Background
In 2021, the Full Federal Court found in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) (‘the Decision’) that the Australian Taxation Office (‘ATO’) was wrong in its application of law regarding:
- The ordinary meaning of the term ‘school’; and
- How to determine whether or not a building was in fact being used as a school building.
The ATO subsequently released a Decision Impact Statement in 2023 recognising the Decision and committing to review and update Tax Ruling 2013/2 (‘TR 2013/2’)[1] which sets out its position on the law as it relates to school building funds. The updated TR 2013/2 was released on 4 October 2024.
The Decision and Decision Impact Statement were significant for the schooling sector because the ATO’s narrower view of what constituted a school in TR 2013/2 meant that many non-conventional, recreational, or non-systematic schools could not about deductible gift recipient (‘DGR’) endorsement from the ATO for their school building funds.
Purpose of the Amendments
The amendments to TR 2013/12 specifically contemplate that the amendments are made in response to the Decision and to ensure consistency between TR 2013/2 and the Decision. In our view, the updates to TR 2013/2 achieve this purpose.
Changes to the meaning of ‘School’
The ATO now, consistent with case law, adopts the ordinary meaning of ‘school’ in TR 2013/2 which is: ‘a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of activity.’[2]
Furthermore, the ATO now recognises that:[3]
“While an essential element of the school is to provide education, the education provided does not require formal examination or testing, or the granting of formal awards of certificates of completion. Schools are not limited to those focused on academic pursuits and includes (but is not limited to) recreational, technical, arts and agricultural schools.”
In keeping with this change, the following factors are no longer strictly required, but are of course still demonstrative:[4]
- a set curriculum;
- instruction or training provided by suitably qualified persons;
- the enrolment of students;
- some form of assessment and correction; and
- the creation of a qualification or status which is recognised outside of the organisation.
Changes to determining if a building is a ‘school building’?
The changes clarify that the ATO must now have regard to the following factors in determining if a building has the character of being a ‘school building’:[5]
- the overall purpose (or purposes) for which the building has been established and maintained;
- the importance of each of the activities carried out to that purpose;
- any connection that the non-school use has towards the school use; and
- the extent the school use and non-school use have contributed to that purpose.
The following factors are noted as being indicative but not determinative:[6]
- 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;
- the extent to which the building has been adapted or modified in order to accommodate its school or non-school use.
Based on these changes, the fact that a school building is significantly used for non-school use will no longer necessarily exclude it from being a school building for the purposes of use of school building fund funds for its acquisition, construction, or maintenance.
How can we help?
If you operate or are considering operating a school which is more recreational than systematic, you may now have a basis for obtaining DGR endorsement for your school building fund. Furthermore, if you have previously been unable to use school building fund funds on the acquisition, construction or maintenance of certain buildings you may now be able to do so. We can assist with determining your entitlement and making any necessary applications to the ATO.
If you operate a school, we can assist in determining whether or not your school might be able to make use of a DGR endorsed school building fund. If you already operate a school building fund, we can assist with reviewing your practice to ensure that you continue to comply with the ATO’s requirements.
Vocare Law is well equipped to assist our charity and not-for-profit clients with a wealth of collective knowledge and over two decades experience providing insight and advice in this area. Please don’t hesitate to contact our office if you have any questions on ensuring your charity is maximising its tax concessions. Contact us on 1300-VOC-LAW / 1300-862-529 or email: enquiry@vocarelaw.com.au
This article was written by Paul Neville, Senior Associate.
**The information contained herein does not, and is not intended to, constitute legal advice and is for general informational purposes only.
Footnotes
[1] A consolidated version of TR 2013/2 incorporating the changes is available here: https://www.ato.gov.au/law/view/document?DocID=TXR/TR20132/NAT/ATO/00001&PiT=99991231235958
[2] TR 2013/2, paragraph 12.
[3] TR 2013/2, paragraph 12A.
[4] TR 2013/2, paragraph 12B.
[5] TR 2013/2, paragraph 30.
[6] TR 2013/2, paragraph 30A.
