | Detailed Reasoning - The fund must be established and maintained for the requisite purpose: Paragraphs 57 to 60 of TR 2013/2 provide that a school building fund must satisfy the 'sole purpose test'. That is, the school building fund must be established and maintained solely in order to provide money for particular purposes. It is a question of fact whether a fund is established and maintained solely to provide money for the requisite purpose. Paragraph 63 states that the purposes of the fund are determined on an objective basis, having regard to all of the surrounding circumstances, including the constituent documents of the fund and what money is actually provided for. In the present case, the object of the building fund contained in the constitution indicates that the sole purpose of the building fund is to raise and provide money for the acquisition, construction and maintenance of a school building for school use. In providing money for the purpose of constructing the proposed building and acquiring the proposed assets that are considered to be fixtures, the fund satisfies the sole purpose test. | Detailed Reasoning - Conclusion: As the school building fund satisfies Item 2.1.10 and the proposed building satisfies the key requirements of Item 2.1.10, the school building fund is permitted to use donated funds for the construction of the observatory building and the acquisition of assets which are fixtures to the land. The proposed assets which will be installed using mounting brackets or general purpose bolts or screw fittings are not considered to be permanent additions to the observatory building for the purposes of Item 2.1.10, and are thus ineligible for the use of donated funds. | Detailed Reasoning - Question 3: Paragraph 161 of TR 2013/2 provides examples of non-fixture assets which are used to fit out a school ordinarily, including computers, furniture, training equipment and laboratory equipment. The assets to be acquired by the Board which are either portable items of equipment or furniture or software are classified as the type of non-fixture assets identified in Paragraph 161. For the reasons outlined above in Questions 1 and 2 in respect of the tests of whether a chattel is a fixture to the land, portable items of equipment or furniture which are readily removable or software items that can be installed on various computers are not considered to be fixtures. Accordingly, these assets do not fall within the allowed scope of expenditure for buildings funds under Item 2.1.10 of section 30-25. | Detailed Reasoning - Question 4: For the reasons outlined above in Questions 1 and 2 in respect of the key requirements of Item 2.1.10, the Board is permitted only to use monies donated to the building fund for the construction of the building and the acquisition of assets which are fixtures to the land. The proposed assets which will either be installed using mounting brackets or general purpose bolts or screw fittings or are portable items of equipment, furniture or software which are readily removable, and, accordingly, cannot be classed as fixtures, are ineligible for use of the donated monies. As such, the building fund will not be maintained solely to provide money for the purpose of acquiring, constructing or maintaining a school building for school use where it provides money to acquire the proposed assets which are not considered to be permanent additions to the building for the purposes of Item 2.1.10. The fund will, accordingly, be ineligible to receive income tax deductible gifts under section 30-15.