Changing rules for tax relief on charity donations
Changes in rules for tax relief on charity donations
A self-assessed taxpayer with a salary of €40,000 and a wife with no income would pay roughly €3,000 in PAYE at 20 per cent after tax credits for 2012.
In addition, with deposit interest of €10,000, he would pay Dirt at 30 per cent, amounting to €3,000.
If he makes a donation of €1,000 to an approved charity, can he claim tax relief on same at the 20 per cent PAYE rate or the 30 per cent Dirt rate for the year 2012?
In what way has the December 2012 budget altered the situation for 2013 onwards between the taxpayer and the charity claiming back the tax and the rate at which it can be claimed?
Mr D.W., Limerick
First things first. Last year, as a self-employed person, you would have been able to contribute the €1,000 to charity and receive the tax benefit yourself.
The relief would have been at your marginal rate – in your case above – 20 per cent.
As you say, the situation has changed under Budget 2103, announced last December. From your perspective, and indeed that of the charities, there are two particularly relevant elements to the change.
First, relief on all donations to charity will no longer be at the taxpayers’ marginal rate but at a “blended” rate of 31 per cent.
Second, donations from self- employed persons will henceforth be treated in the same way as those from people in the PAYE sector in that the relief will be credited to the charity, not to the individual taxpayer.
Effectively, in your particular circumstances, you will be slightly out of pocket as you no longer get the relief but the charity will be better off because it will receive relief at 31 per cent on the donation.
I believe you covered this issue some weeks ago. Briefly, in 1999 I got divorced and 22 per cent of my pension was awarded to my ex-wife, which I pay to her directly and on which she pays tax and subsequently Universal Social Charge.
I am charged USC on my gross taxable income plus the alimony I pay my ex-wife. Despite my accountant’s representations, there has been no change in this. Is that correct?
Mr S.T., Dublin
I did address a related issue recently – the handling of PRSI liability – in the case of maintenance payments, but not the situation with regard to the Universal Social Charge (USC).
From what you say, I am assuming that the pension is in payment – ie, it is being drawn upon and received currently as income.
As with PRSI, the rules are slightly different depending on whether the maintenance payments are made through a voluntary arrangement or under a court-structured process.
In the case of voluntary payments, you, as the person making the payments, would not get any relief from USC on the money paid over to your former wife.
She, as the recipient, would not be liable to USC on that money.
However, your letter points to a more formal arrangement and, in that case, the situation is quite different.
The spouse making the payments – ie you – is entitled to relief from the USC on that part of their gross income that they pay to their former partner, either directly or indirectly. The person in receipt of the payments is, under this arrangement, liable for USC – assuming their income is over the USC threshold.
I’m not sure why you – and your accountant – are having problems with this. The details above come directly from Revenue’s own “frequently asked questions” document in relation to the Universal Social Charge.
I would apply directly and immediately to the Revenue for clarification of your position and seeking a refund of USC paid in error over the past four years.
This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin2, or to dcoyle@ irishtimes.com. No personal correspondence will be entered into.