Charity donation schemes

Taxpayers may claim tax deductions for gifts of money or property to a deductible gift recipient (DGR) as long as certain conditions are met.

The ATO has concerns that some arrangements that promote a tax deduction for gifts of pharmaceuticals to charities for use overseas do not meet these conditions. Taxpayer alert TA 2010/8 - Gift deductions for donation of pharmaceuticals to charities operating overseas outlines our concerns with these particular arrangements.

The arrangement described in the following section involved purported gifts of pharmaceuticals to Australian charities for use outside Australia. The arrangement was investigated and found to be a tax avoidance scheme and participants had their deductions disallowed. You should be wary of arrangements with similar features.

About the pharmaceutical arrangement

In the arrangement that we 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.

Sections within About the pharmaceutical arrangement

• What the law says
• Applying the law
• Consequences for participants