There are nearly 5,000 school building funds (SBF) on the books of the ATO and it is the second largest category of Deductible Gift Recipients (DGRs) after Public Benevolent Institutions. The ATO has had SBF on the compliance radar for a long time as it believes there are substantial risks to the revenue arising from ‘non-traditional’ schools claiming to have funds, faith based organisations co-locating with schools and sharing building use, funds for schools located overseas and deduction claims for non-gift payments to SBFs.

The ATO published a public ruling in 2013 about SBFs (TR 2013/2) and began an audit program focused on pre 2013 approved faith based SBFs (about 30% of all SBFs). It appears that the audit program led to the revocation of the endorsement of The Buddhist Society of Western Australia Inc (Society) as a deductible gift recipient for a SBF.

The Society was formed in 1973 and was incorporated under the Associations Incorporation Act 1895-1969 (WA). It administers the Bodhinyana Monks Monastery, the Dhammasara Nuns Monastery, the Jhana Grove Meditation Retreat Centre and the Dhammaloka Centre.

The ATO accepted that the Society was a DGR Status Holder in respect of the funds associated with the Bodhinyana Monastery, the Dhammasara Monastery and Jhana Grove on the basis that each of those places are schools. The ATO did not consider that the buildings at the Dhammaloka Buddhist Centre were used as a school or college in accordance with TR 2013/2.

The Society contended that the Dhammaloka Centre:

  • is the main teaching and administrative centre for the Society;
  • has its opening hours during 9:00 am to 5:00 pm each day; and
  • is comprised of the following permanent buildings: new Dhamma Hall, library, meeting room, monks’ quarters, offices, existing hall and toilets. The library is Western Australia’s largest Buddhist library. The administration and treasury functions of the Society take place in the offices, and they are consistent with the administration and treasury functions in many schools throughout Australia.

During the opening hours from 9:00 am to 5:00 pm, the Centre is open to the public to walk around the grounds and use the shrine room for meditation or contemplation. The library and the office at the Centre are only open at specified times throughout the week.

A senior monastic (male or female), with 2 Monks or 2 Nuns in attendance (if the Assistant Spiritual Director is leading the weekend), will attend the Dhammaloka Buddhist Centre from Friday afternoon to Sunday evening to give multiple teachings, counsel individuals on all manner of problems, teach Suttas and meditation, and hold many [Society] meetings.

For one hour a week the Dhammaloka Buddhist Centre is used for a Yoga class. Yoga has long been viewed as complementary to meditation.

In 2018 there were 120 children enrolled in the Children’s Dhamma School.

The ATO argued that the Dhammaloka Centre was not a building used as a school because:

  • it was not a ‘school’ within the ordinary usage of that word, as it was not a place with the primary function of providing regular, ongoing and systematic instruction in a course of non-recreational education; and
  • any school use was not substantial. Other uses of the building precluded the conclusion that it had the character of a school building.

The Society disagreed with the Commissioner’s statements of principle in TR2013/2 and his assessment of the relevant authorities, as well as the factual conclusions drawn from the information provided by the Society as to the nature (and extent) of the activities conducted at the Dhammaloka Centre.

The Court agreed with the Society and cast doubt on the ATO’s public ruling.

The Court disagreed that it was necessary to tick off indica of a school such as:

  • regular, ongoing and systematic instruction,
  • defined syllabus,
  • qualified instructors, and
  • portable qualifications.

Indica should not be understood as anything more than the application of the ordinary meaning test. 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’, particularly, a school is ‘an institution in which instruction of any kind is given’.

Further, a school may provide both recreational and non-vocational instruction. It is not a requirement of the law that the person receiving the education must receive a certificate or some other recognition for completion of a course.

Whether a building is ‘used, or to be used as a school’ cannot proceed simply by comparing the total number of hours that the building is put to both school and non-school activities and ascribing a percentage value (of total operational time) to the school activities. Regard must also be had to the overall purpose (or purposes) for which the building has been established and maintained, and the importance of each of the activities carried out to that purpose.

The matter was send back to the ATO for further consideration given the view of the Court on the law.

What will be the Response?

Bearing in the mind the number of SBFs and the implications for increased gift deductions, the Government and the ATO will being considering a number of options for a response.

The Government may move to legislatively restrict the definition of school to more traditional understandings, perhaps by linking the ability to have a SBF to existing main stream education registrations.

In any event, the ATO may decide to appeal the decision, again refuse the application on other grounds perhaps triggering another round of litigation and/or revise its ruling TR2013/2.

The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136

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