A further update on changes to the law applying to school building funds
Most schools or school foundations operate ‘school building funds’ which receive tax-deductible donations to support the acquisition, construction or maintenance of school buildings.
In a few previous editions of Education Law Notes, we have looked into how the law applying to school building funds has changed in recent years. Relevantly, we examined the implications of the Federal Court of Australia’s 2021 ruling on school building funds which explicitly disagreed with the view of the Australian Commissioner of Taxation (as set out in the Commissioner’s Taxation Ruling 2013/2) on what is a “school” and on when a building is used as a “school building”. The Federal Court’s ruling dealt with a decision of the Australian Taxation Office to revoke the Deductible Gift Recipient endorsement of an existing school building fund that supported the school buildings of a Buddhist teaching centre.
In our Education Law Notes in Term 2, 2023, we said that the ATO has “committed to reviewing and updating Taxation Ruling 2013/2 and the ATO’s associated website guidance to reflect the new law”. On 4 October 2024, the ATO did this by issuing an addendum to TR 2013/2 that updates TR 2013/2 to reflect the new law as set out in the Federal Court of Australia’s ruling.
By way of reminder, a school building fund must provide financial support to school buildings. The Federal Court ruled that an organisation can be a school even if it does not provide structured, formal and externally-recognised education. Instead, a school just has to be any place where people come together for the purpose of being instructed in an area of knowledge or of activity. This can include recreational or non-vocational instruction. TR 2013/2 now reflects this position.
Further, the Australian Taxation Office is of the view that, for a building to be a school building, the building must be used as a school. The Federal Court ruled that an organisation can use a building as a school even if it does not, for example, use over 50% of the building’s physical area as a school or use the building as a school for over 50% of the time during an average week. The Federal Court rejected this arbitrary, percentage-based approach to determining whether a building is used as a school in favour of a holistic, factor-based approach. Now, to determine if a building is used as a school, the following factors are relevant:
- the overall purposes for which the school building has been established and maintained;
- the importance of each of the activities carried out in furtherance of these overall purposes;
- the connection between any non-school activities to any school activities carried out at the building; and
- the extent to which non-school activities and school activities contribute to these overall purposes.
TR 2013/2 now reflects this position.
These changes will be good news for most schools, because they will give them greater:
- flexibility in using their existing (or any new) school building funds for building and development purposes; and
- comfort that the ATO’s regulatory approach to determining eligibility for school building fund endorsement will be consistent with the law applying to school building funds.
These changes also follow on from good news that we considered in last term’s Education Law Notes. Your school or school foundation may already be aware that the Commonwealth Government has rejected the recommendation of the Productivity Commission that school building funds would no longer be eligible for DGR status and that, by extension, existing school building funds would also lose DGR status.
If you would like to consider whether your school needs a ‘school building fund’, or need help writing or updating the Fund Rules, or would like advice or assistance on how you can legally apply funds from (or otherwise operate) your school’s existing school building fund, please contact David Ford, Stephanie McLuckie or Samuel Chu.
