Giving it all away is not always as simple as it seems

Philanthropic and charitable gestures by the Republic's nouveau riche could be greatly boosted by extending the income-tax relief available on donations to charity to non-cash assets, according to the director of Philanthropy Ireland, Mr David Strahan.

"It is very important that funding trusts or foundations is tax-efficient.

"The Minister for Finance has made some improvements over the last few years, but we would encourage greater loosening," Mr Strahan says.

"Often wealthy people are not cash-rich. Their wealth is tied up in share portfolios, bonds, property and land. At the moment, they would have to transfer the asset into cash - sell the land - and then pay capital gains tax on it. So the value of the fund is diminished by the fact that they have to pay that tax."

Tax relief on cash donations above an annual threshold of €250 to eligible charities was introduced in 2001.

"Where the tax relief goes depends on the tax status of the donor," says Ms Sheila Nordon, executive director of the Irish Charities Tax Research Ltd, a registered charity with links to the Irish Charities Tax Reform Group.

In the case of PAYE workers, the benefit goes directly to the charity, Ms Nordon says. "Let's say a PAYE worker contributes €250 to Concern. Concern, on foot of you signing a form and giving them your RSI number, can treat your contribution as an after-tax sum, work out what the grossed-up contribution was and claim the tax relief."

On a donation of €250, this works out as €181 in the case of a donor who pays tax at the rate of 42 per cent or €62.50 in the case of a donor who pays tax at the standard rate of 20 per cent.

Self-assessed taxpayers and corporations receive the tax relief into their own pockets and can offset charitable donations against their income or corporation tax bill.

So a donation of €1,000 to an eligible charity will only effectively cost a self-assessed taxpayer €580.

Since 2001, the Irish Charities Tax Reform Group has repeatedly lobbied the Government to lower the minimum threshold and extend the relief to non-cash donations.

On the first point, Ms Nordon notes that other countries impose much lower thresholds before tax relief becomes available. In Australia, it is as low as A$5 (less than €3).

"The backbone of charity support comes from people who donate around €50-€100 a year," says Ms Nordon. "€250 is that bit high. A lot of charities would benefit if it was reduced to €100."

The call to extend tax relief to non-cash donations has been echoed by homeless charity the Simon Community which recently launched a share donation scheme, describing it as a "less painful" way to donate to charitable causes than writing a cheque.

It is thought that the Minister for Finance, Mr McCreevy, has resisted tax relief on share donations, because of potential valuation disputes and concern that non-cash donations might not come out of after-tax earnings.

At the moment, if an individual makes a donation of shares, any gain in the value of the shares is exempt from capital gains tax (CGT), which currently applies at a rate of 20 per cent.

But for shareholders who want to donate it would be more tax efficient for them to sell their shares, taking the CGT hit and then receive income tax relief on the cash donation, Ms Nordon explains.

For example, a person who owns shares with a value of €10,000 originally bought for €5,000 has made a gain of €5,000. If she sells the shares, the capital gains tax bill will be €1,000.

But she can then, presuming she pays tax at the higher rate, receive 42 per cent income-tax relief on the donation of the remaining €9,000.

If she simply transfers the €10,000 worth of shares to the charity, she will not receive any income tax relief, meaning she may be less inclined to consider donating.

In several countries, including the UK, CGT relief on share donations is coupled with income-tax relief, Ms Nordon says.

"It would be a lot simpler for charity donors or a philanthropist setting up a foundation if that was the case here. There is a lot of administration involved in selling shares."