With effect from 1 January 2023, a cap will be introduced on the tax deduction for regular donations. This has recently been added to the tax plans for 2023.
Gift deduction
The deduction of charitable donations for income tax purposes relates to regular donations and periodic gifts. Regular donations are tax-deductible provided that the threshold (the higher of €60 or 1% of the combined aggregate income) is exceeded, and up to a maximum amount (10% of the combined aggregate income).
There is currently no threshold or ceiling for the tax deduction of regular donations. This will change from 1 January 2023 with the introduction of a ceiling: the total amount of regular donations will then be deductible up to €250,000 per year (donations made by tax partners are aggregated for the purposes of this ceiling). This ceiling is so high that only a limited number of donors and recipients of such donations will be affected by it.
The reason for introducing this threshold is the alleged abuse of the scheme. For example, through large periodic donations to one’s own ANBI foundations, with the result that (virtually) no income tax is paid.
Periodic gifts
In the case of a periodic gift, the donor undertakes to make an annual payment to the beneficiary for at least 5 years. The beneficiary must be:
- ANBI (Public Benefit Organisation);
- an association which is not subject to corporation tax, has at least 25 members and has full legal capacity.
The periodic donation must be set out in writing in a notarial deed or a private deed, of which the Tax and Customs Administration models makes available.
Clubs and societies
Recurring donations are particularly popular amongst clubs. Many facilities, (artificial turf) pitches and other investments are funded, amongst other things, by recurring donations.
Imagine you are a member of a hockey club and are very supportive of it. The club is investing in a new artificial pitch and is asking for your contribution. You are willing to donate €5,000 to the club for this purpose.
If you make a standard donation, it is not tax-deductible. This is because the association does not qualify as a Public Benefit Organisation (ANBI)).
If you opt for a regular donation, you are effectively lending the association €5,000. The association will then have immediate access to the full amount.
You will have €1,000 of this loan written off over 5 years. Assuming the club meets the conditions for tax-deductible regular donations (see above), you may deduct the full amount of the write-off each year. You will then be able to claim a total of €5,000 against your taxable income, thereby enabling the tax authorities to contribute towards the association’s new pitch.
Only if you die during the five-year period will the loan not be repaid in full, as the regular payments will cease. You can resolve this by including a bequest in your will.
Managing Director and major shareholder
The managing director and majority shareholder has a choice to make regarding the tax deduction for charitable donations. Read more about this in our article A director and major shareholder may opt for the gift tax deduction.