Charities - Deeds of Covenant

Section 792(1) to (4) Taxes Consolidation Act 1997 make provision for tax effective covenanted payments by individuals/companies to:

• Universities and Colleges in the State to enable them to carry out research
• Universities, Colleges and Schools in the State to assist them in the teaching of the natural sciences.

Confusion has arisen in the past in relation to payment dates stated in such Deeds of Covenant. The legislation states that a covenant must be payable “for a period which is or may be three years or longer”. Thus, a Deed of Covenant taken out for a period which is less than three years is ineffective for tax purposes. However, a Deed of Covenant taken out for three years which stipulates that the first payment is to be made on the date of execution of the covenant and the final payment is to made on the last day of the final year, is effective as there is a period of three years between the due dates for the first and last payments.

Example

If a Deed of Covenant is executed on 1 April 1995 and the first payment is made on that date and the last payment is made on 31 March 1998 as stipulated in the Deed, then the Deed is effective for tax purposes as there is a period of three years between the first and the last payments.

In cases where the Deed of Covenant does not specify payment dates, the Deed of Covenant has to be for a period of four years in order for Revenue to be satisfied that there is at least three years between the first and the last payment.

Before any Deed of Covenant is entered into, covenantors should ensure that Revenue have confirmed that the proposed scheme to carry out research/teach the natural sciences qualifies for the tax reliefs available. Explanatory leaflets CHY 3,4,5 and 6 which contain sample deeds of covenant are available to covenantors and covenantees from:

Revenue Commissioners,
Charities Section,
Government Offices,
Nenagh,
Co. Tipperary.

(01 - 677 4211 if calling from Dublin)