Advanced Taxation: Charities and Associations

Advanced Taxation: Charities and Associations

• Charitable Organizations: Organizations apply to the Tax Administration (TAJ) to be registered as tax-exempt under section 12(h) of the Income Tax Act.

Presentation Outline

• Identify and define charitable organizations.
• Discuss the Charities Act 2013.
• Discuss the purpose of charities.
• Identify and discuss tax benefits of registered charities.
• Discuss the mutuality principle.

Background

• Charitable organizations apply to be registered tax-exempt entities.
• Weaknesses in the system:
  • Lack of transparency in granting waivers.
  • Uncertainty about true beneficiaries of charities.
  • Poor management by governing boards.
  • Non-compliance with obligations for maintaining tax-exempt status.

Charities Act 2013

• Establishes new rules for charitable organizations, harmonizing provisions in other acts.
• Minister of Industry, Commerce, Agriculture, and Fisheries: oversees the charities legislation.
• Department of Co-operatives and Friendly Societies (DCFS): considers applications, monitors, suspends, or revokes charitable status.
• Registrar (Companies Office of Jamaica): maintains a current register of RCOs.
• Charities Appeal Tribunal: for organizations dissatisfied with DCFS decisions.

Defining a Charitable Organization

• Charitable Act 2013: defines a registered charitable organization.
• Categories of charities:
  • Charitable trust.
  • Any institution (incorporated or not) established exclusively for a charitable purpose.
  • Intended to operate for public benefit.
  • Its net income and assets do not benefit governing board members, individuals, or excluded bodies.
• Excluded bodies: political parties, trade unions, employer representative bodies, chambers of commerce, bodies promoting unlawful purposes (prejudicial to public order/safety, terrorism support, benefitting an unlawful organization).

Types of Charities

• Incorporated limited by guarantee with share capital.
• Incorporated limited by guarantee without share capital.
• Trust: established for charitable purposes, managed by trustees.
• Unincorporated associations: with a constitution and management committee.

Charitable Purpose

• Purposes of charities:
  • Prevent/relieve poverty
  • Advance education
  • Advance religion
  • Advance health/save lives
  • Advance good citizenship/community development
  • Advance arts, culture, heritage, or science
  • Advance amateur sport
  • Advance human rights, conflict resolution, or reconciliation
  • Promote religious/racial harmony or equality/diversity
  • Advance environmental protection or improvement
  • Relief for those in need (youth, elderly, ill-health, disability, financial hardship)
  • Promote efficiency of armed/police forces
  • Advance animal welfare
  • Purpose specified by the government, subject to negative House resolution.

Duties of Registered Charitable Organizations

• Keep financial records and meeting minutes.
• Enable true and fair financial statements.
• Correctly record and explain transactions/financial position and performance.
• Manage and invest funds according to the constitution.
• File corporate information and financial statements with the DCFS.
• State that they are an RCO on all documents.
• File audited accounts with the TAJ.
• File annual returns, income, and expenditure statements with the Companies Office of Jamaica.
• Notify the DCFS of any changes (name, address, board).

Registered Charitable Organizations Tax Benefits

• Income Tax: income is tax-exempt. Donations of cash/property (up to 5% of donor's statutory income) are deductible. Written-down property value is considered in tax exemptions.
• Customs Duty: no import duty (except on vehicles). Environmental levy and CAF are payable on general cargo.
• Property Tax: buildings and lands are exempt.
• Stamp Duty: exempt from portions (up to 50% of duty) for conveyances of land. Exempt from stamp duty on foreign bills of exchange, promissory notes. Exempt from stamp duty on financial instruments.
• Transfer Tax: land transfer is tax-exempt if used for RCO purposes. Transfer by gift is also exempt.
• Special Consumption Tax: exempt from consumption tax on imported/exported goods used for charitable purposes.

Mutuality Principle: Associations of Members

• Mutuality: Organizations derive income from external sources, not themselves.
• Mutual receipts (not taxable): membership subscriptions, fees, payments for services.
• Assessable receipts (taxable): interest, rent, dividends, revenue from members/guests/visitors, certain grants, sponsorship income.
• Apportionable income (taxable/non-taxable): proceeds from shared activities (e.g., bar sales, gym fees, raffles).

Cases

• Liguanea Club Ltd v. IT Assessment Committee (1942): Profits from renting a pavilion to non-members were taxable.
• Jamaica Coconut Producers Association Ltd v. IT Assessment Committee (1944): Profits from outside trading were taxable; reserve fund accumulations weren't.

This quiz covers key concepts related to charitable organizations and their tax exemptions under the Charities Act 2013. You'll explore the definitions of charitable organizations, their purposes, and the tax benefits they receive. Additionally, the quiz addresses weaknesses in the current system and the principles of mutuality.