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Ruling

Subject: Income Tax Exemption - School Building Fund

Question

Should the Church, in determining the primary and principal use of its multi-purpose building, treat as school purposes any uses of its building by entities other than the Church for their school purposes?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

5 September 2011

Relevant facts and circumstances

Provided by applicant:

The Church is an association incorporated under the Associations Incorporation Act 1981 .

The Church is endorsed as a charitable institution, and has the following tax concession:

(a) income tax exemption;

(b) GST concession; and

(c) a rebate on FBT paid (subject to some limits).

The Church has been in contact with several local primary and high schools which would like to use the Church's multi-purpose building for their educational activities in future years (External School Use).

The Church is currently endorsed for the following DGR's:

Ancillary Fund

Public fund for religious instruction in government schools - item 2.1.8.

A school building fund - item 2.1.10.

Taxpayer contentions

4.1 The Church understands that the Fund can only be applied for the acquisition, construction and maintenance of the multi-purpose building if its proposed uses are primarily and principally for school purposes, as stated in paragraph 14 of TR 96/8:

'a multi-purpose building is taken to be used as a school or college if the primary and principal use of the building is as a school or college. In the case of a proposed building, the test is satisfied if the building is proposed to be used as a school or college more than 50% of the time. Where a school or college building fund is maintained for an existing school or college, the building must be used as a school or college for more than 50% of the time'.


4,2 The primary and principal use of the multi-purpose building is therefore determined based on the time of the usage whether the multi-purpose building is to be used for more than 50% of the time for school or non-school purposes.


4.3 TR 96/B does not explicitly state whether to take into account the use of a building by entities other than the proprietor of the building in determining the primary and principal use of the building.


4.4 Paragraphs 61 and 85(d) of TR 96/8 however provide examples of a building used by different groups as follows:


61. If a building is used for more than one purpose, it will be a question of fact whether its principal use is for the purposes of study or instruction. A building will be accepted as being primarily and principally used as a school or college if the building is used as a school or college more than 50% of the time. For example, a building used as a school or college every weekday and a place of worship on Sundays will qualify as a school or college. However, a Sunday School hall used for religious instruction on Sundays only and for community and social activities on other days of the week is not principally a school or college; and

85(d). The entire area of a building is shared by a school and a community services group - for 5 days a week the building is used as a school and on weekends it is used as a community centre.

The entire building will qualify as a building used as a school as it is primarily and principally used as a school. Donations to the building fund would be 100% tax deductible.

4.5 These examples imply that when a building is used by different entities (i.e. a school and a community service group), the total use of the building by all entities must be considered in determining the primary and principal use regardless of who owns the building.

4.6 It appears to the Church therefore that if it in future allows local schools to use the multipurpose building, it must include the time of usage by these local schools in determining the primary and principal use of its building.

4.7 If however the position of the Australian Taxation Office is different, the Church will reconsider making the building available to external schools.

Relevant legislative provisions

Income Tax Assessment Act 1997, section 30-25, item 2.1.10.

Reasons for decision

Eligibility for endorsement of school building funds as deductible gift recipients is determined by item 2.1.10 of section 30-25 of the Income Tax Assessment Act 1997:

a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college by:


(a) a government; or

(b) a public authority; or
(c) a society or association which is carried on otherwise than for the purposes of profit or gain to the individual members of the society or association

The issue in this matter primarily revolves around the issue of whether a building, which is used as a school, would continue to be used as a school, particularly in relation to the possible future use of the building by other schools.

Paragraphs 61, 62 and 64 of Taxation Ruling TR 96/8 cover multi-purpose buildings:

61. If a building is used for more than one purpose, it will be a question of fact whether its principal use is for the purposes of study or instruction. A building will be accepted as being primarily and principally used as a school or college if the building is used as a school or college more than 50% of the time. For example, a building used as a school or college every weekday and a place of worship on Sundays will qualify as a school or college. However, a Sunday school hall used for religious instruction on Sundays only and for community and social activities on other days of the week is not principally a school or college.

62. When a school or college is located in a multi-purpose complex (and the area set aside for a school or college is used in excess of 50% of the time for school or college purposes) a donation directly to a school or college building fund is fully tax deductible. If moneys are collected on a combined fundraising basis (to finance, for example, a school and a church) then the amount which is deductible will depend on how much is allocated by the donor to the school building fund.

64. Where a multi-purpose building has a common area, which is shared by the school or college with other 'tenants', the school or college building fund can only use its funds to contribute towards the cost of the common area where the area is used primarily or principally as a school or college (this could be determined on a time basis).

Where a multipurpose building is used partly as a school and partly for some other non-school purpose it is necessary to determine whether the building is used in excess of 50% of the time for school or college purposes. It is therefore necessary to determine the extent of any school and non-school use.

If another school were to use the existing building in pursuit of its school purpose, then that school would also be using the building as a school. Such use would be consistent with that contemplated by item 2.1.10 of section 30-25 of the ITAA 1997. Therefore, if one or more entities use a building as a school, then such use should be combined in order to determine the extent of the usage of the building as a school.

If the current building is being used as a school in accordance with item 2.1.10, then allowing primary and secondary schools to also use the building, could only have the effect of bolstering the buildings role as a school.