On 13 February, the ATO released its new Public Ruling TR 2013/2 on requirements for the establishment and operation of deductible school or college building funds. It is important to note that the finalised Ruling introduces a number of requirements that were not present in its draft form.
You can read TR 2013/2 in full here. We set out some of the key differences between the final and draft Ruling below.
Non-School Use of the Building
The proposed ‘more than 50% rule’ has been dropped. It has been replaced with a test that requires ‘substantial’ school use. The Ruling focuses on the extent and character of the use, and outlines the following factors as being relevant for the determination of whether a building is ‘used as a school’:
(a) the amount of time the building is put to school use relative to the amount of time it is put to non-school use;
(b) the number of people involved in the school use of the building relative to the number involved in its non-school use;
(c) the physical area of the building put to school use relative to the physical area put to non-school use; and
(d) the extent to which the building has been adapted or modified in order to accommodate its school or non-school use.
The Ruling provides that ‘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.’
Control
A particularly important factor in determining whether a building is a ‘school building’, and therefore eligible to receive deductible gifts, is the person or body which controls use of the facility. Paragraph 41 provides:
“Where a qualifying body carries on a school organisation and also acts in one or more other capacities (for example as a church), it is necessary to have regard to the extent to which the school organisation will be able to control the use of the building. It may be inferred that a building being acquired or constructed is not a school building where a person, organisation or institution outside of the school organisation will be able to determine how the building is used.”
Operation
The Ruling purports to apply retrospectively. The ‘more than 50%’ rule will apply for those who relied upon the Draft Ruling, provided certain limited circumstances are satisfied (as outlined in paragraphs 114 to 116).
We are continuing to analyse the effect of the ruling. You may wish to consider the application of the Ruling to your fundraising, construction and maintenance operations and future planned projects.
Mark Fowler, Director
DISCLAIMER: This update contains general information only. It is not all inclusive and should not be considered legal advice. You should always obtain legal advice for your specific circumstances before relying on general information.