Australia Rates Highly in ‘Rules to Give By’ Index

The proportion of people who make financial contributions to charity is significantly higher in countries offering tax breaks for giving including Australia, according to an international study.

Conducted by Nexus, McDermott Will & Emery LLP, and the Charities Aid Foundation,the Rules to Give By Index, is described as the world’s first international index of Government support for charitable giving. The report scores 193 countries that are officially recognised by the United Nations including Australia.

The study found that the percentage of people donating money to charity is 12 percentage points higher in nations offering tax incentives to individuals (33 per cent) than in those that do not (21 per cent).

The study compared tax incentives and other aspects of charity law to people’s likelihood to give as measured by the Charities Aid Foundation’s World Giving Index, the international index of generosity.

It found that the influence of tax incentives on giving does not depend on a country’s level of economic development. Across the economic spectrum, countries which offer tax incentives to individuals see higher rates of people giving money to charity according to the World Giving Index.

However, there is a disparity between support for corporate donations and support for donations by individuals. 77 per cent of countries offer some form of tax incentive to corporate donors, but only 66 percent offer incentives to individual donors.

While the majority of countries offer incentives for people making donations within their lifetimes, only 46 percent of countries that impose taxes on the estates of the deceased offer incentives for people who wish to leave money to a charitable cause in their will.

Australia has ranked 14th in the Rules to Give By Index.

“The good news in that Australia ranks high on the Index – meaning we have a supportive tax environment in which to donate to charities in a tax effective way,” Chief Executive Officer CAF Australia, Lisa Grinham said.

“What the report highlights is the need to provide not only tax incentives to give but to create a culture of giving within a country we need to create awareness, as well as breaking down the barriers to giving.

“The Australian Government is looking for ways to up the ante in giving, and CAF is pleased to be supporting the PM’s Community Business Partnership, lobbying to increase the profile and reduce red tape to encourage more workplace giving to help build Australia’s civil society via low cost high value donations.”

By comparing the findings against World Giving Index data for the proportion of people who regularly give to charitable causes in each country, the report found a positive relationship with the presence of more complex regulatory frameworks.

The report also looked at tax exemption for Not for Profits which the report said generally came with the proviso that they at least file tax returns, and often means providing other information to the authorities.

In nations that offer exemptions to Not for Profits, an average of 30 per cent of people donated to charity in the month they were surveyed for the WGI.

In nations with no exemption for Not for Profits , the proportion of people donating money falls to 23 per cent, and to 28 per cent when exemption exists but no reporting is required.

The report said people in countries with reporting requirements which are sensitive to the size of Not for Profits are more likely to give to charitable causes by 16 percentage points than those with uniform requirements.

The key findings were:

1. Incentives for philanthropy are the norm rather than the exception.

77 per cent of nations offer some form of incentive to corporate donors whilst 66% of nations offer some form of incentive for giving by individuals donors. Across all income groups as defined by the World Bank, a majority of countries offer incentives to corporations, and a majority of countries offer incentives to individuals, except Low Income countries, only 44 per cent of which offer incentives to individuals. All income groups see a higher rate of incentives

for corporations than individuals. 80 per cent of High Income countries offer incentives to both corporate and individual donors. Twenty-eight countries (16 per cent) offer tax incentives to corporate donors but not to individuals donors.

2. Tax incentives for individuals appear effective in creating a culture of giving.

Countries which offer tax incentives to individuals see higher rates of participation in giving money to charity. The proportion of people donating money to charity according to the World Giving Index is 12 percentage points higher in nations which offer some form of tax incentive to individuals (33 per cent) than those that offer no incentives (21 per cent).

3. Tax incentives appear effective in all economic development contexts.

The effectiveness of tax incentives for giving is not dependent on a country’s level of economic development. Across the economic spectrum, countries which offer tax incentives to individuals see higher rates of participation in giving money to charity according to the World Giving Index. Indeed, Low Income countries see the largest correlation between offering incentives for individuals and rates of participation in giving to charity, with those who offer some form of incentive to individuals enjoying a participation rate in giving of 27 per cent compared to 18 per cent in Low Income countries which offer no incentives.

4. Legacy gifts to NPOs are not universally incentivized.

72 countries impose an estate (or similar) tax (41 per cent). 34 of those countries (47 per cent) offer no tax incentives for legacy gifts to NPOs.

5. There is a global consensus on providing tax exemptions for NPOs.

Globally, only 9 countries (5 per cent) provide no tax exemptions for NPOs, though exemptions offered vary between countries.

6. Higher-income countries are more likely to require reporting from NPOs.

While 20 per cent of the countries examined do not require reporting by NPOs, amongst High Income countries the figure falls to just 7 per cent. In contrast, 17 per cent, 24 per cent, and 35 per cent of Upper Middle Income, Lower Middle Income, and Low Income countries, respectively, do not require reporting by NPOs, suggesting a clear link between wealth and the regulatory complexity of the environment for giving.

7. NPOs are unlikely to have reporting requirements sensitive to their size.

Of the 141 countries with reporting requirements for NPOs, only 26 (18 per cent) have reporting requirements sensitive to organizational size. Of those 26 countries, 16 are High Income countries and none are Low Income countries. However, some countries have variable reporting requirements for characteristics outside the scope of this report.

8. Countries with a higher per capita gross national income (“GNI”) tend to score higher on the RGB Index.

Countries considered by the World Bank to be High Income nations received an average score of 8.9 out of 11 in the RGB Index compared to 7.4 for Upper Middle Income, 6.9 for Lower Middle Income and 5.8 for Low Income countries.

9. With the exception of Singapore, all of the 11 countries that received the highest possible score in the RGB Index were both High Income countries, and members of the Organisation for Economic Co-operation and Development (OECD).

Though causation is difficult to prove, the participation of High Income countries in international economic cooperation appears to result in a mainstreaming of progressive legal norms for encouraging and safeguardin charitable giving.