Resurrecting the School Building Fund for Religious Institutions?

Historically, religious institutions like churches were able to establish a separate “school building fund” which was controlled by the religious institution for the purposes of acquiring, constructing and maintaining a building which would be used as a school by the institution.

The fund was able to obtain Deductible Gift Recipient (DGR) status. The advantage of a DGR fund is that it encourages giving for (often) large-scale building projects as the gifts would be tax deductible in the hands of the donors.

About 10 years ago, this came to a grinding halt when the Commissioner of Taxation issued his Tax Ruling TR 2013/2 which in effect required that, for there to be a “school”, there must be regular, ongoing and systematic instruction in the course of non-recreational education.  The Ruling went on to further state that this was to be indicated by set curriculum, suitably qualified instructors, the enrolment of students, forms of assessment and the creation of a qualification or status which was recognised outside of the organisation.

Many religious institutions provide education as part of their religious activities, for example, the teaching and/or studying of scriptures, Sunday school classes and the like. However, in many cases, these courses never rose to the level of conferring some sort of qualification or status recognised outside of the organisation.

The Commissioner’s view was put to the test in the case of Buddhist Society of Western Australia Inc. v Commissioner of Taxation (No 2) [2021] FCA 1363.

In that case:

• the Buddhist Society of WA was endorsed as a DGR for the operation of the Dhammaloka Buddhist Centre Building Fund; and
• the Commissioner revoked the Society’s DGR endorsement on the basis that the relevant buildings were not used as a “school”.

The Society asserted that the following activities at the Centre comprised the activities of a school namely:

• providing an open library;
• chanting and guided meditation classes;
• Dhamma talks by a senior Monk or guest speaker;
• Kalyana Mitta discussions; and
• children’s Dhamma classes, Sutta classes and Buddhist study groups.

The Commissioner asserted that there was no specific curriculum; no assessment process that led to a qualification recognised outside of the organisation; and that attendance at the Centre was too casual.  In other words, the activities were “recreational”.

The Federal Court disagreed with the Commissioner and found after, reviewing the relevant case law, that:

• none of the earlier cases imposed any additional requirements that have since appeared in the Commissioner’s Ruling;
• the ordinary understanding of the word “school” ought to be adopted which did not necessarily require “regular, ongoing and systematic instruction”;
• a defined syllabus, qualified instructors and portable qualifications are simply indicia that there was a “school” although these were not separate elements that had to be individually satisfied; and
• a “school” may provide recreational and non-recreational instruction and the instruction did not need to be “regular, ongoing and systematic”.

The Court also held that the purpose for which the building was established and maintained, and the activities undertaken to carry out that purpose, were more important than comparing the number of school-use hours to the number of non-school-use hours.

The Commissioner remained largely silent after the Buddhist Society case which meant that the state of the law (or rather the state of the Commissioner’s application of the law) remained in limbo.

In May 2023, the Commissioner issued a Decision Impact Statement in which the Commissioner conceded that the views expressed in TR 2013/2 did not reflect the ordinary meaning of the term “school” and that the ordinary meaning did not require the course of education to be vocational as opposed to recreational.  The focus, the Commissioner said, will be on the activities carried out to determine if instruction is being given in an activity or area of knowledge.

The Commissioner sought comments on the Decision Impact Statement which were due by 16 June 2023.

Despite the fact that TR 2013/2 has not (yet) been withdrawn, it would appear that the door has now been thrown open for religious institutions to again establish DGR funds for the purposes of acquiring, constructing and maintaining buildings.

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