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The latest on school building funds

Registered non-government schools, religious organisations that provide education, and other charities should consider the impact of the Australian Taxation Office’s recent Decision Impact Statement on their ability to seek or maintain Deductible Gift Recipient endorsement for a “school building fund”. The ATO has issued this Statement following its consideration of the decision in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) which we noted in our Education Law Notes in 2022.

A school building fund is a particular type of fund that can receive tax-deductible donations from the public. It is a fund established and maintained to receive and provide money solely for the “acquisition, construction or maintenance” of school buildings. In practice, the ATO, by virtue of Taxation Ruling 2013/2, which reflects the ATO’s long-held public views on school building funds, has considered that the following six criteria must be satisfied before a fund is a “school building fund”:

• there must be a school;
• there must be a building;
• the building must be used as a school;
• the building must be used as a school by a qualifying body (a qualifying body includes charities registered with the Australian Charities and Not-for-profits Commission and other not-for-profit organisations);
• there must be acquisition, construction or maintenance of school buildings; and
• the fund must be a public fund that can receive contributions from the public,and must be established and maintained for school building purposes.

From Taxation Ruling 2013/2, the ATO has argued that:

• in relation to whether an organisation is a “school”, organisations that engage in non-vocational, recreational instruction are not “schools”, as an organisation must provide some form of structured, formal, externally-recognised education in order to be a “school”; and
• in relation to whether a building is “used as a school”, there must be “substantial” use (over 50 per cent of time, physical area, people, or physical modification) of a building for school purposes, in order for the building to be a “used as a school”.

However, the Buddhist Society case rejected the ATO’s views as expressed in Taxation Ruling 2013/2. In the Court’s view, an organisation that engaged in non-vocational, recreational instruction could be a “school”, as even non-vocational, recreational schools are “places where people come together for the purpose of being instructed in an area of knowledge or of activity”. Further, the Court said that determining “substantial” school use did not require undertaking percentage calculations. Instead, the relevant assessment involves determining the overall purposes for which a building has been established and maintained, the relative importance of each of the activities carried out to that purpose at the building, and whether any non-school activities that are conducted in a building are connected to the building’s school activities or contribute to the purposes for which the building is established or maintained.

In the new Decision Impact Statement, in which the ATO has commented on the Buddhist Society case, the ATO has:

• acknowledged that its previous views on whether an organisation is a “school”, and on whether a building is “used as a school” are incorrect, as these views are inconsistent with the law;
• committed to reviewing and updating Taxation Ruling 2013/2 and the ATO’s associated website guidance to reflect the new law, and to use the approach from the new law in reviewing future applications for school building fund endorsement; and
• given the public the opportunity to request reviews of previous applications that have been refused.

There are two practical impacts of the Decision Impact Statement for schools and other charities:

1. Given that the ATO has conceded that a broader, more holistic approach to evaluating whether a fund is a “school building fund” applies, the Decision Impact Statement will give comfort to charities (especially charities that engage in non-vocational or recreational instruction) regarding their eligibility to seek or maintain Deductible Gift Recipient endorsement from the ATO for a new or existing school building fund, without necessarily having to engage in a quantitative analysis of prescriptive factors and tests imposed by the ATO.
2. Charities which have previously been unsuccessful in seeking endorsement for a “school building fund” may wish to take the opportunity to reapply to the ATO for reconsideration of their eligibility for endorsement.

Please contact David Ford, Stephanie McLuckie or Samuel Chu if you require advice or assistance in relation to your organisation’s eligibility to seek or maintain Deductible Gift Recipient endorsement for a new or existing school building fund.