Advanced Taxation: Charities and Associations

Advanced Taxation: Charities and Associations

• Charitable organizations apply to the Tax Authority (TAJ) to be registered as tax-exempt entities under section 12(h) of the Income Tax Act.
• Weaknesses in the current system include a lack of transparency in granting waivers, uncertainty about beneficiaries, and poor management by governing boards. Many charities did not comply with the obligations necessary to maintain tax-exempt status.

Charities Act 2013

• The Act introduced new rules for charitable organizations and harmonized provisions relating to Registered Charitable Organizations (RCOs) in other acts.
• The Ministry of Industry, Commerce, Agriculture, and Fisheries oversees the charities legislation.
• The Department of Co-operatives and Friendly Societies (DCFS) is the regulatory authority that considers applications, monitors, suspends, or revokes charitable status.
• The Companies Office of Jamaica maintains a current register of RCOs.
• A Charities Appeal Tribunal handles appeals for organizations dissatisfied with DCFS decisions.

Defining a Charitable Organization

• A registered charitable organization can be a charitable trust or any institution (incorporated or not) fulfilling specific criteria.
• Must be established for a charitable purpose exclusively, operate for public benefit, and not for the personal benefit of governing board members or private individuals.

Excluded Bodies

• Political parties or bodies promoting political parties or candidates
• Trade unions
• Representative bodies of employers
• Chambers of commerce or similar bodies promoting commercial interests
• Bodies promoting activities that are unlawful, prejudicial to public order or safety, support terrorism, or benefit an unlawful organization.

Types of Charities

• Incorporated limited by guarantee with share capital
• Incorporated limited by guarantee without share capital
• Trusts established exclusively for charitable purposes and managed by trustees
• Unincorporated associations with a constitution and management committee

Charitable Purpose

• Specific purposes listed, including poverty relief, education advancement, religious advancement, health, good citizenship, community development, the arts, culture, heritage, science, and amateur sport. Additional purposes can be specified by the Minister of the government.

Duties of Registered Charitable Organizations

• Maintain accurate financial records, minutes of meetings, and produce true and fair financial statements, suitable for audit.
• Properly record and explain transactions and financial performance.
• Manage and invest funds according to the terms of its constitution.
• File corporate information and financial statements with the DCFS.
• Declare RCO status on all documents issued by the charity.
• File audited accounts with the TAJ.
• File annual returns, expenditure, and income statements with the Companies Office of Jamaica.
• Notify the DCFS of any changes in the organization's name, address or board members.

Registered Charitable Organizations Tax Benefits

• Income Tax: Income of registered charities is tax-exempt. Donations to charities can be claimed as a deduction, up to 5% of the donor's statutory income (in the case of property, the lower of the written-down value of the property or 5% of donor’s income).
• Customs Duty: No import duty for articles (except motor vehicles) imported to Jamaica by an RCO. RCO's are required to pay environmental levy and customs administration fee (CAF) on general cargo.
• Property Tax: Buildings and lands belonging to and used by an RCO are exempt from property tax.
• Stamp Duty: Exempt from any portion of stamp duty (not exceeding 50% of the applicable stamp duty). Exempt from stamp duty on foreign bills of exchange, foreign promissory notes drawn in Jamaica, payable on demand and any financial instrument executed by the RCO or on its behalf.
• Transfer Tax: Transfer of land is exempt if used for RCO purposes. Transfer tax on gifts to an RCO is also exempt.

Mutuality Principle: Associations of Members

• Mutuality dictates that an organization cannot derive income from itself. An organisation's revenue consists exclusively of external funds.
• Receipts from mutual dealings with members are excluded from assessable income.
• Expenses for mutual receipt generation are not deductible.
• Receips from trading with non-members and outside income are assessable.
• Expenses directly related to assessable income are deductible.
• Examples of mutual receipts include membership subscriptions and fees, payments for services, etc. Assessable receipts include interest, rent, dividends, revenue from members' guests and visitors.
• Apportionable income comprises both assessable and non-assessable income (like drinks sold at a bar, facility access fees, or raffle proceeds). Income from non-members is assessable.

Case Studies (Mutuality Principle)

• Liguanea Club Ltd v. IT Assessment Committee (1942): Profits from renting a pavilion to non-members were taxable, but profits from conducting a members' club (no trading with non-members) are not assessable income.
• Jamaica Coconut Producers Association Limited v. IT Assessment Committee (1944): Outside trading income is assessable, but special reserve funds for growers were not taxable.

This quiz explores the intricacies of taxation related to charities and associations, focusing on registration as tax-exempt entities under the Income Tax Act. It delves into the challenges charities face regarding compliance, transparency, and regulatory oversight. Gain a deeper understanding of the Charities Act 2013 and its implications for charitable organizations.