Update on School Building Funds for Religious Institutions

On 6 October 2023, we published an article on the prospects of religious institutions establishing “school building funds” – and obtaining Deductible Gift Recipient (“DGR”) status for those funds – in the wake of the Federal Court’s decision in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 1363.

For many years, the Commissioner’s narrow view of what constituted a “school” was set out in Taxation Ruling TR2013/2.

We pointed out that, following the Buddhist Society case, the Commissioner’s view was no longer consistent with case law.

On 4 October 2024, the ATO quietly published an amended version of TR 2013/2 which sets out the Commissioner’s current position.

Consistent with the judgment in the Buddhist Society case, the Commissioner has abandoned his requirement that a “school” must provide “regular, ongoing and systematic instruction in a course of non-recreational activities”.  Instead, the wider definition of Barwick CJ in Cromer Golf Ltd v Downs (1973) 47 ALJR 219 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” is used.

As well as widening the definition of a “school” (to places of assembly with non-systematic instruction of, say, recreational activities), the question of whether a building is “used as a school building” has relaxed somewhat. The prior version of the Ruling stated that the non-school use of the building must not materially limit, detract from or otherwise be incompatible with the provision of the school use.  However, the amended Ruling states that regard must be had to various factors, including the purpose of the building, and that a mere mathematical examination of school use versus non-school use is not determinative in itself.

Much of the Ruling has remained – for example, that the school must have a “distinct identity” from the underlying religious institution.

Disappointingly, the examples cited in the Ruling do not address the change in approach to the broad concept of “school” under the case law.

Example 2 in the Ruling states that an Adult Bible Education Program run by Family Church that is open to the public; where participants are not required to enrol; and where the courses do not lead to an externally recognised qualification; would not constitute a “school”.

The prior version of the Ruling had stated that this was not a school because:

• it did not have a distinct identity; and
• the absence of enrolment and assessment meant that the instruction was not sufficiently systematic.

In the Amended Ruling, it is only the fact that the Program did not have a sufficiently distinct identity from that of Family Church that was fatal. Whether the activities would otherwise constitute a “school” is not addressed.

Example 5 of the Amended Ruling, which refers to a Local Church conducting sermons, youth groups, Bible studies and pre-marital courses, would seem analogous to the activities in the Buddhist Society case. Yet, the Amended Ruling states that these activities would not constitute a “school” where, specifically, they are not performed by a distinct entity. Again, the ATO has not addressed whether those activities in themselves (all things being equal) would now constitute a “school” by applying the law from Buddhist Society.

By way of contrast, Example 3 in the Amended Ruling refers to Good Neighbour Church conducting a number of Sunday school groups under the auspices of a committee of three persons (including the pastor) and where:

• teachers are required have appropriate qualifications;
• a national curriculum is taught;
• children must be enrolled;
• children are assessed and progress through levels of instruction;
• separate accounts and records are kept.

The Ruling states that the Sunday school groups comprise a “school”.

The various Examples, unfortunately, do not discuss activities which are less formal or less structured but which may nonetheless constitute a “school” as was the case in Buddhist Society.

On our analysis, a religious institution such as a church may establish a School Building Fund and obtain DGR status in relation to educational courses which are less formal, but to be on the safe side of the Amended Ruling:

• the religious institution should establish an educational program which is run by a distinct committee and having its own organisational identity;
• the program would be assisted if it had a clear curriculum and record-keeping; and
• the design of the building may be critical, i.e. that it be referable to a school-use rather than a broader use such as an auditorium for congregational worship.

If you need assistance, please contact Lester Ong at long@munrodoig.com.au or Leonie Carruthers at lcarruthers@munrodoig.com.au.