Budget 2013 - Philanthropy

Our budget coverage continues this week with a focus on philanthropy.

In 2012, the Department of Finance launched a consultation process on proposed changes to the system of tax relief available on donations to charities and other approved bodies.  As a result of that process, the Minister has decided that charitable donations will be subject to a “new, simplified tax relief regime”.

The old regime distinguished between PAYE donors and self-assessed donors. The tax relief on donations made by PAYE individuals to a charity could be claimed by the charity providing that the donors and the charity complete various forms each year. 

If, for example, a PAYE donor made a gift of €250 to their children’s school and completed the CHY2 form, the school could reclaim €173, being taxed at the marginal rate, from Revenue.  On the other hand, if the same gift was made by a self-assessed taxpayer, the tax relief went to the taxpayer and not the school.

This distinction was abolished for all donations made after 1^st January 2013. Henceforth, tax relief on all donations, whether by PAYE or self-assessed donors, is available for reclaim by the charity only.

Unfortunately, charities will not be able to claim relief at 41%, but at a “blended” rate of 31%.  So, in the above basic example, the amount claimable by the charity is €112, to give a total gift of €362, compared to the old €423.

Perhaps the most important point, though, is that the system for reclaiming the relief has being considerably simplified to reduce the administrative burden on charities. For example, charities are now able to use “enduring” declarations from donors that could last up to five years.  This is very much to be welcomed, but it is incumbent on the charitable sector to hammer home the need for smaller charities in particular to make the effort to reclaim the relief as significant sums are currently not being claimed and charities are losing out.

Interestingly, this section of the Minister’s speech was entitled “Philanthropy”, which is perhaps a recognition of its increasing importance in an era when government spending is being severely cut back and more reliance than ever is being placed on private giving.

Of course, given the Budget, the resources available for private giving from Irish residents has dwindled. This was perhaps obliquely recognised by the Minister in his reference to philanthropists outside Ireland who, he said, “would be interested in making significant donations to initiatives that would aid Ireland’s economic recovery, if our tax system were changed to ensure suitable recognition of such donations”.  He has referred this issue to the Joint Oireachtas Committee on Finance and Public Expenditure Reform for examination and to revert with its recommendations.  While there is no indication as yet what proposals may result, it does seem a shame that consideration is being given to recognising gifts made by people from abroad at the same time as such recognition is being withdrawn from self-assessed taxpayers at home.

Jeremy Mitchell

Director

ITC Consulting