How Tax Deductible Donations Can Help With Your Business Taxes
6 minute read
Businesses can be a force of good in making a tangible difference to the community. One such means of doing so is through cash donations.
In fact, the Singapore government encourages such generosity through policies that are mutually beneficial for all involved.
Both businesses and individuals can render a tax-deductible donation to a qualified organization and apply for a corresponding tax deduction. Thus, every dollar you spend will be deducted from your taxable income by 2.5 dollars. In essence, you will receive a charitable contribution deduction of 250% for your donation.
Let’s take a look at a detailed guide on charitable donations and what you need to do if you want to claim tax relief.
What are tax deductible donations?
Tax deductible donations are essentially donations of money or goods to a tax-exempt entity, such as a charity, that can help lower your taxable income.
Some prominent forms of tax-deductible donations from businesses include:
- Qualifying donations to Institutions of Public Character (IPCs)
- Donations made to name facilities of approved beneficiaries, such as artifacts and public sculptures, made through donation campaigns
- Donations made through any of the approved donation programs where the IPC or an approved beneficiary acknowledges the donor’s name in their marketing materials or publicity collaterals
Types of tax deductible donations
To be tax deductible, charitable contributions must be made to an organization approved by the Institution of Public Character (IPC) or the Singapore government.
Here are the types of charitable contributions:
- Money (corporate and individual donors)
- Shares (individuals only)
- Historical artifacts (individual and corporate donors)
- Artistry (under the Public Art Tax Incentive Scheme)
- Land and structures (individual and corporate donors
Cash donations to local community causes are tax deductible.
However, do note that not all charities or community causes have IPC status. Donations to charities without IPC status would not be applicable for a tax deduction.
Only outright financial gifts that don’t provide the donor with a material benefit are completely tax-deductible. If a donor gets a benefit in exchange for a donation, only the difference between the gift and the benefit value is tax deductible.
Nonetheless, some donations made to IPCs on or after May 1, 2006, shall be treated as pure donations, even if a benefit is provided in exchange for the donation.
Donations with advantages in exchange will qualify for tax relief only if there is no commercial benefit helping the donor.
Share donations (individual donors only)
Publicly traded shares on the Singapore Exchange or units in trusts traded in the country are tax deductible.
The estimation of the gifted shares or units shall be determined by the approved IPC. The commercial value will be determined by the price of the same sort of shares or units on the fair market during the time of the donation’s last transaction.
The legal title to the approved IPC is moved to the donor on the date of donation. This donation scheme doesn’t allow the giving of options or shares with a holding term restriction.
Computer donations (corporate donors only)
As revealed in the 2017 Budget, the tax exemption system for computer donations will be phased out. After February 21, 2017, a corporation that gives computers to an approved educational, research, or other qualifying organization in the country and IPC is not entitled to a tax benefit.
Businesses that gifted computers (both hardware and software) before 21 February 2017 may claim the 250% tax relief under the following rules:
- Donations are made to certain educational, scientific, and other organizations, as well as all IPCs.
- The hardware or software supplied is approved by the Infocomm Media Development Authority (IMDA).
When a company spends money on computers solely with the intention of donating them, it can’t ask for capital allowance on such machines. However, a company may have spent money on computers for its own business and claimed full capital allowance on them.
Individual and corporate donations to museums are valid as long as the following conditions are met:
- The National Heritage Board (NHB) has granted the museum Approved Museum Status.
- The artifact must be recognized as valuable by NHB.
Entrepreneurs should ask the museum or the NHB for an appraisal of the gifted artifact’s value. The NHB can grant Approved Museum Status to museums operated by public organizations.
Donations under the Public Art Tax Incentive Scheme (PATIS)
Businesses or people that contribute sculptures or artwork to the NHB or any of its designated recipients for the public exhibition are eligible for a tax exemption beginning April 1, 2006.
For the donation to be recognized under this scheme, the following criteria must be met:
- Donation of funds or services has to be for the installation or maintenance of sculptures or works of art for the public.
- Gifts of a sculpture should be made to an approved recipient for public display.
- Artworks that are 2D or 3D and have artistic or heritage merits as desired by NHB.
Donors must submit an application to NHB in order for the monetary estimation of their given sculpture or piece of art to be assessed.
Land and Building Donations
Donations of land or structures to approved IPCs are tax-deductible as of April 1, 2003.
A market value appraisal of the gifted property must be arranged with an expert by the donors or the designated IPC.
The contribution amount is determined by the fair market value of the IRAS-approved property. The cost of value is not deductible from your taxes.
The date on which the property is lawfully transferred to the approved IPC shall be the date of donation for the purposes of filing your tax deductions.
How much of a donation is tax deductible?
The 250% tax deduction is for eligible donations made to IPCs. It has recently been extended for another two years to December 31 2023.
How do I calculate my tax deductible donations?
- Download the IRAS Taxable Income Calculator.
- Fill in your taxable income, personal reliefs, and rebates.
- Enter the donation amount.
For instance, if you have donated $1,000, enter $2,500 (multiply 2.5 times).
- Check the net tax payable. It will be calculated automatically.
The amount of the donation doesn’t need to be reported on your tax return. The details of your donation will be sent to IRAS electronically.
Based on the information provided, tax deductions for your qualifying donations will be automatically reflected in your tax assessments. Tax deduction applications based on donation receipts will no longer be accepted by the IRAS.
Requirements to claim tax deductible donations
Donations made during the previous tax year are eligible for a tax deduction. For example, if an individual donates in 2020, he or she can claim a tax reduction in the tax assessment for the Year of Assessment (YA) 2021.
The amount of the donation doesn’t need to be reported on your tax return.
When making donations to the IPCs, all people and corporations must supply their identification number (e.g. NRIC/FIN/UEN) in order to receive tax deductions.
Unused tax deductions
Did you know you can carry forward your unutilized tax deductions to the next year? When your tax deductions for donation exceed the income for the tax year, you can bring them forward for up to five years. This applies to individuals, corporations, and trusts.
For instance, a donation made in 2020 that is eligible for a charitable deduction in YA 2021 will be allowed to be carried forward up to YA 2026 (assuming the donation’s tax deduction exceeds the income for 2020).
Who do I make these tax deductible donations to?
Visit this website if you want to learn more about the official list of charities in the country of Singapore.
If you’re looking for a charity to donate to in the coming year, it would be wise to research well by looking at the list of Singapore charities.
In essence, you should choose charities that have a good cause you believe in instead of donating simple just to obtain tax relief.
List of IPC-approved charities
According to the Ministry of Culture, Community, and Youth’s 2019 charity report, there are over 2,000 charities with IPC status in Singapore. With so many charitable organizations in Singapore, it’s critical to donate to one fundraising activity that shares your values and that you truly care about.
Here’s a list of charities to get you started.
Singapore Cancer Society (SCS)
The Singapore Cancer Society (SCS) has a straightforward but ambitious mission – to reduce cancer and increase life expectancy.
Through education, screening, patient care, financial help for cancer treatment, research, and advocacy, SCS is committed to reducing the burden of cancer.
SCS is a community-based charity that relies on public donations to deliver high-quality services to cancer patients and their families.
Children’s Cancer Foundation (CCF)
Similarly, CCF supports the cause of cancer but focuses on improving the emotional, social, and medical well-being of children with cancer and their families.
It was established in 1992 and it has helped thousands of children over these 30 years. The organization has an integrated hospital-community-home service that provides a wide range of services to those in need.
Hospice Care Association (HCA) Singapore
HCA is one of Singapore’s many hospices, providing comfort and assistance to patients with life-threatening illnesses regardless of their age, religion, race, nationality, or financial situation.
Home hospice care, HCA’s major service, is provided free of charge to around 3,700 patients each year.
Movement for the Intellectually Disabled of Singapore (MINDS)
MINDS is one of Singapore’s oldest and largest organizations dedicated to the needs of people with intellectual disabilities (PWIDs).
Its mission is to enable PWIDs to obtain equal access to education so that they can better integrate into society as contributing and responsible citizens.
Club Rainbow provides relevant services to children with major chronic illnesses (even life-threatening illnesses) and their families to improve their quality of life and offer them hope for the future.
They give emotional, financial, educational, informational, and social support to their beneficiaries through a variety of activities and initiatives.
Beyond Social Services
This is a charity organization that helps children and young people who were born in less privileged backgrounds to overcome and break away from the cycle of poverty.
Beyond Social Services offers care, guidance, as well as resources that allow communities and families to keep their children and young people where they belong – out of trouble and in school. Their work is rooted in collecting donations, as well as working with volunteers and various partners to give these young people hope for a better future.
Cheng Hong Welfare Service Society (CHWSS)
This charity provides various services to the needy elderly in the Singaporean community. CHWSS offers free traditional Chinese medical (TCM) consultation, medication provision, as well as acupuncture services to the elderly, regardless of their religion or race.
In addition, they offer an afterlife memorial service (AMS). This includes befriending, pro bono funeral services, as well as related services.
Finally, this charity helps to finance the education cost for students from needy families.
With these policies set in place, businesses now have a greater incentive to meaningfully contribute back to the community. Beyond that, tax-deductible donations highlight the importance of ensuring that your business is always up-to-date on its related taxes and accounting.
Let Sleek help you with your taxes. Our trusted team of dedicated accountants will ensure that you’ll never miss another tax deadline again.
If you require additional help, don’t hesitate to contact us today.