The scheme, which resulted in a $1.5 million fine, was modelled on an arrangement which failed previously in Canada. The scheme involved the purchase and donation of AIDS pharmaceutical goods to charities in Africa.
The court awarded civil penalties to the ATO against Stephen Arnold, Leaf Capital Pty Ltd and Donors Without Borders Ltd because they attempted to exploit the tax system by generating deductions to which their clients were not entitled.
ATO Deputy Commissioner Tim Dyce said the purchasers only paid 7.5 per cent of the grossly-inflated price of the drugs, yet claimed tax deductions of 100 per cent.
“When it comes to schemes, we have seen some unscrupulous promoters,” Mr Dyce said.
“We’re here to protect investors from aggressive schemes and we will take decisive action against anyone who breaches the promoter penalty provisions.”
In delivering his judgement, Justice Edmonds noted at least five grounds on which the scheme was not available under the law, including that there was no actual delivery of the pharmaceuticals to the charities concerned at the relevant time.
In awarding the sizeable civil penalty, Justice Edmonds said: “Specific deterrence is a significant factor where, as here, the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse.
“Potential promoters must be left in no doubt that acting on the commercial temptation to engage in the proscribed conduct in relation to tax exploitation schemes, so as to realise the significant potential rewards that can be available, will result in substantial penalties.
“The penalties need to be substantial enough to persuade potential promoters that it is not worth the risk of whether a tax exploitation scheme will escape detection by the Commissioner.”