Forum on Philanthropy & Fundraising
By Andrew Hetherington, Project Director, Business to Arts
Over recent years there has been much discussion about complexities and inefficiencies in the Irish fiscal infrastructure related to giving and philanthropy, particularly concerned with Section 848A of the Taxes Consolidation Act. The Forum on Philanthropy & Fundraising, which was reconvened in 2011 by the Department of Environment, Community and Local Government, was asked to make a number of proposals aimed at increasing the number and level of donations to good causes in Ireland.
As with all organisations that avail of the scheme of tax relief for eligible charities and other approved bodies in respect of donations under Section 848A, the proposals made by the Forum in 2012 will have an impact on cultural organisations. There is also a proposal which concerns Section 1003 of the Taxes Consolidation Act 1997 which provides for a credit against tax liability where a taxpayer donates certain heritage items to the National Collections.
The Report of Forum notes that, “improving the fiscal environment and giving infrastructure is entirely in the control of Government. Responsibility for the delivery of these proposals is spread between the Department of Finance (Tax), Justice (Charities Regulation) and Environment (Infrastructure).” ICTR (a membership organisation of charities, focused on creating a policy climate in which philanthropy can thrive) are to provide the secretariat to support the work of implementing these proposals.
The Full Report of the Forum on Philanthropy & Fundraising can be downloaded here. Business to Arts is a member of the Forum on Philanthropy and Fundraising and ICTR.
Proposal No.1: Tax Reform: Simplification of Taxation Consolidation Act, Section 848A
- PAYE and Self-Assessed Donors should be treated the same i.e. with the tax relief in both cases going to the charity.This has already been recommended by the Commission on Taxation on the basis of ensuring equity. The one exception we propose is that the relief should be given to a donor who contributes to specific structured giving vehicles (cf. Recommendation 3).
- There should be a single composite rate of relief, e.g. 33%.
- The lower threshold for relief should be adjusted downward (currently it is €250).
A Department of Finance led working group with ICTR and the Revenue Commissioners is investigating the impact of the proposals for simplifying the operation of the tax relief scheme on donations using a statistical analysis model developed with PWC. This will be used to refine and cost detailed proposals.
The administrative burden on donors, charities and the state from the operation of the current scheme is considerable, and is widely considered by charities to represent a barrier to tax-efficient giving. The scheme is also inequitable as there is a different treatment of self-assessed and PAYE donors. These proposals would treat all donors equitably.
Reduced administration and hence costs for both charities and the state. Enables a risk-based approach to assessing tax reclaims. Greater convenience for donors, charities and Government and helps to address data protection issues re charities holding PPSN numbers.
This proposal is intended to be cost neutral.
Proposal No. 2: Tax Reform: Decoupling – (TCA, Section 848A)
- Decouple the S.848 (A) tax relief on donations to charities and approved bodies from the S.485 (C) restriction on the use of tax reliefs by higher earners and replace it with a €1m cap per annum on the donations scheme itself.
- Where donors wish to make more substantial donations to support a particular project or initiative, apply a ‘roll-over’ of tax relief for up to 5 years.
- In the case of donations in excess of €5m that may not be appropriately addressed for tax purposes under these proposals, provide by legislation for a separate approvals process, on a case-by-case basis to encourage such philanthropic donations.
The current scheme is unnecessarily complicated. This proposal recognises the key difference between tax relief to private philanthropy to promote the public good and private investment to promote private gain. Tax reliefs for charity / philanthropy will not result unless a charitable /philanthropic donation has been made. There is no circumstance, therefore, where a financial gain may accrue as a result of the donation. In fact the legislation specifically states that there can be no benefit to the donor in the case of the S.848 (A) tax relief scheme on donations.
This measure clearly separates philanthropic from business decisions; we believe it will encourage more giving.
Further analysis of Department of Finance information on the use of restrictions by higher earners needs to be undertaken to determine a full estimate of cost.
Proposal No. 3: Tax Reform: Encouraging Major Gift Philanthropy
- In the specific cases of donations into designated vehicles (grant making foundations, trusts, donor advised funds and charities) that opt into the scheme the tax relief at the marginal rate should go directly to the donor. Charities that opt in to the Major Gift Scheme will be precluded from operating under the standard, simplified S848A scheme.
- There will be a lower limit of five thousand euro for donations and an upper limit of one million.
- This initiative should be reviewed after four years to assess its effectiveness.
The Forum recognises that tax simplification will benefit the majority of charities, however there is a danger that taking the taxable benefit from the donor may reduce donations and negatively impact on grant-making trusts and foundations and donor advised funds which rely on larger donations. This potentially could damage the growth of philanthropy and impact the successful delivery of the Forum’s strategy. There are relatively few grant-making trusts and foundations in Ireland compared to the rest of Europe and the US, and the two largest ones plan to spend down within less than five years (Atlantic Philanthropies and One Foundation). There is therefore an urgent need to provide specific incentives to support already-existing philanthropies and encourage the growth of new ones.
This measure will help to create a culture of giving larger donations and encourages the setting up and/or further development of structured giving vehicles that will invest in public goods and grow philanthropy in Ireland.
The measure will only cost if it is successful in attracting increased additional investment.
Proposal No. 4: Tax Reform: Donation of heritage items to the National Collections [Section 1003 of the Taxes Consolidation Act 1997 ]
The S.1003 tax relief in respect of the donation of art works/heritage items to approved cultural institutions should be restored to 100% (it was reduced to 80% in 2008).
- The S.1003 tax relief in respect of the donation of art works/heritage items to approved cultural institutions should be restored to 100% (it was reduced to 80% in 2008)
- The maximum cost to the Exchequer should still be capped at €6m and all the other conditions should still apply.
The reduction to 80% of the market value of the donation has proven a major disincentive for donors. In 2007 and 2008, donations under the scheme amounted to €5,273,320 and €5,348,969 respectively. By contrast, there were no donations made in 2009, a donation worth €190,000 was made in 2010 and so far in 2011, there have been no applications made under the scheme.
Increased investment in the acquisition of items of national cultural importance.
No additional costs. The scheme is already capped at €6m per annum.