Charitable Trust Status

Privileges of Charities

Charities enjoy certain significant legal privileges. Charities are entitled to operate under a perpetual trust potentially accumulating funds indefinitely for the defined purposes provided in the charitable trust.

The other significant advantages are in the areas of taxation.  They enjoy various exemptions from rates, income and corporation tax, capital gains tax and gift tax.  In order to obtain the favourable tax treatment, registration with the Revenue Commissioners is necessary.

Charities also enjoy favourable rights in terms of obtaining permits for lotteries and collections in aid of the charitable purposes

Purpose Trusts Generally Invalid

Trusts for purposes which are not classified as charitable are generally invalid.   It must be possible to identify the beneficiaries under a non-charitable trust.  Non-charitable trusts may fail tests of validity, due to lack of certainty as to the beneficiaries.

In contrast, charitable trusts may be for the benefit of particular purposes or unknown future classes of persons. Charitable status allows trusts with very open, enduring and flexible purposes.

Generally, there is a limited time during which the trust assets may be accumulated or tied up.  The rule as to duration has been modified in 2009, but the broad principle limiting perpetual accumulation remains through court control.

Charitable gifts and trusts may last forever, without any need to appoint or transfer the assets within a certain time limit.  The former perpetuity rules that applied to private trusts, never applied to public or charitable trusts.

Tax Benefits

Charities benefit from considerable tax advantages, that are not otherwise available. The terms of the exemption depend on the wording of the legislation for each tax.

In order to obtain an exemption from revenue and capital taxes, it has long been necessary to obtain confirmation from the Revenue Commissioners, that they are satisfied that the body meets the legal requirements for recognition as a charity.

Charities are now subject to registration and regulation under the Charities Act, 2009.  See the separate section on the regulation of charities.

Tax Exemptions

Gifts and inheritances received are not subject to inheritance or gift tax.

Income earned in the advancement of the charities purpose is usually exempted from income tax. It is not sufficient that the profits of a trade are used for charitable purposes.  Receipts are regarded as charitable if they are used only for the objects and purposes of the charity, for another charity or are used to cover actual expenses.

The VAT treatment of charities is not generally favourable as other taxes. They are exempt from VAT on what they supply but are thereby unable to recover VAT on costs incurred.

Certain charities qualify for a more favourable status by which donations to them are subject to tax relief which they may reclaim tax from Revenue directly on behalf of the donor.

There is an exemption for rates for properties used for charitable purposes.T heir buildings are occupied without payment of rates.

Charitable Purposes

In order to qualify as a “charity” in the legal sense,  a trust’s purposes must fall within certain categories, originally laid down by the Courts of equity.  Charities embrace a much wider range of purposes and activities than is sometimes commonly understood.  In the present sense, charities include bodies whose purposes are one or more of the following:

• Advancement of education;
• Relief of poverty;
• Advancement of religion;
• Other purposes beneficial to the community.

This latter category was an open category which was capable of expansion by the Courts from time to time as society evolved.