TAX BENEFITS OF CALAMITY VICTIMS DONATIONS
By: Euney Marie J. Mata-Perez on January 30,2020
The recent Taal Volcano eruption spurred once again the generosity of the Filipino spirit. Many Filipinos participated in countless relief efforts in various capacities, whether as volunteers or donors. Thus, it is good once again to be reminded of the benefits of giving back for tax purposes.
The 6-percent donor’s tax is generally imposed on the donor for total gifts in excess of P250,000 made during the calendar year. The same rate applies whether donations are made to strangers or to family members, such as siblings, spouses, ascendants, descendants or relatives within the fourth degree of consanguinity. The donor is required to file the donor’s tax return and pay the donor’s tax within 30 days from the date of donation.
Donors to calamity victims may be entitled to the twin benefits of exemption from donor’s tax and the ability to claim the donation as a deduction for income tax purposes.
Unfortunately, however, not all donations to calamity victims could be exempt from donor’s tax or be tax deductible.
Donations not exceeding P250,000 are exempt from donor’s tax, regardless of the recipient. However, donations in excess of P250,000 can be exempt from donor’s tax only if they are: made to or for the use of the national government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the government; or made in favor of qualified donee institutions. Thus, direct donations in excess of P250,000 given to communities or individuals affected by a calamity would not be exempt from donor’s tax.
As a general rule, donations are deductible to the extent of 10 percent of taxable net income with respect to individual taxpayers and 5 percent with respect to corporate taxpayers. However, donations to accredited and qualified donee institutions are fully deductible.
Who are qualified donee institutions then? They are non-stock, non-profit institutions or foundations organized for educational and/or charitable, religious, cultural or social welfare purposes. They include non-government organizations (NGOs), trust or philanthropic organizations or research institutions, and must be accredited by the Philippine Council for NGO Certification Inc., the designated accrediting entity in accordance with the provisions of the Bureau of Internal Revenue’s (BIR) Revenue Regulations 13-98.
Qualified donee institutions are subject to certain requirements for donations to them to be fully deductible or exempt from donor’s tax.
The donation must be used directly for the active conduct of activities for which it was organized and operated. The donor should then review if the giving of aid to the Taal Volcano victims is within the donee’s purpose. If the donee is primarily organized for medical research, for instance, the giving of aid to calamity victims may not qualify as one made within its purpose.
Not more than 30 percent of gifts received by the donee shall be used by it for administration purposes, pursuant to the provisions of Section 101(A)(3) and (B)(2) of the National Internal Revenue Code (Tax Code).
Other conditions imposed on qualified donee institutions are as follows: in the event of dissolution of the donee institution, its assets shall be distributed to other accredited organizations or to the state for public purpose; and all members of the board of trustees shall not receive compensation or remuneration for their service. These conditions are required to be expressly stated in the donee’s articles of incorporation.
To prove the donation, the qualified donee institution shall issue a so-called “Certificate of Donation” (BIR Form 2322) to the donor. The donor, on the other hand, shall file a notice of donation within 30 days from receipt of such certificate of donation before the BIR revenue district office that has jurisdiction over its place of business. The notice of donation should state that no more than 30 percent of the said donation or gifts shall be used by the qualified donee institution for administration purposes. The notice of donation is also required to be filed for every donation worth at least P50,000) (RR 13-98, as amended by RR 12-2018).
It is indeed laudable for donors to give to calamity victims and they should be entitled to tax benefits for giving such donations. However, it should be borne in mind that, to be entitled to such tax benefits, certain conditions must first be met.