Tax Effective Giving

Since the 6th April 2001 tax relief is available on donations of €250 or more in any one tax year to eligible charities from both individual and corporate donors. Tax relief is applied to these donations at the donors' marginal rate of tax (currently 41%). In most cases there is no upper limit on the amount of the donation. However, in the case of donors where there is an association between the donor and the charity(s)/approved body(ies) at the time the donation is made, (e.g. where the donor is an employee or member of the charity/approved body), then relief will be restricted to 10% of the total income of the individual for the relevant year of assessment.

It is also important to note that the tax relief scheme on donations to charity (S848A Taxes Consolidation Act 1997) is included in the list of tax relief schemes subject to the new restriction on the use of tax relief by high earners (S485C Taxes Consolidation Act 1997), which came into effect in January 2007. Under this restriction high earners are limited to annual total tax relief of €250,000 or 50% of gross adjusted earnings, whichever is the greater. Unused tax relief can be rolled over to subsequent years.

In January 2006 the income tax relief scheme on donations of money was extended to cover gifts of publicly quoted shares. However, in this case the donor has to choose between Capital Gains Tax (CGT) relief OR Income Tax relief - they cannot claim both. If the donor chooses to claim income tax relief the procedure is the same as for gifts of cash.

How the tax relief is applied

How the tax relief is applied depends on which taxpaying category the donor falls into:

  1. In the case of PAYE only taxpayers, the tax relief is applied at the marginal rate and is paid directly by the Revenue Commissioners to the Eligible Charity or Approved Body on receipt of the relevant appropriate certificate (an official form that is completed by the donor and the charity receiving the donation).
  2. Individual taxpayers on self-assessment benefit directly from relief at the marginal rate by claiming the donation as a tax-deductible expense.
  3. Corporate donors simply claim a deduction for the donation as if it were a trading expense.

So in the first case the tax relief is paid directly to the Charity whilst in cases two and three the donor receives the tax relief. The following examples will help to illustrate how the tax relief works in practice.

Who Claims the Tax Relief

Example 1 PAYE Donor

Tom is a PAYE taxpayer who donates €250 to his favourite eligible charity over the course of the tax year by monthly standing order of €20.83. His marginal rate of tax is 41%. At the end of the year Tom fills in a form sent to him by the charity giving details of his donation together with his PPS No. The charity then uses the form to claim back the tax which Tom has already paid on this €250 directly from Revenue - €250x100/59 = €424 less the original donation of €250 = €174 (tax associated with the donation) bringing the total value of the donation to the charity up to €424.

Mary, Tom's sister is also a PAYE taxpayer who donates €250 to her favourite charity but she pays tax at the standard rate of 20%. Mary completes and sends off her form to the charity, as above, and they claim the tax she has already paid on the €250 directly from Revenue. In this case the calculation is €250x100/80= €313 less the original donation of €250 = €63 which is the tax associated with the donation. Mary's donation of €250 is worth €313 to the charity.

Example 2 Self-assessment Donor

Siobhan is self-employed and makes tax returns on a self-assessment basis. Her marginal rate of tax is also 41%. Siobhan makes a donation of €250 in cash and publicly quoted shares valued at €1000 to her favourite charity. In the case of the shares Siobhan opts to pay the capital gains tax of 20% (€250) and claim the income tax relief (41%). Siobhan receives a receipt from the charity and when she fills out her tax return she deducts the total donation of €1250 (cash €250 and shares valued at €1,000) from her taxable income thus reducing her tax bill by €513-CGT €250= €263. In this case, it is Siobhan who benefits directly from the tax relief.

Example 3 Corporate Donor

XYZ Ltd makes a company donation of €250 to their favourite eligible charity and receives a receipt. The company can claim a deduction for the donation as if it were a trading expense. The company pays corporation tax at 12.5% so their corporation tax bill is reduced by €250x12.5%=€31. The company gets the benefit of the tax relief in this case.

What if the donor pays tax through both PAYE and self-assessment?

Where a person is PAYE but also has some (however small) self-assessed income, that person is considered a "chargeable person" and therefore is entitled to relief for the donation at the marginal rate of tax. In other words, they operate as self-assessed donors as in example two above. If such donors are included (in error) in the claim forms submitted by a charity, Revenue Claims section will disallow them and reduce the overall claim amount accordingly. This can delay the repayment of claims so it is in the interests of charities to try to establish with donors who complete the "Appropriate Certificate" that all of their income in assessed under PAYE only before submitting their annual claims form.

Other points to remember:

Tax relief can only apply to donations which:

  • are €250 or greater in one year
  • are in the form of money or shares, or a combination of money and shares
  • are not repayable
  • do not confer a benefit on the donor or any person connected with the donor, and
  • are not conditional on, or associated with, any arrangement involving the acquisition of property by the charity or approved body.

What is an “Eligible Charity” and how do you apply?

The tax relief detailed above is only available for donations to Eligible Charities or Approved Bodies.

What does this mean?

An Eligible Charity is defined by the legislation as any charity within the State, which is authorised in writing by the Revenue Commissioners for the purpose of this Scheme. In order to qualify for eligible charity status, the charitable organisation:

  1. must have a charitable tax exemption number or CHY No. and
  2. must have been in operation for at least two years since being granted the CHY No.
  3. must make a formal application to Revenue on the form provided - Form of application to Revenue for Authorisation as an “Eligible Charity” for the purposes of Section 848A of the Taxes Consolidation Act 1997(donations to eligible charities).
  4. must meet any other conditions that Revenue may require from time to time

Authorisations issued under the scheme will be valid for periods ranging up to five years and can be renewed upon expiry by completing a fresh application.
Approved Bodies are educational and other named organisations - details of which are available on the Revenue website.

Where do you get these forms?

The Revenue forms referred to in this document are available on the Revenue website: http://www.revenue.ie under publications (look under 'leaflets', 'charities', for leaflet number CHY2)

Alternatively, you can get a form from:
The Office of the Revenue Commissioners,
Charities Section,
Government Offices,
Nenagh,
Co. Tipperary

Tel: LoCall 1890 666333 Or 067-6763400
Email: charityclaims@revenue.ie

The Revenue website also posts up-to-date listings of charities who have a CHY number and separate listings of both Approved Bodies and Charities that have been granted Eligible Charity status.