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

School building funds are a type of deductible gift recipient (DGR) under the Income Tax Assessment Act 1997 (Cth) (ITAA 97).

These funds are often maintained by faith-based institutions which operate schools or carry out educational activities as a part of their ministry.  There are also an array of non-traditional schools and educational institutions which operate these funds. 

The current ruling, TR 2013/02 is the current Taxation Ruling which applies to School or College Building Funds (school building funds).  Many school building funds endorsed under the previous taxation ruling ceased to remain entitled to their endorsement when the current ruling was introduced.

Since that time, school building funds associated with religious or faith-based schools, as well as other non-traditional schools, have drawn the scrutiny of the ATO.    Many schools which co-locate with faith-based institutions, or schools which focus on religious instruction, have been subject to ATO reviews, and often experience greater difficulty in achieving endorsement by the ATO with respect to new funds.

 The Buddhist Society of Western Australia Inc v Commissioner of Taxation involved an application by The Buddhist Society of Western Australia Inc (the Applicant) to the Federal Court of Australia  following the revocation of the DGR endorsement attaching to a school building fund which it operated.

 On 4 November the Federal Court of Australia made orders that the Commissioner of Taxation’s decision to revoke the Deductible Gift Recipient be set aside.   The matter has now been referred back to the ATO for further consideration and determination.

 The ATO originally made its decision to revoke the endorsement of the school building fund as it was  determined that the buildings used by the Applicant for its “Dhammaloka Buddhist Centre” were not used by a school or college, within the meaning of Item 2.1.10 of the table in section 30-25(1) of the ITAA 97 and construed in accordance with TR 2013/02.

 The Applicant was established in 1973 and is an incorporated association registered in Western Australia.  It operates from four buildings comprised of two monasteries, a Meditation Retreat Centre, and the Dhammaloka Centre.  The DGR school building fund operated by the Applicant was reviewed by the ATO in November 2017 in relation to the application of funds for across all four buildings.  The Commissioner ultimately determined that the monasteries and the Meditation Retreat Centre were all school buildings as that term is defined by TR 2013/02, however found that the Dhammaloka Centre was not a school building. 

 The Applicant made an appeal to the court against the Objection Decision of the ATO under Part IVC of the Taxation Administration Act 1953 (Cth), and in the alternative made application for administrative review of the ATO’s Objection Decision.

 The Appeal

 In relation to the appeal , the Applicant argued that the ATO failed to apply the correct legal principles concerning the definition of a ‘school or college’ under Item 2.1.10 of the table in section 30-23(1) of the ITAA 97.   The Application bore the burden of proof in establishing that the revocation of the fund’s endorsement should not have been made or should have been made differently.  The Applicant argued that the Commissioner was bound by the facts and circumstances established by the information and documents which were obtained during the course of the ATO’s review, and that these were established as facts on the basis that the Commissioner did not notify the Applicant that any of these facts were rejected or disputed.   The Commissioner argued, successfully, that the administrative process undertaken by the Commissioner in collecting information and documents in order to make a determination did not amount to the Commissioner accepting that information as facts, and that the Applicant had failed to discharge its evidentiary burden.   The Appeal was ultimately dismissed.

 The Review

With the Applicant not required to satisfy the same evidentiary burden associated with the appeal, the court was able to consider whether the Commissioner’s Objection Decision involved an improper exercise of power or involved an error of law (section 5(1)(e), construed with section 5(2) of the Administrative Decisions (Judicial Review) Act 1977 (Cth).   The crux of the issue to be determined was whether the Commissioner made an error of law on the material provided to him as to the definition of school. 

 The Commissioner had determined, in its Objection Decision, that the Dhammaloka Centre was not a building used as a school because “it was not a school within the ordinary usage of the 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”[1]

 It is interesting to note of the factors identified by the Commissioner in his Objection Decision when determining whether there was a school and a school building.  These are summarised partially below:

 The Children’s Dhamma class (which ran from 9:00am – 11:00am on a Sunday morning) was the only possible activity operated from the Dhammaloka Centre which could be classified as consistent with a “school or college” according to the factors outlined in the Australian Airlines[2]

  •  Apart from the Dhamma class, the activities involved no specific curriculum or syllabus, and there was no form of assessment which leads to a qualification that is transportable and recognised outside of the organisation;
  • The activities conducted in the centre which involved chanting, guided meditation, discussion, YouTube and yoga did not give the Dhammaloka Centre the appearance of a school as articulated by the Australian Airlines decision and TR 2013/2.
  • The activities can be likened to the examples given at paragraph 145 of TR 2013/2 where adult religious education, a Bible study centre, a theological college and a yoga school are described. In these examples, these activities may be a school or college for the purposes of 2.1.10 provided that it is established with the purpose of providing regular, ongoing and systematic instruction in a course of training. 
  • The Commissioner concluded that it was not apparent that the Dhammaloka Centre provided regular, ongoing and systematic instruction in a course of training as required.
  • Further the Commissioner noted that TR2013/2 states at paragraph 31 that in order for a building to be a school building, its use must be substantial. The Commissioner concluded that less than 5% of the total hours of operation of the Dhammaloka Centre were dedicated to activities resembling teaching and instructing. 
  • There was no formalised curriculum apart from the Dhamma class;
  • Volunteers and others who gave advice at the centre outside of the formal instruction provided at the Dhamma class, were providing neither instruction nor training.
  • Only the Dhamma class had a formal enrolment process;
  • No formal assessment was given or qualification was gained by attending monastic teachings or otherwise visiting the Dhammaloka Centre[3].

The Commissioner argued that the teaching at the Dhammaloka Centre was limited and informal, and was contrasted to the extensive training provided at the monasteries, which was intended to prepare candidates for ordination and to qualify as a Minister of Religion.   The Dhammaloka Centre was open to the public to attend informally, often for lunch visits, and the Commissioner seems to have taken the view that the subjects instructed upon lacked the rigor and formality to qualify as a course of study. 

The Applicant’s rebuttal arguments included the following points:

  • It was not part of the Buddhist tradition to provide written qualifications or certificates;
  • The case law (and in particular Cromer, Leeuwin and Australian Airlines) was inconsistent with various parts of the TR2013/2 (and in particular paragraphs 14, 18, 19 and 241 of TR 2013/2).
  • The relevant caselaw demonstrates that a recreational course of instruction can be part of “school” activities and there need not be a distinction made between vocational and recreational courses.
  • The case law differs from the requirement in TR 2013/2 that a school provide a regular, ongoing and systematic course of instruction, and that the ordinary meaning of school is that set down in Cromer Golf[4].

McKerracher J at paragraph 94 -96 of his Judgement made some important observations from the survey of the relevant authorities. In summary:

  • The cases prefer an ordinary usage of the term ‘school’. They have avoided any gloss on the dictionary definition and avoided superimposing additional requirements such as appear in TR 2013/2.
  • A ‘school’ is “an institution in which instruction of any kind is given”.
  • None of the cases employ the phrase “regular, ongoing and systematic instruction” in considering whether an entity was operating a ‘school.’  At paragraph 96 it was stated that “…those words simply do not form part of the ‘ordinary meaning’ of ‘school’ and are therefore not a necessary quality that every school must possess.

Moreover,  while the factors articulated in TR2013/2 or identified in Australian Airlines are idicia, “they should not be understood as anything more than the application of the ordinary meaning test to the facts of a particular case”.   That is, they should not be taken to form part of the test themselves. 

Further the court stated at paragraph 99 that the ordinary meaning of school does not require the course of education to be vocational as opposed to recreational. 

Accordingly, the court determined that the Commissioner’s view that the Dhammaloka Centre does not provide regular, ongoing and systematic instruction “had proceeded on a misunderstanding of the law”.  Further, McKerracher J considered that, in his view, consideration of whether a building was ‘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 to the school activities.  Regard must also be had to the overall purposes or purposes for which the building has been established, maintained, and the importance of each of the activities carried out to that purpose[5]

Accordingly, the Application successfully demonstrated the legal error in the Commissioner’s Objective Decision, and the matter was referred back to the Commissioner for further consideration and determination. 

Reflections

This decision clarifies that the test for determining whether there is a ‘school’,  and whether there is a ‘school building’ for the purposes of Item 2.1.10 of the table in section 30-25(1) of the ITAA 97, is by way of an application of the ordinary meaning test, and that the indicia of a school or school building set out in TR 2013/2 and Australian Airlines do not form part of this test.    

It also highlights the difficulty faced by non-traditional schools in meeting the evidentiary standard which can be required by the Commissioner both upon registration and on review.

Further, it now likely that, in the absence of definitive indicia, non-traditional schools will find themselves in a place of greater uncertainty when making decisions about their school building fund’s entitlement to its DGR endorsement. 

 By Kristel Winkler,  Director

Kristel Winkler and the team at Donovan Winkler regularly assist schools, educational institutions, childcare centres and faith based educational institutions.   Contact us to learn more.

kristel@donovanwinkler.com.au

(07) 3188 5124

www.donovanwinkler.com.au

 

[1] The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136 at [53]

[2] Commissioner of Taxation v Australian Airlines Ltd [1996] FCA 935;

[3] The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136 at [54]-[56]

[4] Cromer Gulf Club Ltd v Downs [1971] 1 NSWLR 963; Cromer Gulf Club Ltd v Downs (1973) 47 ALJR 219

[5] The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 136 at [102]-[104]

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