Knowledge Centre Blog

Consultation on Implementation of Charities Act (2009)

January 24, 2013 12:40 pm

A small number of representative bodies (including Business to Arts) met with the Department of Justice & Equality and ICTR on 23 January 2013 for a briefing to discuss the announced ‘Consultation on Implementation of the Charities Act’.

An 8 week consultation period (closing on 20 March) for submissions from interested parties was announced on the same day.  The consultation document is available at http://www.justice.ie/en/JELR/CharitiesConsult?OpenForm  and those responding are encouraged to make their submissions online.   Submissions will be made public after the consultation period has closed. A summary and response will be compiled and published by the Department.

Once Business to Arts have assessed the document and consulted with the Development Managers’ Forum, we will seek views from our affiliated arts organisations (that are registered charities or are interested in achieving charitable status) on its content.

Both ICTR (in association with representative bodies) and the Department of Justice will host an information briefing on the Implementation of the Charities Act in February 2013.

Sheila Norden of ICTR has provided a brief summary of the content. The consultation focuses on three key areas:

  1. The setting up of a Charities Regulatory Authority and what the key priorities should be in the first phase given budgetary constraints of Government.
  2. The establishment of a Register of Charities including how this is likely to be used and what additional information might be included. Charities will be required to pay an annual registration fee and this section seeks views on a proposed fee structure based on gross annual income categorised into five bands with fees ranging from a token fee in band 1 (e.g. €10) to a maximum of €500 in band 5.
  3. Financial and Activity Reporting by Registered Charities to the Charities Regulatory Authority. This section sets out the financial reporting requirements under the Charities Act for different types and sizes of charities.  Views are sought on the proposed thresholds for different levels of reporting and independent scrutiny and also on what additional financial information should be required from charities by the Authority and in what format. Incorporated charities will continue to make their annual returns with annual accounts to the Companies Registration Office (CRO) which will pass them on to the Charity Regulatory Authority (CRA) except where a charity is not required by the CRO to attach annual accounts in which case they will be required to attach them to the Annual Activity Report to the CRA. All charities will be required to submit an annual Activity Report to the CRA and views are sought on the format and content of this report.

Business to Arts encourages all arts organisations that are registered charities to make a submission.

Budget 2013 – Section 848(A) changes announced

December 13, 2012 3:28 pm

By Andrew Hetherington.

Business to Arts members PwC and Mason Hayes & Curran hosted a breakfast briefing with ICTR in December 2012 to explain how recent changes to the S848A Tax relief scheme on charitable donations announced in Budget 2013 would affect registered charities.

During Budget 2013, the Minister for Finance announced he accepted the proposals of the Working Group for simplifying the Tax Relief Scheme on Charitable Donations which recommended:

  • From 01/01/2013 all donations from individuals (PAYE and Self-Assessed) will be treated the same, with the tax relief in all cases being repaid to the charity.
  • Tax relief on donations from taxpayers is to be applied at a blended rate of 31%, regardless of the individual’s marginal rate.  All donations will be grossed up as is currently the case with PAYE donations. For example, this means that the CHY will be eligible to a refund (in effect, a top-up) of €112.32 for every €250 donation – making a grossed up total of €362.32.
  • The charitable donations scheme has been removed from the scope of the higher earners’ restriction of Section 485 (C). This ‘decoupling’ recognises the key difference between tax relief to private philanthropy to promote the public good and private investment to promote private gain.
  • An annual limit of €1m has been introduced per individual, for which tax relief can be claimed under the scheme.

It is worth noting, that the distinct aims of the changes to Section 848(A) were to simplify the process, reduce administration involved for all parties and increase the uptake of the scheme across the charitable sector.

To make tax-efficient donating easier, donors can now opt to make an ‘enduring declaration’ to charities for up to five years. This removes the need for annual form filling by donors and eases the administrative burden on charities and Revenue. In addition, all claims made under Section 848a will be submitted and paid online, to reduce paperwork from 01/01/2014.

The processes of implementing the changes to Section 848(A) are currently being worked on and new declaration forms are expected in early 2013.

At the briefing clarifications that were sought from the audience (which were confirmed) included:

  • The minimum eligible donation under Section 848(A) remains at €250 in any one financial year
  • The changes are only applicable to donations made by individuals. There is no change to the treatment of corporate donations.
  • The restriction remains where an individual donor is associated with the charity (e.g. an employee).
  • A period of transition will exist (ie. dual processes) as the tax affairs of individuals can take up to four years to be finalised .
  • There is a commitment from the Revenue Commissioners to monitor the uptake of changes and assess the appropriateness of the blended 31% rate, which may need to be changed in the future.
  • Benefit is only relevant for the year in which a donation is made – ie no carry forward of the benefit is possible for charities.
  • The Minister for Finance asked for further recommendations from the Working Group on the treatment of large-scale donations to existing foundations or for the establishment of new foundations.

At the end of the briefing there was widespread acknowledgement of the progressive nature of these changes and the work of ICTR and the Working Group for simplifying the Tax Relief Scheme on Charitable Donations.

 

Forum on Philanthropy & Fundraising

November 8, 2012 5:29 pm

Phil Hogan TD, Minister for The Environment, Community and Local Government (centre) with (L-R) Andrew Hetherington (Business to Arts), Colin McCrea  (Atlantic Philanthropies),  Frank Flannery (Chair of Forum) and Niall O'Sullivan (The Community Foundation for Ireland)

Phil Hogan TD, Minister for The Environment, Community and Local Government (centre) with (L-R) Andrew Hetherington (Business to Arts), Colin McCrea (Atlantic Philanthropies), Frank Flannery (Chair of Forum) and Niall O’Sullivan (The Community Foundation for Ireland)

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

  1. 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).
  2. There should be a single composite rate of relief, e.g. 33%.
  3. 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.

Rationale

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.

Benefits

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.

Costs

This proposal is intended to be cost neutral.

Proposal No. 2: Tax Reform: Decoupling – (TCA, Section 848A)

  1. 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.
  2. 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.
  3. 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.

Rationale

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.

Benefits

This measure clearly separates philanthropic from business decisions; we believe it will encourage more giving.

Costs

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

  1. 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.
  2. There will be a lower limit of five thousand euro for donations and an upper limit of one million.
  3. This initiative should be reviewed after four years to assess its effectiveness.

Rationale

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.

Benefits

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.

Costs

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).

  1. 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)
  2. The maximum cost to the Exchequer should still be capped at €6m and all the other conditions should still apply.

Rationale

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.

Benefits

Increased investment in the acquisition of items of national cultural importance.

Costs

No additional costs. The scheme is already capped at €6m per annum.

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