The Federal Court has set aside an Australian Taxation Office (ATO) decision that revoked the deductible gift recipient endorsement of a school building fund operated by a Buddhist society (The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136) (Buddhist Society (No 2)). This decision may assist non-traditional schools and faith based organisations co-locating with schools that are seeking to fund (or partially fund) the acquisition, construction and maintenance of buildings with tax deductible gifts.
The Commissioner’s current position on school building funds is set out in Taxation Ruling 2013/2 (TR 2013/2). In Buddhist Society (No 2) the Federal Court found that TR 2013/2 had inappropriately elevated factors referred to in case law to the level of “prerequisites or inherent requirements” for school building funds and that a more holistic approach was required. The Court preferred the broad ‘ordinary meaning’ of the term ‘school’ set out in dictionary definitions and in case law and cited with approval Barwick CJ’s statement that:
“…a ‘school’ is ‘a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of activity”[1] (emphasis added).
Importantly, in Buddhist Society (No 2) the Court found that:
- The adoption of ‘factors’ including a set curriculum, instruction by qualified persons, enrolment, assessment and provision of a recognised qualification in TR 2013/2 as prerequisites for a school was ‘misplaced’;
- A school could provide both recreational and non-vocational instruction;
- A school is not required to provide certificates or other recognition or to conduct formal examinations or tests; and
- Whether a building is to be ‘used’ as a school should not be determined simply by comparing the proportion of time for which a building is used for ‘school’ and ‘non-school’ activities. Regard must also be had to the purpose for which a building is established and the importance of the activities to that purpose.
While these factors might be considered when considering whether a set of factual circumstances met the ordinary meaning of ‘school’, they are not requirements in all cases.
The matter was referred back to the Commissioner for further consideration and determination.
TR 2013/2 is applied by the ATO when assessing new applications for the endorsement of school building funds. It has also been used in recent years as the basis for an audit of pre 2013 approved faith based school building funds. Buddhist Society (No 2) suggests that new applicants and the operators of existing school building funds may have grounds to argue for a broader, more holistic application of the ordinary meaning of school rather than the strict application of the indicia set out in TR 2013/2. This may improve the ability of non-traditional schools and faith based organisations co-locating with schools to fund (or partially fund) the acquisition, construction and maintenance of buildings with tax deductible gifts.
The Commissioner may yet appeal the Federal Court decision. If the decision is not appealed, TR 2013/2 will likely require review to reflect the decision.
How we can help
Moores regularly supports clients to establish and ensure the ongoing compliance of school building funds (as well as other deductible gift recipient funds and entities). Please contact us if we can assist you further.
[1] Cromer Golf Club Ltd v Downs (1973) 47 ALJR 219