Tax relief for donations and non-profit regulations

On 4 July, in a presentation to the Council of Ministers, the Federal Government’s plan to expand and reform the tax relief for donations and the non-profit regulations of the BAO was communicated. The proposed regulations would bring about long-awaited relief and are to be welcomed without reservation. However, a concrete legislative proposal as well as information on the entry into force are not yet available.

Donations and voluntary work are the pillars of social cohesion in Austria. And the volume of donations in Austria is growing steadily and has recorded considerable growth rates in recent years. Private commitment has been supported from a tax perspective since 2009 and the deductibility of donations has been successively expanded since then.

In order to give monetary recognition to donors, the so-called “non-profit package” (“Gemeinnützigkeitspaket”) is now to be implemented. The aim is to expand and significantly simplify the tax deductibility of donations.

The list of deductible donations according to section 4a EStG 1988 is to be extended. In future, instead of explicitly naming the individual purposes for which donations are eligible, the list of charitable purposes as defined in section 34 ff of the Federal Fiscal Code (BAO) is to be used as a general basis. This would mean that the following areas in particular would be covered for the first time by the preferential treatment of donations:

• Education: With the extension of the deductibility of donations to elementary education and school education, vocational training and further education as well as adult education, an important concern of practice is to be taken into account. Here, public kindergartens and schools are to be considered ex lege as beneficiary institutions. All other non-profit educational institutions can apply to the Austrian tax office for recognition as a beneficiary institution. However, school fees and course fees are not to be deductible as donations.
• Sport: In the area of sport, with the exception of the umbrella organisations for sports for the disabled, there has been no preferential treatment for donations so far. In deviation from this, sport is to be a donor-privileged purpose in the future.
• Art and culture: Donations for generally accessible art and cultural performances were already eligible for preferential treatment. These were regularly linked to conditions, e.g. by linking them to federal or state funding. In view of the extension of the preferential treatment of donations to all non-profit purposes, this condition is to be dropped in the future.
• Other beneficiary purposes: Due to the general link to charitable purposes as defined by the BAO, child, youth and family welfare, human rights and the promotion of women, as well as consumer protection, will in future also be among the beneficiary purposes.

General requirements:

• Only organisations that serve the general public can be charitable in the sense of section 34 ff BAO and therefore eligible for donations.
• The objectives of the organisation must be in accordance with the Austrian legal system.
• Focus on proportionality and accuracy of the purpose.

• Procedural simplifications: The previously required 3-year period of activity (in the beneficiary area) for inclusion in the list of donations is to be shortened to 1 year. Instead of the previously required confirmation by an auditor, a simplified notification procedure via tax advisors is to relieve the financial burden, especially on small associations. In the future, the extension, which was previously required to be applied for, is to be carried out automatically through notification by tax advisors.
• Simplifications: The currently different requirements for fundraising associations and fundraising bodies are to be standardised and simplified.
• Protection against abuse: In order to prevent abusive practices and to protect honest organisations, appropriate legal consequences – especially liability provisions – should be provided for systematic, serious cases.

• The current provision on the deductibility of contributions to the assets of charitable foundations pursuant to section 4b EStG 1988, which was introduced for a limited period in 2015, is to become permanent law.
• The EUR 500,000 limit is also to be raised, a carry-forward option created and the use of funds made more flexible.

With the aim of legal certainty and to simplify the procedure, the following simplifications are to be provided for non-profit corporations and their members and officials:

• Amounts already provided for in the association guidelines that are exempt from income tax for payments to association officials and members are to be anchored in the Income Tax Act (large and small “voluntary lump sum”).
• Insignificant deficiencies in the statutes should be retroactively remediable in the case of actual non-profit management.
• In the future, exemptions for non-beneficial business operations and commercial enterprises should also be granted with retroactive effect.
• Cooperations between non-profit and non-charitable organisations are to be harmless under certain conditions.
• The turnover limit for the automatic exemption (section 45a BAO) for non-beneficial businesses is to be increased from the current EUR 40,000 to EUR 100,000 per assessment period.
• In the event of dissolution or discontinuation of the beneficiary purpose, subsequent taxation is to take place for up to 10 years, provided that the funds are not used for beneficiary purposes.
• Further simplifications are to be provided for umbrella organisations and holding companies.

Conclusion

The outlined “non-profit package” is supposed to contain welcome innovations as well as practical simplifications and would therefore be welcome in the form presented.

It remains to be seen whether legislation will be passed.