Private ruling: School Building Fund - Covered Outdoor Learning Area
Published: November 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014.

Ruling: Q1: Is a Covered Outdoor Learning Area which has a weatherproof shade cloth roof a 'building' for the purposes set out in Item 2.1.10 of the table in subsection 30-25(1) of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: The applicant has requested a Private Binding Ruling on behalf of a School. The School is located in an Australian state. The School operates a School Building Fund ("the Fund") which is endorsed as a Deductible Gift Recipient. The School's P&C would like to fund the installation of a Covered Outdoor Learning Area (COLA). The area to be covered is approximately X m2 area and will cost around $X. The structure will be used as a COLA, allowing class lessons, concerts, games and whole of school assemblies. It will be a permanent structure consisting of ten 4.5m high posts embedded in the ground by concrete with arching steel roof trusses supporting the roof. The steel structure is expected to last many decades. The COLA will have lighting and a sound system installed in its structure. The roofing material will be a new waterproof shade cloth material which has a 12 year warranty but which is expected to last for approximately 15 years before replacement. The waterproof shade cloth material represents about 15-20% of the cost of the entire structure i.e. about $Y. The material is fixed to the steel structure permanently and can only be removed at considerable cost and time. For example, it could be removed for repairs but removing it and reinstalling would cost some thousands of dollars. A COLA using waterproof shade cloth costs about half the price of a colour bond roofed COLA due to lighter weight of the material and hence a lighter steel supporting structure. Also the waterproof shade cloth is more aesthetic, lets in more light, and generates less heat and noise underneath the structure. The School's P&C representatives believe that the COLA they intend to install fits the description of a COLA in paragraph 152 of TR 2013/2 except for: the roof being made of waterproof shade cloth (rather than colour bond), and not having gutters and downpipes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 30-15 | Income Tax Assessment Act 1997 Section 30-25(1) | Income Tax Assessment Act 1997 Section 50-5

Reasons for decision: Summary: The proposed use of the School Building Fund for the installation of a Covered Outdoor Learning Area (COLA) which will have a waterproof shade cloth roof satisfies the school building fund requirements, as the COLA is considered to be a building 'used as a school' for the purposes of Item 2.1.10. | Detailed Reasoning - Detailed reasoning: A school building fund is described in Item 2.1.10 of subsection 30-25(1) of the ITAA 1997 as: a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college by: (a) a government; or (b) a public authority; or (c) a society or association which is carried on otherwise than for the purposes of profit or gain to the individual members of the society or association Taxation Ruling TR 2013/2 Income tax: school and college building funds ("TR 2013/2") contains the ATO view regarding school building funds. Paragraph 10 of 2013/2 outlines the key requirements of a school building fund which are as follows: • There must be a school; • There must be a building; • The building must be used as a school by a qualifying body; and • The use of the fund must be for an acquisition, construction or maintenance of a building. In consideration of the above, the main issues to be determined in this case are whether the use of a waterproof shade cloth roof on a COLA would constitute a building that has the character of a school, and if so, whether the COLA can be paid for by the Fund. | Detailed Reasoning - Is there a building?: Paragraphs 20 to 21 of TR 2013/2 state that, for Item 2.1.10 to apply: • there must be a building or an objective intention to acquire or construct a building; and • 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. Furthermore, paragraph 22 of TR 2013/2 states that: 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 elaborates by stating that: 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. In this case, the proposed structure has a typical design (similar to that of a covered outdoor learning area) and although it does not have a colour bond roof, it will be covered by a waterproof shade cloth. It will be a permanent structure consisting of ten 4.5m high posts embedded in the ground by concrete with arching steel roof trusses supporting the roof. In addition, based on the specifications, it is evident that the proposed structure is not intended to be in place for a short period of time, or for a temporary purpose. Therefore, the proposed structure is considered to be a 'structure with the function of a building' for the purposes of Item 2.1.10. | Detailed Reasoning - Is the building being used as a school?: Paragraph 26 of TR 2013/2 states that a building is 'used as a school' for the purposes of Item 2.1.10 where: • it is used to provide instruction- for example, where people come together in order to be instructed in an area of knowledge; 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. As discussed at paragraph 30 of TR 2013/2, 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. Incidental buildings As explained at paragraph 42 of TR 2013/2, a building, which is separate from the main school buildings, is also used, or to be used as a school where: • its actual or intended use is incidental to the provision of instruction in one or more school buildings; and • it can be regarded as being 'used as a school' as a matter of ordinary language when considered in conjunction with those buildings. The proposed COLA is external to the main school buildings, however, it could still be 'used as a school' when considered in conjunction with the other buildings. For example, as discussed at paragraphs 43 to 45 of TR 2013/2: • A building's use is incidental to the provision of instruction in a school building where it is used together with the school building, but in a manner which is ancillary or subordinate to it; • In order to determine whether a building's use is incidental to the provision of instruction in a school building, regard is had to the nature and scale of the uses to which the building is or will be put, as well as its physical characteristics; and • To determine whether a building of this kind can be characterised as a school building, when considered in conjunction with one or more other buildings, it is necessary to have regard to the extent of its non-school use. Such a building is not a school building where its non-school use prevents it from being regarded as being used as a school as a matter of ordinary language. Therefore, based on the facts, the proposed COLA would be considered an 'incidental building' that is 'used as a school', because: • it will be a permanent structure consisting of ten 4.5m high posts embedded in the ground by concrete with arching steel roof trusses supporting the roof; • it will be used for class lessons, concerts, games and whole school assemblies; • the structure will have lighting and a sound system installed in its structure; and • the roofing material will be a new waterproof shade cloth material which has a 12 year warranty. | Detailed Reasoning - Disbursements from a school building fund: According to paragraph 79 of TR 2013/2: 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. Acquisition or construction Paragraph 80 of TR 2013/2 states that disbursements from a school building fund in respect of acquisition or construction may include: • consideration for the purchase or construction of the building; • consideration for the purchase of land to the extent that it reasonably relates to the area of land occupied by the building; • incidental costs of acquisition or construction, including costs relating to planning, negotiating, financing and obtaining approval for the acquisition or construction; • the cost of fixtures to the building; • the cost of performing initial repair of the building; • the cost of constructing a separately identifiable addition to, or extension of, an existing building, such as an additional floor, room or other permanent structure; and • payments in respect of a lease of a school building (for example rent) to the extent that they reasonably relate to the building and the area of land occupied by the building. | Detailed Reasoning - Conclusion: The proposed use of the school building fund for the installation of a COLA with a waterproof shade cloth satisfies the school building fund requirements, as the proposed COLA: • is a structure with the function of a building; • it is fixed to the ground; • it has a roof; • its size and method of construction indicate that it is of a permanent nature; and • is integral to the school and its teaching (to be used for class lessons, concerts, games and whole of school assemblies). Therefore, in accordance with the above, the installation of the proposed COLA can be paid for by the Fund.