Tax Office Warning on Charity Donation Tax Avoidance Schemes
8 December 2011 at 11:30 am
The Australian Tax Office has issued a warning over concerns about charity donation arrangements that have been found to be tax avoidance schemes and issued new guidelines.
Taxpayers may claim deductions for gifts of money or property to a deductible gift recipient (DGR) where certain conditions are met. However, the ATO says some arrangements that promote a deduction for gifts of pharmaceuticals to charities for use overseas do not meet these conditions.
The ATO says in one example, the taxpayers involved claimed a much greater deduction than the actual amount they donated.
The ATO says in the pharmaceutical arrangement, participants who had already claimed deductions were advised to voluntarily request an amendment to their income tax assessment. Where this was not done, participants had their claim disallowed in full and were charged penalty and interest on the tax shortfall.
The ATO has called on taxpayers to be wary of arrangements with similar features and report their concerns.
The Tax office describes an arrangement where a taxpayer claims a gift deduction for pharmaceuticals and other items ('pharmaceuticals') to a charity for use overseas. The taxpayer provides cash for a vendor to purchase the pharmaceuticals from a low cost overseas supplier. They are then valued for gifting purposes at a much higher cost. The difference in these amounts is balanced by what appears to be an unsecured, long term, low interest loan facilitated by the promoter of the arrangement and purportedly funded by the vendor. The pharmaceuticals are apparently made available to the charity through an overseas bonded warehouse.
Under this arrangement, the ATO says the taxpayer claims a deduction for a donation and related costs that is much greater than the actual amount outlaid, e.g. for a cash outlay of $2,100 the taxpayer claims a gift deduction purportedly valued at $20,000
The ATO says the arrangement was investigated and found to be a tax avoidance scheme and participants had their deductions disallowed.
In the arrangement that the ATO investigated:
- participants entered into contracts in 2009-10 to purchase and transfer pharmaceuticals for use in treatment programs to charities that are registered deductible gift recipients.
- participants made an initial payment of about 7.5% of the purchase price of the pharmaceuticals. The balance of the purchase price is due and payable up to fifty years after the contract was entered into. The participants also made a prepayment of interest, reflecting an interest rate of approximately 0.1% per annum, on the balance of the purchase price.
the promoter claims:
- the pharmaceuticals were delivered by the vendor to a bonded warehouse in a country outside Australia.
- ownership of the pharmaceuticals was transferred to the participant, who then immediately transferred ownership to the nominated charities.
- entities associated with the promoter of the arrangement arranged and paid for the pharmaceuticals to be shipped to places nominated by the charities.
The ATO says participants were told that they could claim a deduction for the full contracted purchase price of the pharmaceuticals in 2009-10, the year that they entered the arrangement.
For more information go to www.ato.gov.au