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Edited version of your private ruling
Authorisation Number: 1012503080175
Ruling
Subject: Loan to School Building Fund
Question 1
Can the entity lend money from their general fund on commercial terms to their School Building Fund (SBF) without affecting their deductible gift recipient (DGR) status for the operation of the SBF pursuant to section 30-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
1 January 2013 to 31 December 2013
1 January 2014 to 31 December 2014
The scheme commences on:
1 January 2013
Relevant facts and circumstances
The entity owns and operates the School Building Fund (SBF).
The entity also has a general fund. They are currently undertaking building works on behalf of their school.
The SBF does not have enough money to complete the payment on the building works. It wishes to know if it is permitted to receive money from the general fund into the school building fund on commercial terms.
Both the general fund and building fund are separately recorded in the accounts of the entity with separate bank accounts and there is a specific sub-committee in place for the operation of the school building fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 30-25
Reasons for decision
For the purposes of item 2.1.10 of the table in section 30-25 of the ITAA 1997 a school building fund is solely for providing money for acquiring, constructing or maintaining the school or college buildings. It cannot be used for any other purpose.
Based upon the information provided, SBF will borrow money internally from the general fund of the entity at commercial terms to assist in financing building works on behalf of the entity's school.
We consider that the financing arrangements to fund the school building works will meet the requirements of section 30-25 of the ITAA 1997 provided that accounting records are kept to identify and control the transfer of funds between the accounts and repayments are limited to only the capital and interest accrued on the amount borrowed.
It is considered that the financing arrangements will yield a similar result to if the school building fund borrowed money from an external financier to assist in financing the building costs and repaid the loan made by the external financier on commercial terms once sufficient funds have been received in the SBF. This type of arrangement is covered in paragraph 80 of Taxation Ruling TR 2013/2 Income tax: school or college building funds where it states an allowable disbursement from a school building fund includes incidental costs of acquisition or construction, including costs relating to financing.