Edited version of your private ruling

Authorisation Number: 1012448209065

Ruling

Question 1

Can the expense of maintaining an external school courtyard be paid for by the X Public School P&C Association's School Building Fund (the "Fund"), which is endorsed as a deductible gift recipient pursuant to section 30-15 and item 2.1.10 of the table in subsection 30-25(1) of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

· Year ending 30 June 2014

· Year ending 30 June 2015

· Year ending 30 June 2016

· Year ending 30 June 2017

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

1. The X Public School (the "School") is located in certain state, Australia.

2. The school's parents and friends association, the X Public School P&C Association (the "Association") is endorsed as a tax concession charity- charitable institution pursuant to section 50-5 of the Income Tax Assessment Act 1997 (the "ITAA 1997").

3. The Association has a school building fund, the X Public School P&C Association School Building Fund (the "Fund"), which is endorsed as a deductible gift recipient in a recent year pursuant to section 30-15 and Item 2.1.10 ("item 2.1.10") of the table in subsection 30-25(1) of the ITAA 1997.

4. The Vice president of the Association, Y, has submitted a request for a private binding ruling ("PBR") in relation to the Fund. The following questions were asked:

Can our school building fund spend monies from that fund on the maintenance of an external courtyard that is bordered by the walls of existing school buildings, is permanent, is covered by shade cloth supported by steel pylons and is used extensively by the school and its teachers and students for assemblies and delivery of curriculum?

5. The Association wants to use money from the Fund to maintain an external courtyard. The facts describing the scheme are as follows:

Our school building fund was endorsed as a DGR in a recent year.

Our parents, community members and the public are encouraged to give gifts to this fund for the express purpose of maintaining and constructing our school buildings.

We would like to spend monies from this fund on the maintenance of an external courtyard which is a permanent structure, integral to the school and its teaching, surrounded by walls from school buildings covered by shade cloth.

6. The following arguments were put forward by the Association, in support of their application for a PBR:

We are proposing to spend money on the maintenance of this courtyard, including fixing drainage issues (where necessary) and replacing cracked, broken and slippery concrete with modern surfacing.

This courtyard is used three times each day for primary school assemblies and is also used by teachers and their classes at other times of the day.

The courtyard is external, but is boarded by walls from other school buildings, both courtyards in the school have been permanent structures since the school was built.

Almost the entire courtyard area is covered by shade cloth, supported by steel pylons and this is a very permanent structure, although no colour bond.

This courtyard is only used by the school community for school activities This courtyard is equal in value to the school as our indoor assembly hall in the many ways it is used by staff and students as part of everyday school day.

If we were able to spend building fund money on the maintenance of this courtyard by fixing drainage and re-surfacing the floor, it would make this area much safer and more useable.

7. The Fund plans to undertake maintenance work on the courtyard in the 2013/14 income tax year.

Relevant legislative provisions

Section 30-15 of the Income Tax Assessment Act 1997

Subsection 30-25(1) of the Income Tax Assessment Act 1997

Section 50-5 of the Income Tax Assessment Act 1997

Reasons for decision

Subject: School building fund- maintenance of a permanent external courtyard

Taxation Ruling TR 2013/2 Income tax: school and college building funds ("TR 2013/2") contains the ATO view regarding school building funds. As discussed at paragraph 10 of 2013/2, the key requirements of item 2.1.10 considered in the ruling are as follows:

1. there must be a school;

2. there must be a building;

3. the building must be used as a school;

4. the building must be used as a school by a qualifying body;

5. there must be acquisition, construction or maintenance; and

6. the fund must be established and maintained for the requisite purpose.

In consideration of the above, the main issues to be determined are whether or not the external courtyard constitutes a building that has the character of a school, and if so, whether or not the expense of maintaining the courtyard can be paid for by the Fund. Requirements 5 and 6 are not in contention.

Is there a building?

Paragraphs 20 to 22 of TR 2013/2 state that, for Item 2.1.10 to apply:

· there must be a building or an objective intention to acquire or construct a building; and

· for the purposes of Item 2.1.10 the word 'building' carries its ordinary meaning. A building is a permanent structure, roofed and usually with walls and flooring, that provides protection from the elements.

However, as discussed at paragraph 22 of TR 2013/2, a permanent structure, such as a covered outdoor learning area, is capable of being a 'building'. Paragraph 152 of TR 2013/2 elaborates by stating that, although a building would usually be expected to have walls, flooring and a roof, there are circumstances where a structure can be accepted as a building for the purposes of Item 2.1.10, even if it does not have walls- for example:

A covered outdoor learning area ('COLA') might be used for outdoor classes of a school and school assemblies. A covered outdoor learning area may not have any walls but be made of galvanised steel with colour bond roofing, with guttering and downpipes, and be fixed to the land by posts embedded in a concrete floor. Such a structure is considered to be a building for the purposes of Item 2.1.10 because it is in the nature of a building: it is a structure with the function of a building (albeit with an atypical design influenced by environmental and particular operational factors), it is fixed to the ground, it has a roof and its size and method of construction indicate that it is not intended to be in place on an interim or short term basis or for a temporary purpose.

Based on the facts, the school courtyard has an atypical design (similar to that of a covered outdoor learning area) and although it does not have a roof per se, it is covered by a shade cloth, which is supported by permanent steel pylons. Additionally, it is clear that the courtyard is not intended to be in place for a short period of time, or for a temporary purpose. Therefore, the courtyard is considered to be a 'structure with the function of a building' for the purposes of item 2.1.10.

Is the building being used as a school?

Paragraph 26 of TR 2013/2 states that a building is 'used as a school' for the purposes of item 2.1.10 where:

· it is used to provide instruction- for example, where people come together in order to be instructed in an area of knowledge; and

· the extent and character of that use is such that the building can be described as 'used as a school' as a matter of ordinary language.

As discussed at paragraph 30 of TR 2013/2, determining whether a building has the character of a school building involves a consideration of various factors. Paragraph 34 of TR 2013/2 states that the following issues are relevant to determining whether a building is used as a school:

· the amount of time the building is put to school use relative to the amount of time it is put to non-school use;

· the number of people involved in the school use of the building relative to the number involved in its non-school use;

· the physical area of the building put to school use relative to the physical area put to non-school use; and

· the extent to which the building has been adapted or modified in order to accommodate its school or non-school use.

Incidental buildings

As explained at paragraph 42 of TR 2013/2, a building, which is separate from the main school buildings, is also used, or to be used as a school where:

· its actual or intended use is incidental to the provision of instruction in one or more school buildings; and

· it can be regarded as being 'used as a school' as a matter of ordinary language when considered in conjunction with those buildings.

The courtyard is external to the main school buildings, however, it could still be 'used as a school' when considered in conjunction with the other buildings. For example, as discussed at paragraphs 43 to 45 of TR 2013/2:

· A building's use is incidental to the provision of instruction in a school building where it is used together with the school building, but in a manner which is ancillary or subordinate to it;

· In order to determine whether a building's use is incidental to the provision of instruction in a school building, regard is had to the nature and scale of the uses to which the building is or will be put, as well as its physical characteristics; and

· To determine whether a building of this kind can be characterised as a school building, when considered in conjunction with one or more other buildings, it is necessary to have regard to the extent of its non-school use. Such a building is not a school building where its non-school use prevents it from being regarded as being used as a school as a matter of ordinary language.

Therefore, based on the facts, the external courtyard would be considered an 'incidental building' that is 'used as a school', because:

· it has been a permanent structure since the school was built some years ago;

· it is used three times a day for school assemblies;

· the courtyard is regularly used by teachers and their classes throughout the day, in a manner which is ancillary to the main school building, but used in conjunction with it;

· it is only ever used by the school for school related activities; and

· its use is ancillary to that of the main school buildings.

Disbursements from a school building

Paragraph 82 of TR 2013/2 states that disbursements from a school building fund in respect of maintenance may include:

· the cost of repairs, painting and plumbing relating solely to the building;

· the cost of cleaning a school building;

· consideration for the purchase of equipment used exclusively for maintaining the building; and

· the cost of insurance relating solely to the building;

As discussed at paragraph 83 of TR 2013/2, a school building fund cannot provide money to pay:

· the cost of maintaining facilities which are not buildings, including sports fields, sports equipment, playgrounds, landscaping and open-air car parks; and

· general operating costs of a school such as water, gas, electricity, sewerage, contents insurance, teaching staff salaries or the general upkeep of furnishings.

The Association has indicated that they would like to spend money from the Fund on the maintenance of the courtyard- including repairing a drainage issue, and replacing cracked, broken and slippery concrete with modern surfacing. Therefore, in accordance with TR 2013/2, such expenditure would constitute an acceptable disbursement from the Fund.

Conclusion

The proposed use of the Fund for the maintenance of the courtyard satisfies the school building fund requirements, as based on the facts, the external courtyard:

· is a permanent structure;

· is integral to the school and its teaching (being used three times a day for school assemblies and regularly for outdoor classes);

· is surrounded by the walls of other school buildings; and

· is covered by a shade cloth, which is supported by permanent steel pylons.

Therefore, in accordance with the above, as the courtyard is incidental to the provision of instruction in one or more other buildings, and is a building used as a school for the purposes of Item 2.1.10, the expense of maintaining the courtyard can be paid for by the Fund.

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