6. DONATIONS TO APPROVED BODIES
Prior to the Finance Act 2013, tax relief for donations was given in two ways:1. The self employed individuals and companies received a tax deduction for donations made to approved bodies subject to certain conditions. 2. PAYE workers (employees paid through the PAYE system) did not obtain a tax deduction. Instead the approved body applied to Revenue for a repayment as if the PAYE worker had made the donation net of tax at the individual’s marginal tax rate i.e. 41%.
The new provisions have resulted in:1. The distinction between self employed individuals and PAYE workers has been removed. 2. The approved body (i.e. the Charity) can reclaim a specified amount of the donation rather than the self employed individual receiving a tax deduction for the donation through the self assessment system. 3. The specified rate is 31% now instead of the individual’s marginal tax rate of 41%. 4. There is a cap of €1,000,000 on the aggregate qualifying donations in any year of assessment from any individual donor to approved bodies. 5. There is still a 10% restriction for donations to approved bodies with which the individual donor is associated. 6. Certification by donors is being simplified. 7. Donors no longer need to provide “appropriate certificates” instead they will provide annual or enduring certificates that can be renewed. 8. Enduring Certificates will apply for five consecutive years of assessment and can be renewed.
What does this mean?1. The net cost to a self-employed individual making the minimum donation of €250.00 has increased from €148.00 (i.e. €250 x 41%) to €250.00. 2. Since self employed individuals with earnings taxed at the marginal rate are more likely to make donations of €250.00 than self employed individuals taxed at the standard rate then this is likely to result in a significant shortfall in donations for approved bodies.
Final Points1. Corporate donations are not affected by the new reclaim procedures for individuals or the annual cap of €1,000,000 on relevant donations. 2. The relief is only available in respect of donations made by Irish resident individuals. 3. Donations from non-resident individuals do not qualify regardless of the amount of tax paid by them in Ireland which doesn’t appear to make any sense especially since non resident companies can obtain a tax deduction for donations.