Private ruling: School building fund - eligibility of expenditure
Ruling period: Year ending 30 June 2011 Year ending 30 June 2012 Year ending 30 June 2013 Year ending 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: Q1: Are permanent alterations and fixtures attached to leased buildings eligible expenditure under the school building fund provisions? | A1: Yes | Q2: Is upgrading infrastructure (such as roads, sewerage and water) that does not form a 'fixture' eligible expenditure under the school building fund provisions? | A2: No | Q3: As long as expenditure relates to the acquisition, construction and maintenance of a school building, are council development fees and consultants eligible expenditure under the school building fund provisions? | A3: Yes | Q4: Is building new infrastructure such as classrooms on leased property eligible expenditure under the school building fund provisions? | A4: Yes

Relevant facts and circumstances: The School is establishing an independent primary school. The School is currently not operational. The School has a school building fund that has been established for a number of years. The School is currently leasing a property with an option to buy if the funds become available. Currently the School is in the process of applying for council building permits. The alterations to the building will only be suitable for a school. Any changes will be reversed if the tenancy arrangement ceases. The infrastructure will be returned to its previous condition. The lease for the property commenced on 11.01.2011.Currently the lease is on a 3 monthly basis. Once the School receives Council planning approval it will sign a three or five year lease with option to buy when the necessary funds are raised. The Director (also the form signatory) has confirmed there is not a place of worship on the planned school premises. The building will be used 100% of the time as a school. It has also been confirmed that the property lease is an at arms' length transaction. Information regarding the school is available from their web site. Assumptions 1) The School continues to meet Australian Taxation Office requirements for endorsement as a school building fund. 2) The School has a long term lease on the buildings

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 30-25(1) and Income Tax Assessment Act 1936 Subsection 78(4).

Reasons for decision: Summary: Permanent alterations and fixtures attached to leased buildings are eligible expenditure under the school building fund provisions. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 96/8 Income tax: school and college building funds applies to persons seeking to establish and maintain a school building fund under item 2.1.10 of table 2 in subsection 78(4) of the ITAA 1936. Paragraph 7 of TR 96/8 states: Item 2.1.10 of table 2 in subsection 78(4) applies to a fund which meets the following requirements: (a) the fund is a public fund (see ' Explanations ' at paragraph 25 below); (b) the fund is established and maintained exclusively for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college; and (c) the building is used as a school or college by a government or a public authority, or by a society or association which is not carried on for the profit or gain of its members. Paragraph 41 of TR 96/8 states: The Commissioner has accepted that, for the purposes of the school or college building fund provisions, a building includes a part of a building and additions to buildings. Paragraph 42 of TR 96/8 states: Fixtures form part of a building. Fixtures are considered to be those items which have been affixed to a building after the original building has been completed and in relation to which there is an intention that the item will remain in position permanently or for an indefinite or substantial period. The fact that an item is unable to be detached without substantial damage to the item or that to which it is attached would be strong evidence that the item is a fixture. Examples of fixtures include ducted heating systems and fixed air conditioning systems. The Commissioner has accepted that carpets which are fixed to the floor are part of the building for school or college building fund purposes. Paragraph 15 of TR 96/8 states: Only disbursements from a school or college building fund that are directly and essentially related to the acquisition, construction or maintenance of a building used, or to be used, as a school or college are legitimate charges against that fund. Paragraph 16 of TR 96 8 states: Disbursements on capital improvements and maintenance, as well as installation and maintenance of fixtures to a building used, or to be used, as a school or college are legitimate charges against a school or college building fund. Permanent alterations and fixtures attached to leased buildings are therefore eligible expenditure under the school building fund provisions. | Summary: Expenditure on sewerage and water infrastructure is not eligible expenditure under the school building fund provisions. Roads and car parks are not eligible expenditure under the school building fund provisions. | Detailed Reasoning - Detailed reasoning: Paragraph 15 of TR 96/8 states: Only disbursements from a school or college building fund that are directly and essentially related to the acquisition, construction or maintenance of a building used, or to be used, as a school or college are legitimate charges against that fund. Paragraph 8 of TR 96/8 states: The word 'building' means a permanent structure usually with walls and a roof. This may range from a one room country school building to a group of buildings. It includes a part of a building and additions to buildings. Paragraph 42 of TR 96/8 states: Fixtures form part of a building. Fixtures are considered to be those items which have been affixed to a building after the original building has been completed and in relation to which there is an intention that the item will remain in position permanently or for an indefinite or substantial period. The fact that an item is unable to be detached without substantial damage to the item or that to which it is attached would be strong evidence that the item is a fixture. Examples of fixtures include ducted heating systems and fixed air conditioning systems. The Commissioner has accepted that carpets which are fixed to the floor are part of the building for school or college building fund purposes Paragraph 72 of TR 96/8 states: Overall, the costs must be readily perceived as relating to the actual building and fixtures and their maintenance. The maintenance of a school or college building does not extend to disbursements on sports equipment, playgrounds, sports fields, landscaping or car parks. The fact that such items are required by a local government to obtain approval of building plans does not make those items 'buildings to be used as a school or college' within the meaning of item 2.1.10 of table 2 of subsection 78(4). Maintenance also does not include general running costs such as water, gas, electricity, sewerage, contents insurance, teaching staff salaries, etc. Sewerage and water infrastructure are not examples of fixtures that are permanently attached to buildings. Expenditure on sewerage and water infrastructure is therefore not eligible expenditure under the school building fund provisions. As roads and car parks are not covered under the definition of the word 'building', they are not eligible expenditure under the school building fund provisions. | Summary: To the extent they relate to a school building, the building's fixtures and their maintenance, council fees and fees for consultants are eligible expenditure under the school building fund provisions. | Detailed Reasoning - Detailed reasoning: Paragraph 15 of TR 96/8 states: Only disbursements from a school or college building fund that are directly and essentially related to the acquisition, construction or maintenance of a building used, or to be used, as a school or college are legitimate charges against that fund. Paragraph 72 of TR 96/8 relates to maintenance costs. Paragraph 72 states the following in relation to apportionment of costs incurred: Overall, the costs must be readily perceived as relating to the actual building and fixtures and their maintenance. The maintenance of a school or college building does not extend to disbursements on sports equipment, playgrounds, sports fields, landscaping or car parks. The fact that such items are required by a local government to obtain approval of building plans does not make those items 'buildings to be used as a school or college' within the meaning of item 2.1.10 of table 2 of subsection 78(4). Maintenance also does not include general running costs such as water, gas, electricity, sewerage, contents insurance, teaching staff salaries, etc. Paragraph 73 of TR 96/8 goes to say: Where costs relate, in part, to the maintenance of the building used as a school or college, only the appropriate proportion attributable to those purposes are a legitimate charge against the school or college building fund … Council fees and fees for consultants are eligible expenditure under the school building fund provisions to the extent they directly relate to a school building, the building's fixtures and their maintenance. | Summary: Lease costs relating directly to a building used for school or college purposes will be eligible expenditure under the school building fund provisions. | Detailed Reasoning - Detailed reasoning: Paragraph 7 of TR 96/8 states: Item 2.1.10 of table 2 in subsection 78(4) applies to a fund which meets the following requirements: (a) the fund is a public fund ( see ' Explanations ' at paragraph 25 below); (b) the fund is established and maintained exclusively for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college; and (c) the building is used as a school or college by a government or a public authority, or by a society or association which is not carried on for the profit or gain of its members. Paragraph 15 of TR 96/8 states: Only disbursements from a school or college building fund that are directly and essentially related to the acquisition, construction or maintenance of a building used, or to be used, as a school or college are legitimate charges against that fund. As long as the lease costs relate directly to a building used for school or college purposes, expenditure on lease costs will be eligible expenditure under the school building fund provisions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for the School. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.