Recent legislative changes and practical tax issues mean charities deserve a place on every accountant's radar. Even if charities are only an occasional client, understanding the fundamentals can help you advise confidently on tax exemptions, charitable donations and compliance.

Most accountants will encounter charities at some point, whether acting directly for a charitable organisation or advising individuals and companies making charitable donations. Recent updates to charity legislation, alongside changes introduced through successive Finance Acts, make this a good time to revisit the key tax rules.

In a recent webinar, Taxation and Charities - a Refresher, Michael O'Scathaill gave some practical points every practitioner should keep in mind.

Becoming a Charity Is Only the First Step

A charitable organisation must first register with the Charities Regulatory Authority (CRA) before it can apply to Revenue for charitable tax exemption.

To qualify, an organisation must demonstrate that it operates for recognised charitable purposes and provides a public benefit. Traditionally, these purposes included:

• Prevention or relief of poverty
• Advancement of education
• Advancement of religion
• Other purposes beneficial to the community

The Charities (Amendment) Act 2024 expands these categories with additional charitable purposes, broadening the range of organisations that may qualify.

Once CRA registration is complete, the organisation can apply to Revenue for its charitable tax exemption (CHY number). This application typically includes:

• The charity's constitution
• Financial information or financial projections
• Details of planned charitable activities

The constitution is particularly important, as Revenue requires specific clauses before granting exemption.

What Does a CHY Number Actually Provide?

Receiving a CHY number does not simply mean "no tax."

Instead, it provides access to a range of tax exemptions, provided ongoing conditions continue to be met.

A charity must continue to:

• Maintain CRA registration
• Comply with the Charities Acts
• Meet its tax filing obligations
• Apply its income for charitable purposes

One important practical point concerns retained funds.

Historically, Revenue expected charities to use accumulated funds within two years. This has now been formalised into a five-year rule. If funds will be retained beyond five years, Revenue approval is required.

This provides greater certainty while reinforcing that charitable funds should ultimately be applied to charitable activities.

Not Every Source of Income Is Automatically Exempt

One common misconception is that every euro received by a charity is tax-free.

That is not always the case.

Investment income such as interest, dividends and rental income is generally exempt once the charity satisfies the relevant conditions.

Trading income is more complicated.

In general, trading profits remain taxable unless one of two exceptions applies:

• The trade directly furthers the charity's primary charitable purpose.
• The work is mainly carried out by the beneficiaries of the charity.

For example, a workshop operated primarily by the beneficiaries of a charity may qualify for exemption.

Each case depends on its own facts, making it important to review trading activities carefully rather than assuming exemption automatically applies.

Capital Taxes Also Contain Important Reliefs

Approved charities may benefit from Capital Gains Tax relief where disposal proceeds continue to be used for charitable purposes.

There are also exemptions from:

• Deposit Interest Retention Tax (DIRT)
• Dividend Withholding Tax (DWT)

In practice, charities should provide the appropriate documentation to banks and paying companies so these taxes are not deducted in the first place.

Some withholding taxes may still require a refund claim where no automatic exemption exists.

Charitable Donations Continue to Deliver Valuable Relief

One significant advantage of charitable status is participation in the Charitable Donation Scheme.

Once a charity receives its CHY number, it is automatically included in the scheme.

For qualifying individual donations:

• Annual donations must generally total at least €250.
• Donations must be cash or qualifying cash equivalents.
• The charity claims the associated tax relief from Revenue.

Corporate donations operate differently.

Companies generally obtain relief by treating qualifying donations as deductible trading expenses, subject to the relevant conditions.

Practitioners should also remember that charitable donation relief can interact with a taxpayer's overall tax position, particularly where other reliefs are being claimed.

Recent Legislative Changes Extend Beyond Tax

The Charities (Amendment) Act 2024 introduces several governance changes alongside tax developments.

Among the notable changes are:

• Additional recognised charitable purposes.
• Greater CRA oversight of constitutions and governance.
• Updated financial reporting requirements.
• Expanded regulation of charity trustees.
• New reporting obligations.

Successive Finance Acts have also introduced administrative changes affecting charitable tax exemptions and approved sports bodies.

These include:

• Automatic inclusion in the Charitable Donation Scheme following CHY approval.
• Formal legislation governing the five-year accumulation rule.
• Updated rules for donations to approved sports bodies undertaking qualifying capital projects.
• Clarification that charitable tax exemption applies only after Revenue has formally granted approval.

Practical Takeaways for Accountants

Charity taxation sits across tax, governance and regulatory compliance. That makes early advice particularly valuable.

When acting for charities or organisations considering charitable status, it is worth ensuring that:

• Registration with the CRA is completed before seeking Revenue approval.
• Constitutions are drafted with both legal and Revenue requirements in mind.
• Trading activities are reviewed separately rather than assuming exemption.
• Charitable funds continue to be applied within the permitted timeframe.
• Recent legislative changes are reflected in governance procedures.

Even practitioners who only encounter charities occasionally will benefit from understanding these fundamentals. Small compliance issues can have significant consequences for charitable status and the availability of valuable tax reliefs.

Frequently Asked Questions

What tax reliefs are available to registered charities in Ireland?

Revenue-approved charities may qualify for exemptions from several taxes, including income tax, corporation tax, capital gains tax (CGT), Deposit Interest Retention Tax (DIRT) and Dividend Withholding Tax (DWT), provided they satisfy the relevant legislative conditions. The charity must continue to apply its income for charitable purposes and remain compliant with both Revenue requirements and the Charities Regulatory Authority (CRA).

How does a charity obtain tax-exempt status?

Obtaining charitable tax exemption is a two-stage process.

First, the organisation must register with the Charities Regulatory Authority (CRA) by demonstrating that it exists for recognised charitable purposes and provides a public benefit.

Once CRA registration has been granted, the organisation applies to Revenue for a CHY number. The application typically includes its constitution, financial information or projections, and details of its planned charitable activities. Revenue may request further information before granting approval.

What is a CHY number?

A CHY number is Revenue's approval that a charity qualifies for charitable tax exemption.

It allows eligible charities to claim the available tax exemptions and participate in the Charitable Donation Scheme. Receiving a CHY number does not remove every tax liability automatically, as some trading activities may still be taxable depending on the circumstances.

Does every charity qualify automatically for tax exemption?

No.

Registration with the Charities Regulatory Authority is an essential first step, but Revenue separately considers applications for charitable tax exemption. A charity must satisfy Revenue's conditions before a CHY number is issued.

The charity must also continue meeting those conditions to retain its exemption.

Are all sources of income received by a charity tax-free?

No.

Investment income is generally exempt once the charity satisfies the required conditions.

Trading income is different. Trading profits are generally taxable unless the activity directly furthers the charity's primary charitable purpose or the work is mainly carried out by the charity's beneficiaries. Whether a particular activity qualifies depends on its specific facts.

How long can a charity retain surplus funds?

Recent legislative changes formalised Revenue's approach to accumulated funds.

A charity generally has up to five years to apply accumulated income to its charitable purposes. If funds will be retained beyond that period, Revenue approval is required.

What is the Charitable Donation Scheme?

The Charitable Donation Scheme allows eligible charities to claim tax relief on qualifying donations made by individuals.

Once a charity has received its CHY number, it is automatically included in the scheme.

Qualifying donations must generally total at least €250 in a year and be made in cash or qualifying cash equivalents.

How does tax relief on charitable donations work?

For qualifying individual donations, the tax benefit is claimed by the charity rather than the donor.

The donor completes the appropriate Revenue certificate, allowing the charity to reclaim the associated tax from Revenue, provided the donor has paid sufficient tax during the relevant period.

Corporate donations operate differently, with companies generally claiming relief through their corporation tax computation where the qualifying conditions are met.

Can charities claim exemption from Capital Gains Tax?

Yes, in certain circumstances.

Where a charity disposes of an asset and the proceeds continue to be applied for charitable purposes, CGT relief may be available.

There are also rules covering assets transferred to charities and situations where assets cease to be used for charitable purposes, making specialist advice worthwhile where significant property transactions are involved.

Are charities exempt from Local Property Tax?

Not automatically.

Some residential properties owned by charities may qualify for exemption where they are used for specific charitable purposes, such as providing accommodation linked to recreational activities or special needs accommodation.

Each property should be considered against the relevant legislative conditions.

Are charity shops exempt from commercial rates?

The position is currently evolving.

The webinar discussed a High Court decision involving Vision Ireland (formerly NCBI Retail), where the Court found that a charity shop was being used directly for the organisation's charitable purposes. At the time of the webinar, that decision was under appeal.

Do charities still have VAT obligations?

Yes.

Charitable status does not automatically remove VAT obligations. Where the normal VAT registration rules apply, charities may still need to register for VAT and account for VAT on taxable activities.

The webinar also noted the existence of the VAT Compensation Scheme, which allows eligible charities to claim partial refunds of irrecoverable VAT, subject to the scheme's conditions and available funding.

What changes were introduced by the Charities (Amendment) Act 2024?

The webinar highlighted several important developments, including:

• Additional recognised charitable purposes.
• Greater CRA oversight of charity constitutions.
• Updated financial reporting provisions.
• Expanded regulation of charity trustees.
• Additional reporting obligations.

Some provisions remain subject to commencement orders.

What recent Finance Act changes affect charities?

Recent Finance Acts introduced several administrative and technical changes, including:

• Automatic entry into the Charitable Donation Scheme once Revenue grants charitable tax exemption.
• A statutory five-year rule for applying accumulated charitable funds.
• Updated rules affecting approved sports bodies and qualifying capital projects.
• Clarification that charitable tax exemption applies only after Revenue has formally granted the exemption.

Practitioners should ensure advice reflects the current legislation before relying on these provisions.

Why should accountants review charity constitutions carefully?

The constitution forms a key part of the Revenue approval process.

Revenue expects certain clauses to be included before granting charitable tax exemption, while the Charities Regulatory Authority also has oversight of constitutional changes under the updated legislation.

Obtaining appropriate legal advice during the drafting stage can help avoid delays later in the registration process.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.