Donations are deductible from the income on which income tax is payable. Regular donations are particularly popular since they no longer need to be formalised through a notary (a document completed by the donor and the recipient form (that is sufficient).
Like many popular schemes, periodic donations too seem at times to be at risk of being undone by their own success. The decision on this matter will rest with the new Cabinet.
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 main advantage of a regular donation is that there is no maximum limit or threshold for the tax deduction. A regular donation is deductible, provided that the total of these donations in a tax year exceeds 1% of the aggregate income (this threshold is at least €60). To the extent that the total of the donations exceeds 10% of the aggregate income, the excess is not deductible.
Association
Recurring donations are particularly popular amongst clubs. Many facilities, (artificial turf) pitches and other investments are funded, amongst other things, by recurring donations.
Example
Imagine you are a member of a hockey club and are very supportive of it. The club is investing in a new artificial turf pitch and is asking for your contribution. You are willing to donate €5,000 to the club.
If you make a regular donation, it is tax-deductible in the year of the donation. If your aggregate income in that year is €45,000, the threshold for the charitable donation allowance is: 1% * €45,000 = €450. The charitable donation allowance is therefore: €5,000 - €450 = €4,550.
However, the maximum amount you may deduct is: 10% * €45,000 = € 4.500. Of your donation of €5,000, €500 is not included in the income on which you pay income tax.
If you opt for a regular donation, you are lending the association €5,000. The association will then have immediate access to the full amount.
Under the terms of this loan, €1,000 will be written off over 5 years. Assuming the club meets the conditions for tax-deductible regular donations, 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 income, effectively getting the tax authorities to contribute significantly 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.
Last chance?
The abolition in 2014 of the requirement for periodic donations to be recorded by a notary was seen by many ANBIs and associations as an incentive to make greater use of the scheme. As far as we are aware, there are currently no concrete plans to abolish the tax deduction for (regular) donations. However, there are signs from which it might be inferred that the tax-deductible regular donation, in its current form, may have had its day.
One such indication is the Ministry of Finance’s strict interpretation of the uncertainty requirement. A periodic gift is deemed to exist where there is sufficient uncertainty as to whether all instalments will be paid out. This is the case where the probability that the generous donor will die during the five-year term is 1% or higher. The judge has ruled that, in the case of a gift contingent on the survival of two donors, the requirement of uncertainty is not met. In such cases, the gift does not qualify as a deductible periodic donation. The Ministry has indicated that it will follow this ruling.
Another indication can be found in a Appendix to the 2016 Tax Plan. A simplification study has been announced there into the possibility of treating regular donations in the same way as other donations. If this were to happen, a threshold and a maximum limit would also apply to regular donations. This issue is also raised in the document published with a view to the upcoming elections bending profile.
On 27 January 2017, State Secretary Wiebes published a voluminous report (with appendices totalling more than 140 pages) was sent to the House of Representatives. This report examines the implications of possible changes to the regulations governing the tax deduction for charitable donations.
ANBIs and associations considering applying the scheme would be well advised to do so in the near future. If the scheme is abolished or amended, it stands to reason that this will take effect immediately. However, ongoing processes will most likely be honoured. This means that, for donation processes commenced before the announcement of the legislative amendment, the periodic donation will remain fully tax-deductible.
DGA
A director and major shareholder has an additional option when it comes to gifts. We describe this in our article A director and major shareholder may opt for the gift tax deduction.