Private ruling: Deductible gift recipient - disbursements from school building fund
Date of advice: 18 October 2022
Published: 16 January 2023
Ruling period: Year ended 30 June 20XV | Year ended 30 June 20XW | Year ended 30 June 20XX | Year ended 30 June 20XY | Year ended 30 June 20XZ
Date scheme commenced: 20XV

Ruling: A3: Yes

Relevant facts and circumstances: You are a charity registered with the Australian Charities and Not-for-profits Commission (ACNC). You have previously established and operated a building fund (the Building Fund) which is maintained solely for providing money for the acquisition, construction, or maintenance of buildings used by the school. That Building Fund has DGR status under item 1 of the table contained at section 30-15 of the Income Tax Assessment Act 1997 . The construction contemplated would be permanently fixed and cover a sport facility to provide all weather protection whilst instruction is being provided. You have received a quote for the COLA structure, but this is not yet finalised. From that quote the structure proposed includes: • a galvanized and painted steel frame - comprising columns, universal beams, and cross bracing • a metal sheet roof • gutters and down pipe. Located adjacent to the sport facility is a fixture which is integral to its operation. The school syllabus contains certain outcomes which all students are required to complete, and for which the sport facility is used. The sport facility is not available for use by the public however it is available for ex-students and parents of students at the school under limited circumstances. This use is less than 5% of total usage and occurs outside regular school hours. It is not hired or used by any third parties outside the school community.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 30-25

Reasons for decision: Summary: The expenditure on the construction of a covered outdoor learning area (COLA) will fall within the scope of expenditure allowed for the school building fund under item 2.1.10 in section 30-25. | Detailed Reasoning - Detailed reasoning: You currently have deductible gift recipient endorsement for the operation of the Building Fund under item 2.1.10. To continue to be entitled to the endorsement the Building Fund must be used in accordance with the purposes specified in item 2.1.10 in section 30-25. The Building Fund must: • be maintained solely for the purpose of providing money for the acquisition, construction or maintenance of a building used as a school, and • the building must be used as a school by a government, a public authority or a non-profit society or association as described in Item 2.1.10 It is proposed that funds from the Building Fund will be used to construct a COLA over a sport facility. Taxation Ruling TR 2013/2 Income tax: school or college building funds (TR 2013/2) provides guidance on factors relevant to determining whether the COLA will be a building and whether it will 'used as a school'. | Detailed Reasoning - Building: Paragraphs 21 and 22 of TR 2013/2 state that: For the purposes of Item 2.1.10 the word 'building' carries its ordinary meaning. A building is a permanent structure, roofed and usually with walls and flooring, that provides protection from the elements. A permanent structure such as a covered outdoor learning area is capable of being a building even though it does not have walls. Such a structure must be fixed to the ground and have a roof. Paragraph 152 of TR 2013/2 further elaborates: Although a building would usually be expected to have walls, flooring and a roof, there are circumstances where a structure can be accepted as a building for the purposes of Item 2.1.10, even if it does not have walls. For example, a covered outdoor learning area ('COLA') might be used for outdoor classes of a school and school assemblies. A covered outdoor learning area may not have any walls but be made of galvanised steel with colour bond roofing, with guttering and downpipes, and be fixed to the land by posts embedded in a concrete floor. Such a structure is considered to be a building for the purposes of Item 2.1.10 because it is in the nature of a building: it is a structure with the function of a building (albeit with an atypical design influenced by environmental and particular operational factors), it is fixed to the ground, it has a roof and its size and method of construction indicate that it is not intended to be in place on an interim or short term basis or for a temporary purpose. The proposed COLA will be made of a galvanized and painted steel frame - comprising columns, universal beams, and cross bracing - with a metal sheet roof and gutters and down pipes. As with the advice provided above, we consider that it will be a permanent structure and therefore a building. | Detailed Reasoning - Is the building used as a school?: Paragraphs 26 and 27 of TR 2013/2 state that a building is 'used as a school' for the purposes of Item 2.1.10 where: • it is used to provide instruction of the kind described in paragraphs 13 to 19 of this Ruling; and • the extent and character of that use is such that the building can be described as 'used as a school' as a matter of ordinary language. A building is also 'used as a school' for the purposes of Item 2.1.10 where its use is incidental to the provision of instruction in a building which satisfies paragraph 26 of this Ruling; Determining whether a building has the character of a school building involves a consideration of various factors. Paragraph 34 of TR 2013/2 states that the following issues are 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. The main use of the sport facility is to meet the requirements under the syllabus that applies to all students. The sport facility is used by ex-students and parents, but the use is incidental. Paragraph 99 of TR 2013/2 provides the following example as a school building for the purposes of Item 2.1.10: Primary School intends to build an indoor sports complex on school grounds to support its sports curriculum. The complex will include a gym, a basketball court and an in-ground swimming pool, all enclosed by walls and a roof. A school building fund can provide money to acquire, construct or maintain the sports complex. The complex (including the in-ground swimming pool) will be a building for the purposes of Item 2.1.10 as it is a permanent structure forming an enclosure that provides protection from the elements. The building will be used for the purposes of providing instruction and has the character of a school building. The purpose of the proposed COLA will be to provide protection from the elements for students using the sport facility as part of their learning. Therefore, it is considered that the COLA will be used as a school. | Detailed Reasoning - Disbursements from a school building fund: Paragraph 79 of TR 2013/2 explains that: A school building fund can only disburse money for the objective purpose of the acquisition, construction or maintenance of a school building for the purposes of its school use. Such disbursements may be in respect of: • acquiring or constructing a school building for the purposes of its school use; • maintaining a school building for the purposes of its school use; • investing or lending money in order to provide money for the acquisition construction or maintenance of a school building for the purposes of its school use; or • administering the fund. As the proposed COLA will be a building used as a school for the purposes of item 2.1.10 in section 30-25, the Building Fund may disburse money for its construction. | Summary: Disbursements from the Building Fund may be used for the cost of repairing and maintaining the sport facility when it is covered by the proposed COLA. | Detailed Reasoning - Detailed reasoning: Disbursements from a school building fund in respect of maintenance may include the cost of repairs relating solely to the building. A building under item 2.1.10 of section 30-25 is considered to include fixtures to the building. The proposed COLA will be a building for the purposes of Item 2.1.10, including the sport facility that it covers. Any repairs or maintenance to the sport facility would be considered as repairs or maintenance to the building. Paragraph 82 of TR 2013/2 explains that: Disbursements from a school building fund in respect of maintenance may include: • the cost of repairs, painting and plumbing relating solely to the building. • the cost of cleaning a school building; • consideration for the purchase of equipment used exclusively for maintaining the building; • the cost of insurance relating solely to the building; Disbursements from the Building Fund may be used to repair and maintain the sport facility when covered by the proposed COLA. | Summary: Disbursements from the Building Fund may be used to replace or repair of the fixture. Detailed reasoning . As explained in the reasons for decision to question two, the proposed COLA will be a building for the purposes of Item 2.1.10, including the sport facility that it houses. Any repairs or maintenance to the sport facility would be considered as repairs or maintenance to the building. For the purposes of Item 2.1.10 a building includes fixtures which become a permanent addition to a building. Paragraphs 158-160 of TR 2013/2 provide considerations when determining whether an item is a fixture. Factors that indicate it will be a fixture include if it is attached to a building permanently or for an indefinite or substantial period, whether the intention of the party attaching the item is for it to be a permanent fixture of the building, and the fact that it cannot be detached from the building without causing substantial damage to the item or to the building. Paragraphs 160 and 161 of TR 2013/2 provide examples of items that will and will not be considered fixtures. Ducted heating systems, fixed air conditioning systems and carpets permanently fixed to the floor will be fixtures. The fixture referred to in your question is integral to the operation of the sport facility. Consequently, disbursements from the Building Fund can be used to maintain or replace the fixture.

Question one: Will expenditure on the construction of a covered outdoor learning area (COLA) fall within the scope of expenditure allowed for the school building fund under item 2.1.10 in section 30-25 of the Income Tax Assessment Act 1997 ? | Would satisfaction of the requirements at question one, also extend to any repair/maintenance costs for the sport facility? | Question three: Would repair/maintenance costs extend to include the replacement or repair of a fixture to the sport facility? | All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.