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On 6 December 2010, the ATO issued Taxpayer Alert TA 2010/8 entitled "Gift deductions for donation of pharmaceuticals to charities operating overseas".

The Taxpayer Alert 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 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.

In media release No 2010/43, issued 6 December 2010, the ATO warned people to be cautious about arrangements promoting a tax deduction for gifts of pharmaceutical items to charities for use overseas.

"We are of the view that these arrangements are not legitimate, and that those involved may face a large tax debt, substantial penalties or even prosecution. We are currently contacting approximately 100 people involved in these arrangements asking them to review their circumstances and inviting them to make a voluntary disclosure where necessary. We will also write to the people who are marketing such arrangements and to certain charities who are involved requesting they stop seeking such donations from the community, and warning them that the promoter penalty laws may apply,” the Commissioner, Michael D’Ascenzo said.

The media release says that 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.


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