Tax efficiency

Mike Gaffney, Partner, KPMG and Jackie Harrison, Head of Fund Development, The Community Foundation for Ireland talk about philanthropy and tax

Tax Relief on Donations

We are an independent registered charity, and as such most contributions are eligible for a tax deduction. It may be advantageous for tax purposes to use our services. The Revenue Commissioners have summarised the Scheme of Tax Relief for Donations to eligible charities and other approved bodies, under section 848A, Taxes Consolidation Act 1997. Note: The Minister for Finance introduced changes to the Donation scheme operated in accordance with s848A in Budget 2013. These changes are applicable to donations from January 1, 2013 and are reflected as appropriately below.

For advice in relation to tax planning, we recommend you consult a professional tax adviser to ensure you can maximise your generosity for your preferred cause through us. However, below is a summary of the typical tax benefits you can gain depending on your chosen way of giving.

Tax Efficient Giving

We are a not-for-profit organisation with charitable status and an approved body for the purposes of section 848A, Taxes Consolidation Act, which relates to tax relief for donations to approved bodies.

Donating Cash for an Endowment

There are tax benefits for setting up a Fund with cash. An endowment typically requires a larger initial lump-sum. You can create, for example, a €25,000 family endowment fund over one or two years.  You will make a donation of €17,250 and The Foundation will ask you to complete a CHY3 enduring certificate or CHY4 annual certificate, depending on your preference.  It does not make a difference as to whether you are a taxpayer at the higher or lower rate as the tax relief on donations is now given at a blended rate of 31% rather than the donor’s marginal tax rate as had previously been the case.  The Foundation should then be able to claim €7,750 from Revenue which will be added to the endowment fund the following year for onward grant-making. The net ‘cost’ of the ‘investment’ in this case is €17,250.  The treatment of tax relief on charitable donations is now the same for self-assessed and PAYE donors (since January 1 2013).

Note: The above example is based on people who are paying enough tax in a financial year to generate the reliefs suggested.

Donating Cash for a Flow through Fund and Other Funds

Donations to Flow Through Family Funds, County Funds and Thematic Funds can be smaller. For tax relief to apply the minimum donation is €250.

An example is as follows: If you set up a flow-through fund and make a donation of €17,250 in a particular year, we will ask you to complete a CHY3 enduring certificate or CHY4 annual form. We should then be able to reclaim (at the new blended rate of 31%) €7,750 from the Revenue, which will be added to your flow-through fund, on receipt from the revenue for onward grant-making.

The net ‘cost’ / ‘investment’ to you, the donor is €17,250.

The above example is based on people who are paying enough tax in a financial year to generate the reliefs suggested

Limitations in Giving from Income 
On and from January 1, 2013 charitable donations will no longer be included in the calculation of the high earners restriction. There will be a new annual donation limit of €1,000,000 per individual.

End of Year Contributions
A donor may decide to make a significant donation to us at the end of a tax year and then over the course of the following year work out with us how best to make grants from this. This can be a useful mechanism as part of a general tax planning exercise.

Donating Shares

In 2005 income tax relief was introduced for the donation of publicly-quoted shares to eligible charities. This means that gifting shares to us of €250 or above in a tax year are now eligible for tax relief. Those giving gifts of publicly quoted shares have to choose between an Income Tax relief OR Capital Gains Tax relief as outlined below.

If you choose income tax relief these procedures are the same as for cash donations.

If you do not wish to claim income tax relief, you can claim capital gains tax relief instead.

If you choose to claim CGT relief, the sale of your shares will be treated as a ‘no profit, no loss’ sale, i.e. it is treated as if you sold shares for exactly the same price as you paid for them. It is important to remember that there is no ‘double tax relief’ – you cannot claim both income tax and capital gains tax relief. The Charities section of the Revenue Commissioners has indicated that it will be up to the local tax offices to deal with CGT claims.

Capital Gains Tax (CGT)

Some advisers in Ireland may not be aware of the tax benefits which could apply for their clients following a ‘windfall event’ which could aid setting up, for example, a family fund. The CGT rate has increased from a low of 20% to 33% in more recent times in Ireland, making it all the more attractive. No upper limit/cap applies.
Donations of non-cash assets to charity can benefit from relief from capital gains tax under Section 611 of the Taxes Consolidation Act 1997. Normally, the donation of non-cash assets to charity would amount to a disposal of those assets by the donor at their market value and capital gains tax (CGT) would apply to any gain arising. However, when a donation of non-cash assets is made to a charity by way of a gift (for no consideration), or for a consideration not greater than the cost, section 611 provides that the market value rule does not apply and the disposal is deemed to be made on a “no gain, no loss” basis. Accordingly, no capital gains tax should arise.

Donating Property

There is no specific relief for donations of property or land. Instead of donating property or land, it is often more tax efficient to sell the asset and make a tax efficient donation from the proceeds. Please consult us and your adviser to discuss further.

Donating Overseas

Since 2006, we have been the Irish representative of Transnational Giving Europe which facilitates tax effective giving across much of Europe. You will benefit from this service by being able to gain ‘on the ground’ knowledge of a local charity or organisation from our overseas partner.

The Foundation can also facilitate your direct international tax effective giving. If you want to donate to e.g. a French charity, by doing so through us you could significantly increase the size of your gift as a result of the tax benefits which are applied as outlined above for cash donations. By way of example, if you would like to donate €100,000 to a French charitable organisation, by doing so through The Foundation, your net cost can be potentially €69,000.  Provided you have paid enough tax in a financial year to generate the tax relief, The Foundation should be able to reclaim tax relief of €31,000 ( 31%) from the Revenue, and this will be forwarded, on receipt, to the chosen beneficiary, in this case example the French charitable organisation.  Bank charges costs and a small fee will apply.

For further information on tax efficiency please contact Niall O’ Sullivan, Fund Development Adviser : 01 874 7354