On 13 February 2013 the Australian Taxation Office released the Final Ruling TR 2013/2 Income Tax: School or College Building Funds. For more information on income tax on school or college building funds please view the Ruling at http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20132/NAT/ATO/00001
This Ruling replaces TR 96/8 and finalises the earlier draft Taxation Ruling 2011/D5 of 5 December 2011.
The Final Ruling has addressed many of the concerns raised about the earlier Draft Ruling, and also provides greater certainty in respect of the transitional arrangements for those funds which relied upon the old “50% use rule” contained in the previous Ruling TR 96/8.
Paragraph 14 of TR 96/8 (now withdrawn) had provided that a multipurpose building which was used as a school or college more than 50% of the time would qualify as a school or college building for the purposes of expenditure from a DGR endorsed school building fund.
TR 2013/2 establishes:
1. There must be a school.
There must be a school organisation with its own distinct identity which provides regular, ongoing and systematic instruction in a course of non-recreational education. The following factors would be relevant:
- The organisation has a quality of permanence;
- It has a governing body which controls its affairs;
- A set curriculum;
- Instruction or training provided by suitably qualified persons;
- The enrolment of students;
- Some form of assessment and correction;
- The creation of a qualification or status that is recognised outside of the organisation.
2. There must be a building
A building is a permanent structure, roofed and usually with walls and flooring. A part of a building could qualify as a school building if it is a permanent, fixed and structurally delineated part of the building and it is capable of being made the subject of a separately identifiable legal or equitable interest.
3. The building must be used as a School
The building must be used to provide the regular, ongoing and systematic instruction that characterised the organisation as a school. A building may also qualify as being used as a school where its use is incidental to the provision of such instruction (e.g. a stand alone toilet block or tuckshop facility).
The extent and character of the use of the building will be critical in determining whether the use is a “school use” or a “non-school use”.
- The “school use” of a building must be substantial;
- 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;
- Any non-school use must not materially limit, detract from or otherwise be incompatible with the school use.
- Other relevant factors include:
- The amount of time put to school use relative to the amount of time put to non-school use.
- The number of people involved in the school use relative to the number involved in 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.
- The extent to which the school organisation is able to control the use of the building.
4. There must be acquisition, construction or maintenance
A school building fund can only be used to acquire, construct or maintain a school building or have an objective intention to do so.
5. The fund must be established and maintained for the requisite purpose
A school building fund must be established and maintained solely to provide money for the acquisition construction or maintenance of a building used as a school by a qualifying body. A fund will not satisfy the sole purpose test where it is established or maintained to provide money for the purpose or for purposes which include the non-school use of the building. This is the case, even though the building may be a school building.
6. Transitional Arrangements
The ATO recognises that donors and school building funds may have relied on the former “50% use rule” in TR 96/8 in planning existing arrangements. Accordingly, the old 50% Rule will continue to apply to acquisition or construction arrangements to which a school building fund became committed to before 13 February 2013.
Such a commitment will be evidenced by the fund:
- having accepted significant donations or contributions relating to the arrangement; or
- incurring or becoming legally required to incur, significant financial costs for the purposes of entering into or carrying out the arrangement.
Importantly, if such a fund becomes committed to another acquisition or construction arrangement after 13 February 2013 that does not meet the requirements of the new Ruling (i.e. continues to rely upon the “50% use rule”), that fund will cease to be a school building fund for all purposes, including the earlier arrangement.
School building funds are also permitted to apply the “50% use rule” in relation to maintenance costs until 1 July 2013.
The Ruling contains many helpful examples of the Ruling’s application.
If you have concerns or questions about how your existing school building fund will be affected, please contact us for advice.
For more information regarding Income Tax on School or College Building Funds
Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Educational Lawyers today.