As of the 6th April 2001, donations to eligible charities of at least €250 in any one tax year from whatever source (i.e. individuals, partnerships or companies) attracts tax relief at the taxpayer’s marginal rate of tax, with no upper limit on the amount of donations. Full details of how the system operates are given under Tax Effective Giving. This was a major breakthrough for the sector, and one that ICTRG warmly welcomed having worked hard for it over the years. Better still, in 2006, we succeeded in having the scheme extended to include gifts of publicly quoted shares.
In 2005, PAYE donations alone accounted for refunds of €16 million to the sector. This figure is expected to rise significantly in 2006 when tsunami donations are taken into account.
Unfortunately, subsequent legislation (Finance Act 2006) placed a new restriction on tax relief for charitable donations from high earners. Under the new rules, charitable donations must now be taken into account when calculating the maximum limit of annual tax relief. The tax relief scheme on donations has been included in the list of schemes subject to the cap placed on high earners which limits their total tax relief in any one year to a maximum of €250,000 or 50% of gross adjusted earnings, whichever is the greater. Unused tax relief can be rolled over to the following year(s).
What else is needed?
The new restriction on tax relief for charitable donations from high earners is a clear disincentive to giving, and therefore a major barrier to Irish charities. Ensuring charitable donations are not included as part of overall annual tax relief quota is now a key priority for the ICTRG. Through our members, we are aware that the minimum threshold of €250 for tax relief purposes has the effect of choking off a large number of small donors from the relief. (The good news is that there are precedents in other countries, which can be cited in support of abolishing the lower limit.) This concern has also been confirmed by research commissioned by our sister organisation, ICTR Ltd, which found that:
- Only 13% of charities currently benefit from the tax relief scheme on donations of €250 or more from PAYE only donors.
- If the threshold was reduced to €100, then a further 32% of charities (45% in total) could potentially benefit.
- The estimated total annual cost to the Exchequer of extending the benefit of the tax relief scheme to 45% of charities by reducing the threshold from €250 to €100 is €47m.
Where we are going
- To remove the €250 tax relief threshold and reduce the minimum donation eligible for tax relief to €100, with a view to removing a minimum altogether
- To remove the new tax relief restriction on high earners, which includes charity donations in overall annual tax relief calculations
- To work on extending tax relief to treat donations other than money, e.g. the donation of gifts in the form of property and gifts in kind, in the same way as cash and publicly quoted shares.
- To investigate the feasibility of introducing tax-effective payroll-giving schemes to Ireland
How you can help
Despite our successes there is still much to be done in the area of direct taxation. You can help by becoming a member of ICTRG and lobbying for the proposed changes to the tax relief scheme on donations to charities.