These amendments present a number of propositions. The first is to reduce the minimum qualifying donation to approved bodies from the current €250 to €100. The second is to allow income tax or corporation tax relief for the donation of non-cash items to such bodies. The third effectively provides that the donor of the non-cash item is exempt from capital gains tax and the recipient is treated for CGT purposes as having acquired items at the price paid by the donor. This means that on subsequent disposal, the full gain accrues to the approved body.
The approved bodies in question are eligible charities and other bodies, including primary and secondary schools and third level institutions including universities. The proposal to reduce the donation limit to €100 has been made on each Finance Bill since I introduced this relief in 2001. The Irish Charities Tax Reform Group has also been pressing continuously for this reduction.
I have looked at this question on a number of occasions and have decided not to reduce the minimum amount at this time for a number of reasons. Relief is already very generous, being at the marginal rate of income tax, for the individual donor. This could be as high as 42%. A reduction in the minimum donation would have the effect of increasing the numbers of donations qualifying for relief and could, therefore, be very costly to the Exchequer. The donation for any year can be on a cumulative basis so that a monthly donation of a little more than €20 can qualify for the relief. Although I understand the desire of those concerned to have the lower limit reduced still further, I am not aware that the €250 limit has had any negative impact on the level of donations generally.
The latest information available to the Revenue Commissioners indicates that the cost to the Exchequer in 2003 alone from donations from the PAYE sector came to more than €21 million. Data from the self-assessed sector is only coming through now, therefore, I am not in a position to give any final figures. In the present climate, the Exchequer is responding generously to the voluntary sector and no further increases are called for at this time.
Regarding relief for non-cash items, under existing law, donations must be in the form of money in order to attract a relief. This amendment also contains a provision for the Revenue Commissioners to be responsible not only for the valuation of the items being donated but also the costs involved in obtaining such valuations. This issue has been raised more than once in the past and I am concerned that there could be difficulties in giving relief where, for example, the value of an unusual item is in dispute. I am not satisfied that Deputy Twomey's proposals regarding valuation would solve them.
In addition, the means whereby the relief is currently given in the case of a PAYE donor pre-supposes that the individual is making the donation from income on which he or she has paid income tax to the value of the relief being claimed. While there is some prospect that this is so when the donation is in the form of money, such a link may be broken where non-cash items are involved. Difficulties associated with the donation of non-cash items are not solely restricted to valuation. There is also potential for abuse, for example, in the case of donations of shares of private companies, where share values could be manipulated to enhance relief to the donor.
The third element of this amendment effectively proposes to exempt the donor from capital gains tax, while treating the recipient as if he or she had acquired the asset at the price a donor bid. The effect of this is that the donor gets income tax relief at the market value of the asset, whereas he or she is treated for CGT purposes as having disposed of the asset at the original price paid, even if this is considerably below the current market value.
A CGT exemption for the donor already exists in regard to the donation of non-cash items to charities under section 611 of the Taxes Consolidation Act 1997. This exemption has existed since capital gains tax came into being in 1974. Charities are exempt from capital gains tax under section 609 of that Act. Charities are also exempt from income or corporation tax and capital gains tax only if the funds are used for charitable purposes. These exemptions do not apply to all the other approved bodies under the donations scheme. There is, therefore, a clear distinction in tax law between charities and these other bodies.
Simply because the Oireachtas has decided to allow an income tax or corporation tax relief for donations to a variety of bodies, including charities, does not mean it must also give the CGT exemption for the non-cash items to those same bodies. Charities are a special case, even among approved bodies, and are justified on their own merits. I am not satisfied there is sufficient justification to extend this beneficial CGT treatment across the board to donors making donations to all approved bodies. The difficulties associated with this set of proposals outweigh the benefits. For these reasons I am not prepared to accept the amendments.
Deputy Burton asked about charities and regulation. This matter has arisen in every Finance Bill I have brought before the House and I remember the matter being debated when my predecessor was responsible for this portfolio. Mr. Justice Costello reported over 20 years ago on charities and legislation was to be put in place. The report lay on a shelf in the then Department of Justice. I was assured five budgets ago that legislation would be in place in the near future but nothing ever happened. I went ahead with tax changes for charities in 2001.
This is now the responsibility of the Minister for Community, Rural and Gaeltacht Affairs and that Department has recently published a consultation paper on the establishment of a modern statutory framework for charities. This document raised issues such as accountability and transparency in terms of activities of charities, as well as in the areas of compliance and governance generally and while it is the intention of my colleague, the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív to bring forward proposals after the public consultation process has been concluded to address all of these issues, it is too early at this point to be definitive on how the regulatory body being contemplated will be constituted. I am happier than I was previously to make a commitment that something will be done, knowing the Minister and his attitude to getting things done. After many false starts I am satisfied that something will now happen, after 20 years, in the area of charity regulation.
When Deputy Quinn was Minister for Finance, he introduced relief for Third World charities and resisted any extension of the proposal. This allowed the Revenue Commissioners to transfer a cheque from their offices to the charities on a gross up basis. When I became Minister for Finance I changed that in my first budget to allow for Irish charities as well because I had given such a commitment to the Irish charities tax reform group. That is all the group sought at that time. Things have moved on since but I made significant changes in 2001 to the whole charities area and that covers some of the points made by Deputy Twomey. On a previous occasion, I said that long after I am gone as Minister for Finance, the changes I made in the tax reliefs for donations to charities will be remembered and will have a significant impact.
In 2001, I effectively changed the entire area and cogged the system that exists in the United States. I was in America some years ago and I picked up a booklet that stated that well over $100 billion had been given to charities in one year by the wealthy on account of the tax system. I thought that was the way to do things. In the Finance Act 2001, I altered the entire area but it has not been utilised enough by the charities and approved bodies since. Some of them are only twigging what can be done now. A self-employed person can get tax relief at 42%, deducted on his tax return, if he gives to an approved charity. A PAYE person will receive a gross up if he claims and the cheque will be sent by the Revenue Commissioners.
In the Finance Act 2001, I looked at the whole area of tax relief on donations. At that time there were 13 different reliefs for donations to the various bodies with widely differing qualifying conditions. Every few weeks I signed approvals under different schemes and it was doing my head in because some of them were so complicated. I went with the principle of giving the taxpayer a break if he donates to a charity and tidied up all the schemes at the same time.
Having considered this area, I decided to simplify and rationalise tax reliefs in this area and, as part of the process, most of the existing tax reliefs were allowed to lapse and entered the new scheme. In the Finance Act 2001, I introduced a uniform scheme of tax reliefs on donations made either by individuals or corporate bodies to eligible charities and other approved bodies, including first and second level schools and third level institutions, including universities. An eligible charity for the purpose of tax relief on donations is any charity in the State which has been authorised by the Revenue Commissioners as an eligible charity and which holds charitable exempt status from the Revenue Commissioners for these three years. The minimum qualifying donation for these purposes to any one eligible charity or approved body is €250 per annum. Donations must be in the form of money and donations in any one year can be on a cumulative basis, thus a weekly donation of €5 per week will qualify for relief. Relief on donations is at the individual's marginal rate of tax.
The new arrangements for allowing tax relief on donations depend on whether the donor is a PAYE taxpayer, an individual on self assessment or a company. For PAYE taxpayers the relief is given on a gross up basis to the approved body rather than by way of a separate claim to tax relief for the donor. For example, if an individual pays tax at the higher 42% rate and gives a donation of €580 to an approved body, the body will be deemed to have received €1,000 less tax of €420. The approved body will, therefore, be able to claim a refund of €420 from the Revenue Commissioners at the end of the tax year. Similarly, if a standard rate taxpayer makes a donation of €800, the approved body will be able to claim a relief refund of €200 from Revenue at the end of the tax year. In the case of a donation made by an individual who pays on a self assessment basis, the individual claims relief and there is no grossing up arrangement. Similarly, companies can claim deductions for donations as if they were a training expense.
The annual cost of this relief depends on the number of donations and the amounts involved. The latest information available is that refunds in respect of donations made by PAYE donors to approved bodies or charities in 2003 amounts to €21 million, an increase of €9 million since 2001. This will be of benefit when people realise the major changes made by the Finance Act 2001.
On the specific questions about the hospice, the answers are maybe and probably. If it is an approved charity, it qualifies but it must be an approved charity of at least three years' standing with the Revenue Commissions, one of the changes I made in 2001 in the absence of charity legislation. On the assumption that the body to which the donation is being given is a charity and has three years' standing, it will qualify. The Deputy can check that with the people involved. The hospice referred to is a charity and donations qualify for tax relief.
I had to introduce a cap in the Finance Act 2003 as an anti-avoidance measure regarding employees. Some individuals on PAYE diverted all their income to charity and did not pay any tax at all. There were noble reasons for doing it but that was not the purpose behind the scheme so there is an employee cap of 10% of total earnings.
There are significant changes in the Finance Act 2001 that will have greater impact than most changes I have made long after I am gone and long after tax credits and widening bands are mentioned.