Taxation Ruling TR 2013/2 (TR 2013/2) sets out the Commissioner’s interpretation of the law in relation to tax-deductible school building funds. The Australian Taxation Office published an updated ruling in October 2024 to reflect the more holistic approach taken by the Federal Court in the case of The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 1363 (the Buddhist Society Case). The updated ruling significantly broadens the categories of organisations that may be eligible for endorsement as school building funds.
Prior to October 2024, TR 2013/2 stated that:
- a ‘school’ was an organisation that provided regular, ongoing and systematic instruction in a course of non-recreational education; and
- the following factors ‘indicate’ that an organisation is providing instruction as a school: a set curriculum; suitably qualified persons providing instruction; enrolment of students; some form of assessment and correction; and creation of a recognised qualification or status.
In practice, many institutions providing ‘education’ were unable to satisfy these criteria.1
In the Buddhist Society Case, the Court found that the factors expressed in the original version of TR 2013/2 did not reflect the ordinary meaning of the term ‘school’. In particular, TR 2013/2 inappropriately elevated factors referred to in case law to the level of “prerequisites or inherent requirements” for school building funds. The Court took the view that a more holistic approach was required.
The ATO released a Decision Impact Statement on 18 May 2023 advising that it would review and update 2013/2 to reflect the Buddhist Society Case. The ATO subsequently updated TR 2013/2 on 4 October 2024. The key changes are discussed below.
A broader definition of school
The updated TR 2013/2 now explicitly incorporates the broader judicial definition of a ‘school’ adopted in the Buddhist Society Case, being ‘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
Importantly:
- Indicative factors for a school are now explicitly ‘not required’
While the updated TR 2013/2 still lists factors that ‘can help demonstrate there is a school’, it now explicitly states that these factors ‘are not required’.3 Formal examination or testing, or the granting of formal awards of certificates of completion, is no longer required.
- A recreational course of instruction can be a school
The original TR 2013/2 provided that ‘school’ did not include training in a mere hobby or recreational pursuit. The updated TR 2013/2 now states that ‘Schools are not limited to those focused on academic pursuits and includes (but is not limited to) recreational, technical, arts and agricultural schools’.4
A purpose based approach to when a building is ‘used as a school’
The Buddhist Society Case also provided crucial guidance on how to assess whether a building is ‘used as a school’. A building will be ‘used as a school’ where it is used to provide instruction (or its use is incidental to the provision of instruction – such as a kitchen or bathroom facilities) and the extent and character of that use is such that the building can be described as ‘used as a school’.
The original TR 2013/2 stated that for a building to be a school building, its school use must be ‘substantial’. It focused on whether 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. The factors considered were primarily quantifiable, including the time, physical area, number of people and degree of modification dedicated to school versus non-school use.
In the Buddhist Society Case, the Court rejected this quantitative approach and found that the proposition that school use must be ‘substantial’ was not explicitly reflected in the case law. Instead, the Court stated that regard must be had to the following factors. These are now explicitly included in the updated TR 2013/2 as factors that must be weighed to determine whether a building has the character of a school building:
- the overall purpose(s) 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 activities may have to the school activities carried out; and
- the extent to which school and non-school activities contribute to the furtherance of that purpose.
This enables a more holistic assessment to be made about whether a building can be a ‘school building’. Quantifiable factors such as physical area and time may be indicative but are no longer determinative.
Greater access to tax deductibility
The updated TR 2013/2 has replaced the ATO’s restrictive approach to what constitutes a ‘school’ and ‘school use’ with a broader, more flexible approach. This may enable more organisations that provide ‘instruction in an area of knowledge or activity’ to seek tax-deductible gift recipient endorsement for the operation of a school building fund. In particular, organisations that provide less traditional forms of education (for example, that do not include assessment or correction or provide a recognised qualification or status) such as religious instruction (e.g. Sunday schools or Buddhist meditation schools) or recreational instruction (e.g. dance schools, cookery schools, riding schools or woodwork schools) may now be eligible for endorsement. This may unlock funding opportunities and fast track community fundraising initiatives for capital projects.
How can Moores support you?
Our Charity and Not-for-profit team can assist you in understanding the changes to the ATO’s position and assessing your eligibility for endorsement as the operator of a tax-deductible school building fund. We can support you to apply for endorsement and help you understand the rules and requirements for operating a school building fund, enabling the acquisition, construction, or maintenance of school buildings through tax-deductible donations.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.