Charity shops should not be given a blanket exemption from paying tax under new legislation for the regulation of charities, the Law Reform Commission has said.
In a report to be published today, the commission, which is advising the Government on the upcoming Charities Regulation Bill, said that automatically excluding charity shops from tax would be "inappropriate" and "open to abuse".
The Bill, due to be published early next year, is the first piece of charities legislation in 30 years and aims to reform the largely unregulated charity sector in order to guard against fraud and mismanagement.
It provides for the establishment of a regulator with powers to investigate and prosecute charities accused of misconduct, and creates a new framework for the establishment and running of charitable organisations.
The commission received a large number of submissions from charities saying that charity shops should be exempt from tax as their trading was essentially fundraising for charitable purposes, which is generally given tax exemption by the Revenue Commissioners.
However, in the report, Charitable Trusts and Legal Structures for Charities, the commission recommends against a blanket exemption: "... such an exemption might be open to abuse and might also give charities an unfair advantage over other businesses".
The commission is also against the introduction of monetary limits, which would allow a specific amount of trading to be exempt from tax. It instead recommends that the new regulator, who will be appointed after the publication of the Bill, should issue guidelines to charities on what trading activities are admissible for tax exemption. These guidelines should be formulated in conjunction with the Revenue Commissioners, the report says.
The commission is advising that a single legal framework, within which charities would operate, be established. This would end the current practice of charities operating under a number of different legal structures, either as a charitable trust, an unincorporated society or a company - none of which were ideally suited to the workings of modern charities, it said.
The new structure would be called the Charitable Incorporated Organisation (CIO). This structure would be straightforward and unambiguous and would remove the "unnecessary regulatory burden" where charities have to comply with the registration requirements of both company law and charity law.
A model constitution for CIOs should be designed by the new regulator in conjunction with the sector.
CIOs must have a minimum of three trustees who will have limited financial liability. Trustees should not be allowed to charge for their services, as this may undermine the voluntary ethos and give the public the impression that donations were being used for administration rather than charity.
However, the commission said, safeguards should be introduced to allow trustees to be remunerated for "non-trustee" services.
