High Earners Restrictions - Charitable Donations Down 35% in 2009

In 2009 those affected by the High Earners restrictions in Ireland were able to claim tax relief on just under €2.5m of donations. Announced in Budget 2006, the 2007 Finance Act introduced, with effect from 1 January 2007, measures to limit the use of certain tax reliefs and exemptions by high-income individuals. Such individuals, by means of the cumulative use of various tax incentive reliefs, had in previous years substantially reduced their tax liabilities. While The Community Foundation is generally in favour of the move by Revenue, charitable donations were surprisingly and unfortunately included among the c50 commercial reliefs. The Community Foundation and others in the charity and professional sectors have long argued that a ‘decoupling’ should apply as, unlike the case with the other tax reliefs, there can be no benefit to the donor in the case of charitable donations. Looking at the Revenue Reports showing the effect of the High Earners Restriction for 2007, 2008 and 2009, some interesting stats emerge.

Year        # Making  Donations                    Donations where 
                to approved bodies                       Relief was Granted
2009      105 out of 452 (23.2%)                    €2,443,673
2008       99 out of 423 (23.4%)                     €3,744,309
2007       95 out of 439 (21.6%)                     €3,354,169

The total donations on which reliefs were given accounted, we believe, for 0.8% of the amount of relief used up in 2009 by those affected by the restriction, i.e. under 1%. Does this suggest that high earners in Ireland could be more charitable or does it suggest that availing of other reliefs may be reducing the level of charitable donations. The answer may be both. High earners could probably give more but may be giving additional monies where tax relief cannot apply. We simply don’t know what the real level of giving. On the face of it, it appears that less than one quarter are making tax efficient charitable donations, i.e. a donation in excess of €250 (the threshold for tax efficiency). Some may have their own charitable vehicle, some may give through their company, and others have used up their quota through other reliefs - but overall the figures still appear very low. Alarmingly, the total value of donations where relief was claimed dropped by 34.7% in 2009 compared to 2008. We would also be concerned that charitable donations from the high earners may be down further in 2010 due to changes in the higher earner thresholds as Revenue seeks to impose an effective tax rate of 30%, as introduced in the 2011 Finance Act. It appears that the maximum value of the relief given by Revenue to high earners for their charitable donations in total in 2009 was €1,001,906 (assuming each donation got relief at 41%). If (or, as we hope when) decoupling occurs it will be possible to have much more accurate data, which is essential as we seek to benchmark the level of giving in Ireland and encourage its growth.