Tax Exemptions for Charities
The Charity Commission, the regulator of charities in England and Wales, estimates that there are 180,000 registered charities which includes large charities, such as the British Council with an estimated income of £706 million. Closer to home, in the United States of America, United Way and the Salvation Army were the top two largest US charities on the Forbes List for 2012 receiving US$3.9 billion and US$1.7 billion in donations, respectively. Evidently, from a global perspective by number and sheer scope, charities play a significant role in the socio-economic fabric of society.
In Jamaica, the recent enactment of the Charitable Organizations (Tax Harmonization) (Miscellaneous Provisions) Act, 2013 ("the Act") resulted in all tax laws relating to charities being provided for in a single piece of legislation. Previously, the law in relation to charities was found in various statutes, namely: the Companies Act, the Customs Act, the General Consumption Tax Act, the Income Tax Act, the Property Tax Act and the Stamp Duty Act. In the event that an organization wished to be classified as a charity, it was required to make numerous applications to various Ministries under these statutes and the requirements were varied and arguably imprecise.
Harmonization in the tax treatment of charitable organizations
In an effort to cure that anomaly, the Act seeks to harmonize the tax treatment of charitable organizations by amending these statutes, save for the Companies Act. This means that an organization will still be initially required to satisfy the requirements of section 16 of the Companies Act. This states that an organization is required to apply to the Minister of Industry, Investment and Commerce at or after incorporation for a licence to remove the word "limited" from its name. This application would be premised on the fact that the organization is formed for the promotion of commerce, art, science, religion, charity or other useful object and intends to apply its profits, if any, or other income for the promotion of its objects.
Under the new regime introduced by the Act, organizations will apply to the Commissioner General of Tax Administration Jamaica to be classified as an "approved charitable organization". The Act provides that the standard definitions for an "approved charitable organization" and "charitable purposes" are as stated in the Income Tax Act. Those definitions will be applied to all statutes that provide tax exemptions for charitable organizations. From an administrative perspective, once an entity has been classified as an "approved charitable organization" it will no longer be required to satisfy a variety of litmus tests. Rather an "approved charitable organization" will be grated tax exemptions under the Income Tax Act and be eligible for other tax exemptions by virtue of this classification.
The Act also removes in respect of the General Consumption Tax Act, the Income Tax Act, and the Transfer Tax Act the Minister of Finance and Planning's power to waive, remit or refund tax payable in relation to an "approved charitable organization". This appears to be in line with the International Monetary Fund's statement issued at the conclusion of their mission during August 14-23, 2013, that the Government continues to implement its decision to strictly limit the granting of discretionary waivers.