Legal Issues: Incentives to Give 2

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1 Legal Issues: Incentives t Give 2 Center fr Respnsible Travel (CREST) and Keir Gumbs Partner, Cvingtn & Burling, LLP Washingtn, DC The fllwing is a summary f tax deductible plicies in leading turism cuntries It was researched and assembled by CREST staff and interns based n gvernment tax dcuments and ther surces. The U.S. sectins were reviewed by Keir Gumbs and ther lawyers at Cvingtn & Burling LLP. Further details and updates shuld be checked fr each cuntry. 1. Hw d I Make Sure my Dnatin is Tax Deductible? Different cuntries ffer incentives fr citizens t make charitable cntributins, and sme ffer the pprtunity t deduct the value f dnatins frm persnal incme taxes. Fr U.S. Taxpayers 3 Fr a United States taxpayer, a cash dnatin made t a U.S. charity that is registered under sectin 501(c)(3) f the Internal Revenue Cde is generally deductible fr U.S. federal incme tax purpses if the dnr itemizes his r her deductins. Dnatins made by a U.S. taxpayer t charities that are utside the U.S. generally may nt be deducted. Sme charitable prjects abrad have established their wn charitable rganizatins in the U.S. r partnered with existing U.S. charities r nnprfits -- like -- fr just this purpse. If the tax deductin is imprtant t yu, lk fr registered charities. In mst cases, but particularly fr any cntributin f $250 r mre, dnrs shuld seek and retain a written acknwledgement f the cntributin frm the recipient rganizatin. Fr Canadian Taxpayers 4 Canadians wishing t receive tax deductins frm their charitable dnatins shuld be sure t nly dnate t rganizatins which have been registered with the Charities Listings f the Canadian Revenue Agency (CRA). Fr a dnatin t qualify fr a tax reductin, the dnatin (whether gds, prperty, securities, r ther assets) shuld be fully transferred t ne f the CRA s registered rganizatins, and the transfer must be made vluntarily. Generally, Canadians cannt receive a tax reductin n their incme tax fr dnatins made t registered United States charities. Hwever, if a dnr has a surce f incme frm the United States, he r she can claim the fair market value f any dnatins t United States charities that wuld be permitted n a U.S. return fr up t 75 percent f the net U.S. incme fr the Canadian return. Fr UK Taxpayers 5 2 Several CREST staff and interns assisted with the research. The text was reviewed by several lawyers at Cvingtn & Burling. 3 Charitable Cntributins., Department f Treasury- Internal Revenue Service Pub 1771, (Rev ) Catalque number 20054Q. 4 Canada Revenue Agency. Nn-Prfit Organizatins,

2 In the UK, there are three main ways f dnating that ensure tax-efficient cntributins t a brad hst f rganizatins. These methds include utilizing Gift Aid, a system that allws charities t gain extra mney frm taxpayers cntributins, dnating directly frm a paycheck r pensin, r giving/selling assets t charity at n net persnal prfit. Gift Aid is a service that expands dnatins by treating them as thugh the dnr has already deducted the basic rate incme tax (20 percent). Charities are then available t reclaim that tax frm HM Revenue and Custms thus allwing the initial dnatin t grw by 25 percent. Taxpayers that are eligible fr Gift Aid are thse wh have (in that fiscal year) paid the same amunt f Incme/Capital Gains Tax as the amunt f the basic rate tax that the charity attempts t reclaim n the dnatin. Frm there, a dnr must fill ut a Gift Aid declaratin frm. This frm will cver all gifts the dnr makes t the charity fr whatever desired perid. The declaratin frm shuld include the dnr s full name, hme address, the name f the charity, the details f the dnatin, and cnfirmatin that it is a Gift Aid dnatin. 6 Payrll Giving allws emplyees r pensin recipients t dnate directly frm these surces befre any incme tax can be deducted. The incme tax is then applied nly t the remainder f the individual s paycheck r pensin allwing them t receive immediate tax relief n their dnatin. Thse individuals wishing t dnate thrugh Payrll Giving must meet the fllwing requirements: that he r she is an emplyee and is paid weekly/mnthly thrugh PAYE (Pay as Yu Earn), and that his r her cmpany/pensin prvider deducts tax thrugh PAYE. In rder t make a dnatin, the emplyee r pensin recipient must authrize his r her cmpany/prvider t make the deductin. Frm there, the cmpany/prvider will pass that amunt n t a Payrll Giving Agency that then delivers the gift t the selected charities. Citizens f the United Kingdm can receive tax-relief by giving r selling assets (at less than their market value) t charities. Thse assets which are applicable fr tax-relief include shares listed r dealt n the United Kingdm s r anther recgnized stck exchange, units in an Authrized Unit Trust (AUT), shares in a United Kingdm Open-Ended Investment Cmpany (OEIC), systems utside f the United Kingdm that are similar t AUT s and OEIC s, and ther land and prperty in the UK The dnr shuld always cntact the charity and cnfirm that it can/will accept his r her prpsed dnatin. If the charity accepts and/r buys the dnrs assets, the dnr can then calculate his r her tax deductin. If the asset was presented as a gift, then the dnr shuld add the market value f the asset and any assciated csts (such as legal fees). Frm there, the dnr shuld deduct any value he r she (r any related persns) wuld receive as a result f the dnatin. This number is the amunt f the deductin. If the dnr sld the asset t the charity fr less than the market value (a requirement fr the transactin t be cnsidered tax-deductible), the prcedure fr determining the deductin is the same as that fr a gift, but the dnr must als deduct the amunt f mney he received fr the asset. Fr German Taxpayers Expenses and benefits, A tax guide, 2010, 6 Directgv - Gift Aid, 2010, 7 Bundesfinanzministerium Deutschland (German Ministry f Finance),

3 A dnr can receive tax-relief fr dnatins f up t 20% f his r her annual taxable incme. Such dnatins may be claimed as tax-exempt. Dnatins exceeding the limit abve can be carried ver int the fllwing fiscal years. Fr dnatins made in member cuntries f the Eurpean Unin: German citizens can receive a tax-deductin fr dnatins made t rganizatins based in ther natins that are members f the Eurpean Unin. The receiving rganizatin, hwever, must be acknwledged by the German gvernment t be adequately benefitting the public befre a taxdeductin can be cnfirmed. The German taxpayer shuld be given the pprtunity t prvide prf that the receiving rganizatin pursues initiatives that wuld qualify it as an equivalent public-benefit rganizatin by the gvernment f Germany. Fr dnatins made in cuntries that are nt members f the Eurpean Unin: The receiving internatinal rganizatin must be based in/have a receiving platfrm in Germany in rder fr dnating taxpayers t receive a deductin n charitable dnatins. Fr Australian Taxpayers 8 Tax cncessins may be claimed by the dnr. This is the persn, rganizatin, cmpany, trust r ther type f tax payer that makes the gift. In rder t claim a tax deductin, the dnatin must be made t what is knwn as a Deductible Gift Recipient (DGR). These are the rganizatins that are endrsed by the Australian Taxatin Office in their wn right, r in relatin t a particular fund. In rder t claim a tax cncessin, yur dnatin must truly be a gift. That is, the dnatin must hld the fllwing characteristics: there is a transfer f mney r prperty they are made vluntarily the transfer arises by way f gdwill and gd intentin, and n material benefit r advantage is received by the dnr. Mney valued at AU$2 r mre. Fr French Taxpayers 9 French citizens are eligible fr a frm f tax-relief when they dnate t charitable rganizatins. In rder t receive a deductin n a tax bill, the individual must have dnated befre December 31 st f the previus year. In France, tax relief as a result f philanthrpic giving is determined accrding t a tw-tier system. The upper tier is cmpsed f recgnized rganizatins which feed, accmmdate, prvide medical and/r dental care, r therwise assist peple in need either in France r abrad. 75% f dnatins t rganizatins which have prven t pursue these causes can be deducted frm an individual s annual tax bill. Hwever the 75% nly applies t the first 510 Eurs f a dnatin; any additinal value is deducted at a rate f 66% up t 20% f an individual s yearly taxable incme. 8 Australian Taxatin Office (2010), Making tax deductible dnatins. 9 CIC Tax System in France.

4 The secnd tier includes recgnized, nn-prfit rganizatins which are cnsidered t be the French equivalents f English charities r have prven t benefit r stimulate the public such as humanitarian, familial, religius, envirnmental, cultural, sprtive, artistic, educatinal, scientific, r cmmunity-driven bdies. 66% f any dnatins made t rganizatins that have prven t pursue these causes can be deducted frm an individual s yearly taxable incme. In these cases, dnatins include (but are nt limited t) mnetary dnatins frm either vcatinal r investment-driven incme, the allwance f a charity t use private prperty r premises, subscriptins t charities, and/r expenses incurred while vlunteering at a charitable rganizatin. If an individual s gift exceeds the limits nted abve, a dnatin may be carried ver fr deductin purpses fr up t five years. 2. Is There a Tax Deductin fr Dnated Gds r Items? Fr U.S. Taxpayers Yes. U.S. dnrs generally can deduct the fair market value f the dnated item fr federal incme tax purpses, prvided that the rganizatin accepting the dnatin is ging t use the prperty in carrying ut its exempt activities. Fair market value is the price the item wuld sell fr n the pen market if it were sld in its current cnditin. Be sure t cllect and retain dcumentatin f yur dnatin and any accmpanying appraisals (required fr dnatins f prperty ther than marketable securities greater than $5,000). Fr Canadian Taxpayers Yes. If the fair market value cannt be easily determined, the dnr and/r the receiving registered charity may need t have the prperty appraised t verify this value. In general, this is the amunt f the tax deductin, prvided that the dnr receives n benefits as a result f his r her cntributin. If such benefits are given, the dnr must be sure t deduct their value frm the fair market price f the assets r prperty t determine the mdified tax deductin. Fr UK Taxpayers As nted in the abve sectin, UK citizens can receive a tax deductin fr dnated gds r assets. If the asset was presented as a gift, then the dnr shuld add the market value f the asset and any assciated csts (such as legal fees). Frm there, the dnr shuld deduct any value he r she (r any related persns) wuld receive as a result f the dnatin. This number is the amunt f the deductin. This frm f tax-relief can nly be claimed in the year that the gift was given. Dnrs shuld be sure t cllect and keep share transfer dcuments, a certificate frm the charity r rganizatin which certifies that the assets have been transferred ver t them, and any written requests frm the rganizatin t sell the gds r assets n its behalf. Fr German Taxpayers

5 Like U.S. citizens, Germans can als deduct the fair market value f dnated item(s) frm their incme. Hwever, these material dnatins must cmply with the same rules and restrictins that have been established fr mnetary dnatins; i.e. tax relief is capped at 20% f an individual s annual taxable incme (r equivalent), and dnatins must be made t rganizatins in Germany r in ther E.U. member natins and must be apprved by the German gvernment, etc. Dnrs must als be sure t present apprpriate dcumentatin f their dnatins t the Ministry f Finance when necessary. Fr Australian Taxpayers Yes. As in the case f dnatins f mney, tax cncessins are permitted in the case f dnatins made t a Deductible Gift Recipient. Once again, the dnatin f gds r items must truly be a gift. In rder t claim tax deductins n gds r items, the dnatin must be ne f the fllwing types: Prperty valued at mre than AU$5000 and must be wned by the dnr fr less than 12 mnths Shares that are valued at AU$5000 r less at the time f dnatin and wned by the dnr fr less than 12 mnths Trading Stcks which are dispsed f utside f the usual curse f business Cultural Gifts, dnated under the Cultural gifts prgram Heritage Gifts, which include places that are recgnized in the Natinal Heritage list, the Cmmnwealth Heritage list r the Register f the Natinal Estate. Fr French Taxpayers French citizens can receive a tax-deductin fr the market value f prperty and items in gd cnditin. The limits and percentage f deductin fr these gds shuld crrespnd with the tier system as nted abve. In rder t ensure the deductin, dnatrs shuld be sure t btain valid dcumentatin f the gift frm the beneficiary rganizatin. 3. Can I Deduct the Value f My Time Spent Vlunteering? Fr U.S. Taxpayers 10 N. U.S. taxpayers may nt deduct the value f time spent vlunteering fr purpses f federal incme taxatin. They may, hwever, deduct unreimbursed expenses incurred as a direct result f vlunteering activities, but the expenses must be nes the charity wuld therwise have t incur, nt persnal expenses f the vlunteer. Fr example, vlunteers may deduct the cst f materials they dnate fr use in repairs t a health clinic, r supplies they use in leading activities at a day care center. Hwever, vlunteers may nt deduct persnal expenses such as meals eaten during a break in a lcal service prject, r transprtatin t and frm a schl where they dnate their time. Fr Canadian Taxpayers 10 Cnrad Teitell, Tax Deductins fr Vlunteers, 2007,

6 Like the U.S., Canadian vlunteers currently cannt deduct the cash value f time spent vlunteering frm their incme taxes, but they can deduct ut-f-pcket expenses directly related t vlunteer wrk in exchange fr the reimbursement f cash r a check. Hwever, in rder fr the expenditures t becme tax deductible, the vlunteer/dnr must prvide the charity with a written statement expressing his r her desire fr a dnatin receipt instead f reimbursement. At this pint, the dnatin receipt is valid fr deductin n the vlunteer/dnr s incme tax. Fr UK Taxpayers Citizens f the United Kingdm, similar t thse f the United States, cannt claim a tax deductin fr time spent vlunteering but are capable f receiving tax relief fr any expenses incurred as a direct result f vlunteering activities expenses that the charity wuld therwise have t incur and/r expenses fr which the charity did nt reimburse the vlunteer. Again, like the United States, these expenses must be directly related t the peratins f the rganizatin and the individual s wrk as a vlunteer. Fr German Taxpayers Taxpayers wrking n a vluntary basis can earn up t 500 tax-free Eurs per year. The wrk must be part time and shuld nt be the individual s primary surce f incme. Taxpayers wrking n a vluntary basis in areas f child r adlescent skill develpment (such as caching a sprt r instructing art r music lessns) can earn up t 2,100 tax-free Eurs per year. Again, this wrk must be part time and shuld nt be the individual s primary surce f incme. Fr Australian Taxpayers Vlunteering is nt cnsidered a dnatin f gds (mney r prperty) and therefre, the time spent vlunteering is nt cnsidered a tax deductible item. Hwever, any expenses incurred while vlunteering fr an rganizatin that is listed as a Deductible Gift Recipient may be tax deductible. In this case, any expenses incurred are cnsidered a gift and shuld be cnsistent with thse characteristics previusly mentined as tax deductible gifts. Fr French Taxpayers French citizens, like thse f several natins listed abve, cannt claim a tax reductin fr the cash-value f their time spent vlunteering. They can, hwever, receive tax-relief fr any necessary and unreimbursed expenses incurred while vlunteering. 4. What Kind f Dcumentatin D I Need?

7 Fr U.S. Taxpayers Fr U.S. taxpayers, a dnr cannt claim a tax deductin fr any single cntributin f $250 r mre unless the dnr btains a written acknwledgment f the cntributin frm the recipient rganizatin. Dnrs shuld seek written acknwledgement that includes: a. the name f the rganizatin a dnatin was made t, b. amunt f cash cntributin, c. descriptin (but nt the value) f nn-cash cntributins, d. a statement that n gds r services were prvided by the rganizatin in return fr the cntributin, if that was the case It is nt necessary t include either the dnr s scial security number r tax identificatin number n the acknwledgment. Fr cntributins f less than $250 where the dnr des nt have a written acknwledgement frm the charity, the dnr must maintain a bank recrd (such as a cancelled check) as prf f the cntributin. Fr Canadian Taxpayers If the dnr files tax returns electrnically, he r she must keep fficial dnatin receipts frm registered charities in the event that the Canadian Revenue Agency shuld ask t see them. If the dnr files tax returns manually, he r she shuld submit dnatin receipts with their cmpleted paperwrk. Official dnatin receipts shuld indicate the eligible amunt (fair market value) f the gift subtracted by the value f any benefits received in exchange fr the dnatin. Dnrs are als encuraged t keep any dcuments related t their dnatin, including checks, pledge frms, and prf f payment. Fr UK Taxpayers Because the UK methds f making charitable dnatins are ften cmpleted via rganizatins which are directly integrated with taxatin ffices such as Gift Aid and Payrll Giving, dnrs shuld keep careful recrds f their cntributins but may nt be required t present these recrds r ther frms f dcumentatin in rder t receive a tax deductin. Payrll Giving yields an immediate tax deductin when it subtracts an individual s dnatin frm his r her salary (and therefre decreases the amunt t be taxed) befre an incme tax is calculated. Gift Aid wrks intimately with taxatin ffices, as a dnr must meet certain annual tax requirements befre a gift can be made. The necessary dcumentatin fr dnatin f assets has been included abve, but, t reiterate, recrds f thse transactins shuld include share transfer dcuments, a certificate frm the charity r rganizatin which certifies that the assets have been transferred ver t them, and any written requests frm the rganizatin t sell the gds r assets n its behalf. Fr German Taxpayers

8 Dnatins up t 200 Eurs require dnatin cnfirmatins f either an accunting recrd r a cash depsit receipt. Dnatins exceeding 200 Eurs require a dnatin receipt frm the receiving rganizatin. Fr Australian Taxpayers Dnrs wishing t receive a tax deductin n dnatins made t Deductible Gift Recipients shuld ensure that they keep a recrd f all gifts made. This will be f use in ldging a tax return, and shuld be kept fr 5 years in case f auditing. In the case f Prperty dnatins, additinal valuatins may be required and recrded. Any claims made cannt create a tax lss fr the dnr; hwever, claims may be spread ver a perid f up t 5 years. If this is the case, then additinal dcumentatin is required frm the Australian Taxatin Office. Fr French Taxpayers Individuals wishing t receive a tax-deductin fr their dnatin shuld be sure t btain either a dnatin receipt r certificate t present t his r her lcal tax ffice. Taxpayers wh declare nline d nt need t submit dcumentatin, but shuld keep all recrd f dnatins in the event that prf is requested. The discussin f the U.S. federal incme tax treatment f charitable dnatins, which was reviewed by Cvingtn & Burling LLP, is nt intended t be, nr shuld it be cnstrued t be, legal r tax advice t any particular persn. Accrdingly, yu are urged t cnsult yur wn tax advisrs with respect t the U.S. federal incme tax treatment f charitable dnatins. Similarly, please be advised that the preceding infrmatin n ther cuntries des nt cnstitute legal advice and is nt meant t prvide a cmplete discussin f tax cmpliance issues. Please cnsult legal cunsel if further assistance r a mre detailed analysis is needed.