Charity donations above €250 earn major tax relief

Getting away from the commerciality of Christmas by making charitable donations can be tax efficient, with a €250 donation actually worth as much as €431 to certain approved charities.

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

The relief works in different ways, depending on the way in which the donor is taxed on their income. In the case of workers whose entire income is subject to PAYE, the benefit goes to the charity.

For example, a PAYE worker contributes €250 to the Irish Red Cross. The charity will send out a form in which the donor gives details of the donation and his or her PPS number.

The charity then treats the contribution as an after-tax sum and applies for the difference between this and the grossed-up sum from the Revenue Commissioners.

Since 2002, some €57 million has been refunded by the Revenue to charities and other approved bodies in the case of individual PAYE donors.

So, on a donation of €250, the tax relief claimed by the charity will be €181 in the case of a donor who pays tax at the 42 per cent rate or €62.50 in the case of a donor who pays tax at the standard rate of 20 per cent.

The end result is that a €250 donation is actually worth either €431 or €312.50 to the charity.

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.

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

Tax relief is available even if the donation is made on a cumulative basis throughout the year. The monthly amount required for tax relief to kick in is €20.84. However, the Irish Charities Tax Reform Group says that the minimum threshold of €250 bars a large number of smaller donors from accessing the relief. It is campaigning for the minimum threshold to be reduced to €100.

For asset-rich individuals and corporations, it has become more tax efficient to give to charity since last week's Budget.

Charities have welcomed a move by Minister for Finance Brian Cowen that extends the tax relief available on donations to approved bodies of publicly quoted securities as well as cash.

Mr Cowen said details of how this would work would be published in the 2006 Finance Bill.

However, the tax reform group also wants all other non-cash assets, as well as securities, to be eligible for income tax relief.

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.

This results in a 20 per cent tax saving. However, it would be more attractive to the donor if they could take the capital gains hit, but receive income tax relief at the 42 per cent rate.