Charity donation schemes: ATO warning

The ATO has warned taxpayers of arrangements that promote tax deductions for gifts of pharmaceuticals to charities for overseas use, similar to that outlined in TA 2010/8 – Gift deductions for donation of pharmaceuticals to charities operating overseas. The ATO says taxpayers should be aware that any arrangements they enter into with similar features may result in penalties as well as their deductions being denied. 


About the pharmaceutical arrangement

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.
  • 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.