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Education Law Articles - Tax & Rate Exemptions

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ATO School Building Fund Ruling  

The Australian Tax Office (ATO) released its final ruling on school building funds on 13 February 2013.

It had released a draft ruling on this topic in December 2011. The draft ruling stated that a school building fund could receive tax deductible gifts if it was constructing or maintaining buildings which were used solely as a school - any other use of the building could only be minor or occasional. This “principal purpose test” was in contrast to the “more than 50% test” which was in place prior to the issue of the draft ruling. Under this rule, a fund could receive tax deductible gifts if it was constructing or maintaining buildings which were used as a school at least 50% of the time.

The ATO received many submissions from the public in response to its draft ruling. Its final ruling, named TR 2013/2, incorporates many of the issues and ideas which were raised in the public submissions, and departs from the “principal purpose test”.

The new test described in TR 2013/2 is as follows:

  1. there must be a school organisation;
  2. there must be a building used as a school;
  3. a building’s use as a school must be:
    a. substantial;
    b. non-school use must not be of a kind, frequency or relative magnitude as to
    preclude the characterisation as a school;
    c. non-school use must not materially limit, detract from or otherwise be incompatible
    with school use; and
    d. where a church carries on a school it is relevant the extent to which the school is
    able to control the use of the building.

The ATO also included transitional provisions which will apply to funds which existed prior to 13 February 2013.

if you would like more information on how this ruling will impact your organisation or fund.

Less red tape for DGR gift funds

Changes to the income tax legislation which took effect on 19 February 2007 remove the gift fund requirement for an entity that is a deductible fund, authority or institution. This means that schools with DGR building, library and scholarship funds can maintain a single gift fund rather than having three gift funds.

Fundraising events more attractive

Donors can already get a tax deduction for giving to a DGR fund in exchange for the right to participate in an event or for being the successful bidder at a fundraising auction. The law is expected to change shortly, backdated to 1 January 2007, improving the tax deductions available to such donors so that they will get a tax deduction if they give:

  • money over $150,
  • property bought during the 12 mths before making the gift and valued at > $150, or
  • property valued by the ATO at > $5,000.

The benefit received mustn’t be more than the lesser of 20% of the value of the gift or $150. E.g., if I pay $160 to the scholarship fund to attend a school dinner and the dinner’s market value is $30, I can claim a tax deduction of $130 ($160 - $30) because the dinner’s market value doesn’t exceed the lesser of $150 and 20% of $160 ($32).

ATO Guides

Versions of the ATO’s Income tax guide for non-profit organisations and GiftPack for deductible gift recipients & donors are available. You can view them on the ATO website at http://www.ato.gov.au/nonprofit.

The Income tax guide for non-profit organisations helps schools and foundations understand how to work out if they are exempt from income tax and the endorsement process for them and their income tax exempt funds. The new version incorporates changes relating to:

  • charitable funds – distribution test,
  • income tax exempt funds, and
  • copyright collecting societies.

The GiftPack for deductible gift recipients & donors helps schools and foundations understand what they need to do if they want to receive tax deductible gifts. The new version incorporates changes relating to:

  • new general categories of deductible gift recipients (DGRs),
  • new DGRs listed by name, and
  • testamentary gifts of property.

Income Tax & Prepaid School Fees

Albert Einstein once said: "The hardest thing to understand in the world is the income tax." A Draft Taxation Determination published by the ATO makes understanding income tax on prepaid school fees clearer. The determination states three principles:

  • a discount on prepaid school fees is not considered assessable income of the parent or guardian who prepaid the school fees;
  • if the school holds the prepaid school fees on deposit or applies the prepaid school fees to its building fund, the prepaid school fees are not considered a gift to the fund and are not an allowable deduction for income tax purposes; and
  • if the school is exempt from income tax because it is a charitable institution, the tax exempt status of the school is not affected if the school allows the prepayment of school fees or offers a discount on prepaid school fees. 

Fundraising Dinners 

A new fact sheet issued by the Australian Taxation Office confirms that the price paid to attend a fundraising dinner conducted by a school or its foundation is not a tax deductible gift. It doesn't matter whether or not the payment exceeds the market value of the meal. A material benefit has been received in exchange for the price of the ticket and so no part of the payment can be treated as a gift. A notional splitting of the price into a dinner component and a gift component is not acceptable where the full fee must be paid to attend the function. The payment does not have the characteristics of a gift where the purchaser is obliged to pay the full fee to attend. For additional payments to be tax deductible gifts, they must be truly voluntary and involve no material benefit passing to the donor. 

Sun Protection Items Now an Income Tax Deduction

A recent Federal Court decision has declared that sun protection items such as sunscreen lotion, sunhats and sunglasses are deductible as an expense for income tax purposes for teachers. The case was brought on the behalf of a number of people including two teachers: Ms Boydell, a TAFE teacher of maritime studies who conducts courses that require her to spend time working on boats and around swimming pools, and Ms Hampton, a secondary school physical education teacher. Ms Hampton, along with her duties as a PE teacher, was required to attend school swimming carnivals and a one week snow trip to Perisher.

When working outside both teachers used sunglasses, a sunhat and sunscreen lotion to prevent sun burn and heat exhaustion. The use of these sun protection items also increased the productivity of both teachers, particularly Ms Hampton who claimed she wouldn't be able to see all the balls or other items thrown by the students or be able to concentrate as well as she could otherwise without the use of such items.

The Federal Court found that the nature of their work required the teachers to be outdoors and exposed to sunlight for extended periods. This established the relevant connection required between the expenditure and the income producing activity. The connection is strengthened by the fact that the use of sun protection items increased the productivity of both teachers. The Court concluded that sun protection items are a deductible expense for income tax purposes in proportion with their use at work. As a result, the Commissioner is allowing deductions for sun protection items for previous years in the Income Tax Return.

Have you a Tax and/or Rate Exemption Question?
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