ATO warning: Gift deductions for donation of pharmaceuticals to charities operating overseas

The ATO has released a Taxpayer Alert urging donor caution over arrangements promoting a tax deduction for gifts of pharmaceutical items to charities for use overseas.

Under these arrangements, the taxpayer agrees to purchase pharmaceutical and other items for a DGR and 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 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 is of the opinion that these arrangements are not legitimate and that donors may be putting themselves at risk of penalties and even prosectuion. Anyone who has participated in these arrangements should come forward prior to 31 January 2011 and before they are contacted by the ATO. If they do, they will be entitled to a reduction in any tax penalties.

For more details about how the scheme operates and what the specific ATO concerns might be, see the Taxpayer Alert at: http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20108/NAT/ATO/00001

Dec. 07, 2010

 Tags: government, general, finance

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