On 5 December 2011 the ATO released draft taxation ruling TR 2011/D5 – Income Tax: School or College Building Fund, inviting comments from the public.  The 2011 draft is now finalised with the release of  Taxation Ruling TR 2013/2 Income tax: school or college building funds (“TR 2013/2”) on 13 February 2013.  The new ruling TR 2013/2 now replaces the former Taxation Ruling TR 96/8 in respect of school building funds.

The new TR 2013/2 explains the Commissioner’s views on the requirements for those funds applying to be a ‘school or college building fund’ within the scope of Item 2.1.10 of the of the table in sub section 30-25(1) of the Income Tax Assessment Act 1997.


What is a School Building Fund?
A school building fund is a deductible gift recipient category under Item 2.1.10 of the table in sub section 30-25(1) of the Income Tax Assessment Act 1997.

It is a fund that has the following characteristics:

  • It is a public fund established and maintained solely for the purpose of providing money for the acquisition, construction or maintenance of a building used as a school;
  • The building is used, or is to be used as a school by a government, a public authority or a non-profit society or association; and
  • The fund is registered with the Australian Charities and Not-for-Profits Commission (“ACNC“).


What are the Key Issues under the new TR 2013/2?
TR 2013/2 covers:

  • How Item 2.1.10 applies to a fund that purports to be a ‘School Building Fund’; and
  • The way in which section 30-15 and Item 2.1.10 of the table in subsection 30-25(1) of the Income Tax Assessment Act 1997 apply to persons who make a gift to a ‘School Building Fund’.


TR 2013/2 considers the key requirements of Item 2.1.10, which are:

1. There Must Be a Building that is Used as a School
The school must operate from a building that is a permanent structure, with a roof, walls and appropriate flooring.

The building must be used as a school.  Under TR 2013/2, a school is defined as an organisation whose primary function is the provision of education on a regular and systematic basis.  Indicators that an organisation operates a school include:

  • The organisation having a set curriculum that is presented/taught by suitably qualified persons;
  • A high number of student enrolments;
  • Some form of assessment and correction; and
  • The organisation having a qualification or status which is recognised outside of the school.

2. The Building Must be Used as a School by a Qualifying Body
The building must be used by a government body, a public authority, a society or association which operates on a not-for-profit basis.  The qualifying body must operate the school, must have control over the use of the building and use the building as a place for education.  Whether a qualifying body operates as a school or not should be evident in its constitution or its governing rules.

3. There Must be Acquisition, Construction or Maintenance
In order to satisfy Item 2.1.10 the qualifying body must acquire, construct or maintain a building or have an objective intention to do so.  The acquisition of a building is satisfied if the qualifying body owns a building or leases it.  Whether the building is owned or leased, the interest as owner or lessee must be sufficient to enable the qualifying body to control the use of the building as a school.  Maintenance of the building requires keeping the building in a proper or good condition.

4. The fund must be established and maintained for the requisite purpose
This requirement is referred to as the ‘sole purpose test’ and requires a ‘School Building Fund’ to be established and maintained solely to provide money for the acquisition, construction or maintenance of a building used as a school by a qualifying body.


What Can a School Building Fund Pay For?
Funds from a School Building Fund can be used to pay for:

  • Acquiring or constructing a school building:  These costs typically include the purchase price of the building, incidental costs such as planning, negotiating, financing and obtaining approval for the purchase or construction of the building, rent payments in respect of a lease of a school building.
  • Maintaining a school building:  Maintenance costs include those costs that solely relate to the school building such as the cost of repairs, painting, plumbing, cleaning and insurance.
  • Investing or lending money in order to provide money for the acquisition, construction or maintenance of a school building:  Investments (including a loan) in order to facilitate the provision of money to purchase, construct or maintain a school building.
  • Administration of the fund:  The costs of establishing or promoting the fund, bank fees and charges accounting and auditing costs and reasonable remuneration for the fund’s employees.


Tax Deductible Donations to a School Building Fund
Donations to a School Building Fund is only tax deductible if the donor makes a payment or provides a gift to the fund direct.  If a donation is made pursuant to a fundraising appeal and the fundraising appeal is partly for a school building fund and partly for other purposes, the donor must, in order to obtain a tax deduction, at the time of making the donation, specify which part of the donation is to be allocated to the school building fund.


Transitional Arrangements: Date of Effect
Prior to TR 2013/2, the relevant ruling that applied to ‘School Building Funds’ was TR 96/8. Under that ruling,  it was possible to use a building for multiple purposes and still come within the requirements of a school building fund if you could satisfy the more than 50% rule; that is, if you could demonstrate that you used the building as a school or college more than 50% of the time.

This is no longer the case.  The new ruling requires a building whose use for school purposes is so significant that the building can itself be described as ‘a school’ (as a matter of ordinary language).  Its use for school purposes must be substantial.

Existing School Building Funds and donors to a School Building Fund are permitted to apply the old 50% rule for the purposes of arrangements for the acquisition or construction of a building which the fund became committed to before the new ruling came into effect on 13 February 2013.  To determine whether the commitment to an arrangement was made before the new ruling came into effect, the fund in question must:

  • Have accepted significant donations or contributions relating to the arrangement; or
  • Incurred or became legally required to incur, significant financial costs for the purposes of entering into or carrying out the arrangement.


For further information, please contact the author.

This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.