Private ruling: School building fund
Date of advice: 9 October 2019
Published: December 2019
Ruling period: Income year ending 30 June 20XX | Income year ending 30 June 20XX | Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can the Foundation apply funds donated to the Building Fund to the renovation? | A1: Yes, to the extent outlined in this ruling.

Relevant facts and circumstances: The Foundation is endorsed for the operation of a school building fund (Building Fund). The relevant school (the School) is operated by a registered charity (School Charity). The School is located in a building which is part of a larger building complex. The School will lease another part of the building complex, and will use the leased area to teach part of its curriculum. The term of the lease is for multiple decades. The School will grant a licence to a related party to use the leased area on specified days. The leased area of the building needs to be renovated to be used by the School. The Foundation wants to use the Building Fund to pay for some of the costs of the renovation.

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

Reasons for decision: Summary: A gift or contribution to a school building fund is deductible under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997) if the fund satisfies the requirements of Item 2.1.10 of the table in subsection 30-25(1) of the ITAA 1997 (Item 2.1.10). To satisfy Item 2.1.10 the fund must: · be a public fund established and maintained solely for the purpose of providing money for the acquisition, construction or maintenance of a building used as a school; · 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; and · be registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act 2012), or not be an ACNC type of entity as defined in the ITAA 1997. The Foundation currently has deductible gift recipient endorsement for the operation of the Building Fund under item 2.1.10. To continue to be entitled to the endorsement use of the Building Fund must be in accordance with the purposes specified in item 2.1.10. Taxation Ruling TR 2013/2 Income tax: school or college building funds (TR 2013/2) sets out the Commissioners view on how item 2.1.10 applies to a public fund which purports to be a school building fund, and considers (among other things) whether a fund is being maintained solely for providing money for the acquisition, construction or maintenance of a building used as a school or college. Paragraph 10 of TR 2013/2 sets out the key requirements of item 2.1.10: · there must be a school · there must be a building · the building must be used as a school · the building must be used by a qualifying body (a government, public authority or non-profit society or association) · there must be acquisition, construction or maintenance · the fund must be maintained for the requisite purpose. The relevant school for the purposes of the Building Fund is the School (which the Commissioner accepts to be a school for the purposes of item 2.1.10), and the relevant qualifying body is the School Charity. | Detailed Reasoning - Building to be used as a school building: TR 2013/2 states the following on determining when a building is used as a school building: 30. A weighing of various factors is required to determine whether a building has the character of a school building. 31. In order for a building to be a school building its school use must be substantial. 32. 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. 33. In characterising a building as one that is 'used as a school', any other use must not materially limit, detract from or otherwise be incompatible with the provision of instruction... 34. Other factors which are relevant to determining whether a building is used as a school 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 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. 35. Where a qualifying body carries on a school organisation and also acts in one or more other capacities (for example as a church), it is necessary to have regard to the extent to which the school organisation is able to control the use of the building. While regard must also be had to the actual use of the building, the inability of the school organisation to control the use of the building is an indication that the building is not used as a school. | Detailed Reasoning - To be used as a school: 36. Where a building is being acquired or constructed, it is necessary to determine whether it is 'to be used' as a school. A building meets this requirement where it will have the character of a school building ... 37. A building's character is determined on an objective basis, having regard to all of the surrounding circumstances. The physical attributes of a building are an important and potentially decisive indication of whether the building has or will have the character of a school building. 38. In considering the physical attributes of a building it is necessary to have regard to the extent to which the building has been specifically designed or materially adapted to enable, support or facilitate its non-school use. 39. A building will not be a school building where it has been designed or adapted in a manner which prevents it from being regarded as a school as a matter of ordinary language. 40. A building may be a school building despite having a design feature or adaptation which enables, supports or facilitates the non-school use of the building. However, a school building fund cannot provide money in respect of acquisition or construction which relates to the building's non-school use; see further paragraph 70 of this Ruling. 41. Where a qualifying body carries on a school organisation and also acts in one or more other capacities (for example as a church), it is necessary to have regard to the extent to which the school organisation will be able to control the use of the building. It may be inferred that a building being acquired or constructed is not a school building where a person, organisation or institution outside of the school organisation will be able to determine how the building is used. The School will lease part of a building, which will be used to teach part of its curriculum. The building will need to be renovated to be used by the School. Under the lease the School will have access to the building for its education purposes. The School will grant a licence to a related party so that they can use the leased area on specified days. The School will not otherwise be limited in its use of the leased area. The School will have access to the leased area most days, and will have control of the leased area for it educational purposes. It is accepted that the leased area of the building is a school building and will be used as a school building. As such, the Building Fund can be used for the acquisition, construction or maintenance of the leased area of the building. The lease also gives the School the right to use shared areas. Some of the shared areas are incidental to providing instruction in the School (they are used together with the leased area to provide instruction (paragraphs 42 -45 of TR 2013/2)) and enable the School to use the leased area as a school building. Some shared areas are not school buildings. | Detailed Reasoning - Fund is used for the requisite purpose: A school building fund which is endorsed as a deductible gift recipient must be maintained solely to provide money for the acquisition, construction or maintenance of a school building. The disbursements of a school building fund can only be for the objective purpose of the acquisition, construction or maintenance of a school building for the purposes of its school use. TR 2013/2 states the following about the use of a school building fund: | Detailed Reasoning - Acquisition or construction: 80. 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. 81. A school building fund can provide money in order to satisfy a condition imposed by a local governing body or other public authority where: · the condition must be satisfied before construction of a school building will be permitted; and · the money provided reasonably relates to the construction of the building, as opposed to other matters affected by the condition. | Detailed Reasoning - Maintenance: 82. 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; 83. A school building fund cannot provide money to pay: · the cost of maintaining facilities which are not buildings, including sports fields, sports equipment, playgrounds, landscaping and open-air carparks; and · general operating costs of a school such as water, gas, electricity, sewerage, contents insurance, teaching staff salaries or the general upkeep of furnishings. 84. A school building fund can only provide money to pay security monitoring costs to the extent that those costs reasonably relate to the preservation or protection of a school building. 85. A school building fund cannot provide consideration in respect of maintenance which relates to the non-school use of a building unless the fund is fully and promptly reimbursed for the amount provided. The total cost of the proposed renovations will be shared by the School and the related party. The Building Fund will be used to pay part of the School's contribution. The Building Fund can be used to pay for construction works, fixtures, incidental costs of the construction, and the costs of performing initial repairs. The Building Fund can also be used to fund the costs of renovating facilities that are incidental to the School providing instruction in the school building. The Building Fund cannot be used to fund the cost of buildings that are not school buildings. | Detailed Reasoning - Conclusion: The Building Fund can be used to fund part of the renovation of the building which will be used by the School as a school building. Any use of the Building Fund for this purpose will be in accordance with the requirements of item 2.1.10.