Jan 6, 2025 Matthew Hung

New developments for School Building Funds

With ATO approval, gifts to endorsed school building funds can be tax-deductible.  This can prove very valuable for organisations that would not normally be able to offer tax deductibility, such as churches.

In 2012, the ATO Commissioner issued a tax ruling about school building funds which tightened the definition of a ‘school.’  The Commissioner’s view was that the education provided by the school must be more formal in nature, involving curriculum, assessment and resulting in certificates or other qualifications.  This usually meant that a church Sunday School was not able to access tax deductibility, although this had previously been acceptable.

In keeping with the 2012 ruling, the ATO revoked the endorsement of the Buddhist Society of WA’s school building fund.   The society challenged this view and ultimately the courts determined that the Commissioner had erred in his definition of a ‘school,’ declaring that “while an essential element of the school is to provide education, the education provided does not require formal examination or testing, or the granting of formal awards of certificates of completion”..

The relevant tax ruling (TR 2013/2) has now been updated to reflect the impact of this case.  In particular, the Commissioner now recognises that the education provided by a ‘school’ does not have to be ‘vocational as opposed to recreational.’  He will consider where “instruction is being given in an activity or area of knowledge”.  He will also consider the overall purpose for which a building is ‘established and maintained’ in determining whether the building is used by a ‘school’ and the importance of the activities that are carried out.  This again places a focus on the amount of time taken or the number of people involved in school and non-school activities, although these may be an indication of the building use.

If you are intending to build, or are already using, a building for the purpose of education.  You may wish to consider whether you are eligible for a tax deductible school building fund.

A school building fund needs:

• to be a public fund;
• to be established solely to provide money for acquiring, constructing or maintaining a building used, or to be used, as a school, as clearly articulated in the fund’s governing documents;
• to support a school building which is used by a government, public authority or non-profit society or association;
• to only make payments that are for the acquisition, construction or maintenance or acceptable administration costs of the fund; and
• be operated by a registered ACNC charity or an Australian government agency.

If your organisation has previously been rejected for a School Building Fund, you may wish to consider whether these changes could impact the outcome of an application.  The ATO is accepting requests for a review of an application via email to ATOEndorsements@ato.gov.au