Advanced Taxation: Charities and Associations (UCC PDF)

Advanced Taxation Charities and Association  Presentation Outline 1. Identify and define charitable organizations. 2. Discuss the charities Act, 2013. 3. Discuss the purpose of charities. 4. Identify and discuss the tax benefits of registered charities. 5. Discuss the mu...

Advanced Taxation Charities and Association  Presentation Outline 1. Identify and define charitable organizations. 2. Discuss the charities Act, 2013. 3. Discuss the purpose of charities. 4. Identify and discuss the tax benefits of registered charities. 5. Discuss the mutuality principle.  Charities and Associations Background  Charitable organizations made an application to TAJ to be registered as a tax-exempt organization under section 12(h) of the Income Tax Act.  Weaknesses in the system:  Lack of transparency in granting waivers.  Not always clear who the true beneficiaries of the charity were.  The management by the governing board members of some charities was poor.  Charities were not in compliance with the obligations required to maintain their tax- exempt status.  Charities and Associations Charities Act 2013 The Act establishes new rules for charitable organizations and harmonize the provisions relating to Registered Charitable Organizations (RCOs) in other acts. The Minister of Industry, Commerce, Agriculture and Fisheries has oversight of the charities legislation. The regulatory authority is the Department of Co-operatives and Friendly Societies (DCFS). (Considers applications, monitors, suspend or revoke charitable status) The Registrar is the Companies Office of Jamaica whose role is to maintain a current register of RCOs. A Charities Appeal Tribunal for organizations that are dissatisfied with a decision of the DCFS  Charities and Associations Defining a Charitable Organization The Charities Act, 2013 defines a registered charitable organization as: a) A charitable trust; or b) Any, institution, whether incorporated or not, which: (i) Is established for a charitable purpose exclusively (ii) Is intended to and does operate for the public benefit (iii) Has no part of its net income or assets ensuring to the personal benefit of any governing board member, person, or any other private individual (iv) Does not include an excluded body.  Charities and Associations Defining a Charitable Organization Excluded bodies are: (a) A political party or a body that promotes a political party or a candidate of a political party (b) A trade union (c) A representative body of employers (d) A chamber of commerce or other body that promotes the interests of commercial entities (e) A body that promotes purposes that are: (i) Unlawful (ii) Prejudicial to public order or public safety (iii) In support of terrorism or terrorist activities (iv) For the benefit of an organization being a member of which is unlawful  Charities and Associations Types of Charities: 1) Incorporated limited by guarantee with share capital. 2) Incorporated limited by guarantee without share capital. 3) A Trust – established for a charitable purpose exclusively and is managed by trustees. 4) Unincorporated associations with a constitution and a management committee.  Charities and Associations Charitable Purpose: 1) The prevention or relief of poverty 2) The advancement of education 3) The advancement of religion 4) The advancement of health or saving lives 5) The advancement of good citizenship or community development 6) The advancement of the arts, culture, heritage or science 7) The advancement of amateur sport  Charities and Associations Charitable Purpose: 8) The advancement of human rights, conflict resolution or reconciliation. 9) The promotion of religious or racial harmony, or equality and diversity. 10) The advancement of environmental protection or improvement. 11) The relief of those in need because of youth, advanced age, ill-health, disability, financial hardship or other disadvantage. 12) The promotion of the efficiency of the armed or police forces. 13) The advancement of animal welfare. 14) A purpose specified by the Minister by order, subject to negative resolution by the House of Representatives.  Charities and Associations Duties of Registered Charitable Organizations:  To keep financial and corporate records and minutes of each meeting of its governing board.  To enable true and fair financial statements to be prepared and to be audited.  To correctly record and explain its transactions and financial position and performance.  To manage and invest its funds in accordance with the terms of its constitution.  Charities and Associations Duties of Registered Charitable Organizations:  To file corporate information and financial statements with the DCFS.  To state that they are a RCO on all documents issued by the charity.  To file audited accounts with the TAJ.  To file annual returns as well as income and expenditure statements with the Companies office of Jamaica.  To notify the DCFS of any change in its name, address, or board members.  Charities and Associations Registered Charitable Organizations Tax Benefits:  Income Tax o The income of registered charitable organizations is tax exempt. o RCOs are able to accept donations of cash and property and provide a receipt which allows donors to claim their donations as a deduction provided it does not exceed five percent of the donor’s statutory income. o In the case of property the tax exemption is the lower of the written down value of the property or five percent of donor’s statutory income.  Charities and Associations Registered Charitable Organizations Tax Benefits:  Customs Duty o No import duty is required on any articles, except motor vehicles, imported into Jamaica by an RCO. o RCOs are required to pay the Environmental Levy and Customs Administration Fee (CAF) on general cargo.  Property Tax o All buildings and lands belonging to and used by an RCO are exempt from property tax.  Charities and Associations Registered Charitable Organizations Tax Benefits:  Stamp Duty o A RCO is exempt from any portion of stamp duty payable by the organization (not exceeding fifty percent of the stamp duty chargeable) in respect of any conveyance made by or to the organization of land used or intended to be used by the organization. o Exempt from stamp duty on foreign bills of exchange and foreign promissory notes drawn in Jamaica and payable on demand. o Exempt from stamp duty on any financial instrument executed by an RCO or on its behalf.  Charities and Associations Registered Charitable Organizations Tax Benefits:  Transfer Tax o Transfer of land is relieved of tax if the Commissioner is satisfied that the land was being used principally for the purposes of an RCO up to the time of the transfer. o Transfer tax on any transfer by way of gift to an RCO is also exempt.  Special Consumption Tax o No special consumption tax is payable upon any articles imported into Jamaica or taken out of bond in Jamaica by an RCO where shown to the satisfaction of the Commissioner to be required for charitable purposes. Associations of Members  Charities and Associations Mutuality Principle: Associations of Members The principle of mutuality is based on the proposition that an organization cannot derive income from itself. An organization’s income consists only of funds derived from external sources. where a number of persons (for example, members of a club, association or organization) contribute to a common fund which is created and controlled by those persons for a common purpose, any surplus arising from the use of that fund, for the common purpose, will not be deemed to be income.  Charities and Associations Mutuality Principle: Associations of Members The practical effect of the principle is that:  receipts derived from mutual dealings with an organization’s members (mutual receipts) are excluded from the assessable income of the organization;  expenses incurred to get mutual receipts are not deductible;  receipts derived from trading with non-members and income from sources outside of the organization are treated as assessable income; and  the expenses directly related to that assessable income can be claimed as deductible expenses.  Charities and Associations Mutuality Principle: Associations of Members Mutual Receipts (Not taxable) membership subscriptions; membership entrance fees; payments received by members for particular services provided by the organization (for example, access to facilities). Assessable Receipts (Taxable) interest; rent; dividends; revenue from members’ guests and visitors; certain grants; sponsorship income.  Charities and Associations Mutuality Principle: Associations of Members Apportionable Income (Taxable and Not taxable) Revenue that comprises both assessable and non- assessable income: drinks sold at the bar to members and non-members. The income derived from members will be non- assessable (because the bar is provided for the benefit of all members), while the income derived from non- members will be assessable; fees for members and non-members using the organization's facilities (for example, a gym); proceeds from a raffle, from both members and non- members.  Charities and Associations Mutuality Principle: Associations of Members Case: Liguanea Club Ltd, vs. IT Assessment Committee (Jamaica, 1942) The club was incorporated and the liability of its members limited by guarantee. Except for a pavilion which it rented to outsiders, the club did not carry on any trade or business with non-members. In 1940 the club was assessed to income tax on its gross income less allowable deductions. The decision of the High Court was that the profits of conducting a members’ club are made out of its members and not income. It stood “in the same position as the members of which it was constituted”. In the liguanea Club case the profits from the rental of the pavilion to non-members were taxable.  Charities and Associations Mutuality Principle: Associations of Members Case: Jamaica Coconut Producers Association Limited v IT Assessment Committee, (Jamaica, 1944) The members of the Jamaica Coconut Producers Association Limited had a marketing contract with the association; however the association also traded with non-members. It was held that “the outside trading the profits of which were admittedly taxable was severable from the ordinary and proper business of the company”. It was held also that the amounts held back by the association from the individual growers for accumulation in a special reserve fund were not profits or gains of a trade or business and were not taxable. Questions & Answers THE END