[On behalf of the Ministry of Finance and the Inland Revenue Authority of Singapore]
We have received some questions from Institutions of a Public Character (IPCs) regarding the tax treatment of donations. In consultation with the Commissioner of Charities, the Ministry of Finance and the Inland Revenue Authority of Singapore (IRAS) would like to provide some clarifications.
Enhanced tax deduction for “donations"
2. To encourage philanthropy, section 37(3) of the Income Tax Act (ITA) allows taxpayers to enjoy enhanced tax deductions (“S 37(3) enhanced deductions") for certain donations made to IPCs (e.g. a gift of money). However, contributions to IPCs under sponsorship arrangements are ineligible for S 37(3) enhanced deductions. A taxpayer that wishes to claim a S 37(3) enhanced deduction should be satisfied that the contribution fulfils all the applicable requirements, including the requirement that the contribution is a “donation".
3. In determining whether a contribution is a donation or sponsorship, the objective circumstances surrounding each contribution will be considered on a case-by-case basis. In most cases, it is clear when a contribution to an IPC is a donation rather than a sponsorship. For example, a voluntary no-strings-attached gift to an IPC is a donation.
E-Tax guide on tax treatment on donations with benefits
4. There may be cases where a contribution is considered a “donation" even though the donor receives a benefit in consequence of making the donation. In such cases, the value of the benefit received by the donor will be excluded from the amount of donation eligible for S 37(3) enhanced deductions. Please refer to IRAS' e-Tax guide on the Tax Treatment on Donations with Benefits (2nd edition) published on 19 Mar 2021 for guidance. IPCs are to note that the aforementioned e-Tax guide only applies to donations, not contributions made under sponsorship arrangements.
5. If further clarifications are needed, IPCs may wish to consult your respective Sector Administrators.
Refund clauses
6. We note that some IPCs are under the impression that Regulation (“Reg") 11(7) of the Charities (Institutions of a Public Character) Regulations mandates the inclusion of a refund clause, i.e., a clause that stipulates conditions under which a donation should be refunded or returned to a donor, under a contribution agreement. We clarify that Reg 11(7) does not mandate IPCs to include a refund clause within a contribution agreement. Instead, where a donation cannot be used for the purposes specified in Regs 11(2) to (5), Reg 11(7) imposes a statutory obligation on an IPC to return the donation to its donor within 4 years of receipt of the donation[1], or use the donation for such other purpose as may be approved by the Sector Administrator[2]. In accordance with Reg 11(8), an IPC which refunds in whole or in part any tax-deductible donation under Reg 11(7)(a) must immediately inform IRAS of such refund.
7. We would like to remind IPCs that for a contribution to enjoy a S 37(3) enhanced deduction, the requirements under section 37(3C) of the ITA (“S 37(3C) requirements") must be satisfied. In this regard, a contribution made under a contribution agreement that contains a refund clause would not satisfy the requirement under section 37(3C)(c) of the ITA[3]. If a contribution fails to satisfy the S 37(3C) requirements, the contribution will not be treated as a “donation" and accordingly, will not be eligible for a S 37(3) enhanced deduction.
8. These clarifications aim to provide a better general understanding on the tax treatment of donations to IPCs and other common related issues based on existing law. The application of the relevant tax laws in practice is dependent on the facts and the circumstances of each specific case. Should there be future changes in the law, the relevant public authorities may update this guidance accordingly.
9. Should you require further assistance or clarifications on the above matters, please do not hesitate to contact (MCCY_Charities@mccy.gov.sg). Thank you.
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[1]Please refer to the Charities (Institutions of a Public Character) Regulations (“IPC Regulations") for the legal requirements and circumstances under which the obligation under Reg 11(7) applies.
[2]IPCs may wish to refer donors to the IPC Regulations if there is a need to reassure donors that they will adhere to their statutory obligations regarding the use of donations.
[3]Section 37(3C)(c) of the ITA states that—
A donation… which is subject to any condition specified by the donor as to the purpose for which the donation may be applied… shall be treated as a donation under that provision if (and only if) all of the following requirements are satisfied:
…
(c) the donor did not specify or imply in any manner that any part of the property or money that cannot be used for any of the specified purposes shall revert to him or be given to any other person (other than the recipient).
