Description
An Australian taxpayer (the 'participant') enters an agreement ('the agreement') to purchase pharmaceuticals for donation to a Deductible Gift Recipient (DGR). 2. Under the agreement, the participant makes a cash payment of an amount comprising: a) a payment to become a member of a facilitating entity (the promoter or an associated entity); b) a cash donation to the nominated DGR; c) an interest prepayment in respect of a purported long term, low interest loan alleged to fund the payment of pharmaceuticals; and d) a deposit (generally of 7.5% or less) of the nominated amount to be paid for the pharmaceuticals. 3. The agreement relies upon a loan that does not appear to be on normal commercial terms, because: a) the period of the loan for the pharmaceuticals is unusually long, in some cases up to 50 years, b) the rates of interest are unusually low (generally less than 1% per annum), even though this interest is allegedly prepaid, c) there is no security offered in respect of the principal amount, which may be a significant sum, and d) payment will not be required in certain circumstances (such as death of the participant), meaning that there is no certainty of repayment - especially considering the unusually long term of the loan. 4. Under the agreement, the promoter or facilitating entity deals exclusively with the vendor and any pharmaceuticals are purchased from a low-cost overseas supplier and alleged to be delivered to the DGR entirely outside Australia. 5. Under the agreement, the participant receives: a) a supply note from the DGR describing the pharmaceuticals b) an invoice from the vendor for the pharmaceuticals assigning a domestic value rather than the cash amount actually paid to the overseas supplier, to match the cash deposit and the amount of the loan, and c) a receipt from the DGR for any cash donation component. 6. On the basis of the agreement, the participant: a) claims a tax deduction for the gift of the pharmaceuticals to the DGR, for the purported value of the pharmaceuticals (i.e. the amount nominated by the vendor) at the date of the agreement, and b) purportedly receives a reduction in tax payable that significantly exceeds the total cash amount actually outlaid under the agreement.