“Australian ‘Charity’ Fined Record $1.5 Million” for Canadian “fake philanthropic scheme”

February 24, 2015 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Global Giving, Ethics and Canadian Charities, Avoiding 'Charity' Scams

The Australian website Pro Bono Australia has published an article on an Australian Federal Court decision to impose a $1.5 million fine on a "fake philanthropic scheme was modelled on an arrangement which previously failed in Canada, and involved the purchase and donation of AIDS pharmaceutics to charities in Africa." It is interesting that as we are considering in Canada the constitutionality of civil penalties, that the Australians are imposing such civil penalties on Canadians for schemes offered in Australia by a Canadian company.   It is also interesting that these type of abusive charity gifting tax schemes issued receipts in Canada for over $6.3 billion dollars.  The "success" in Australia was much more limited and perhaps 1/1000 of that.

Here is the full text of the article

Australian ‘Charity’ Fined Record $1.5 Million

Posted: Friday, February 20, 2015 - 10:54

Author: Xavier Smerdon

The Federal Court has ordered the Australian promoters of an AIDS pharmaceuticals donation scheme to pay $1.5 million to the Australian Taxation Office, the highest civil penalty ever, for attempting to exploit the tax system.

Stephen Arnold, Leaf Capital Pty Limited and the charity they run, Donors Without Borders (DWB), was fined the record amount for breaching promoter penalty provisions and “generating deductions to which their clients were not entitled”.

ATO Deputy Commissioner Tim Dyce said the fake philanthropic scheme was modelled on an arrangement which previously failed in Canada, and involved the purchase and donation of AIDS pharmaceutics to charities in Africa.

“As we discovered, the purchasers only paid 7.5 per cent of the grossly inflated price of the drugs, yet claimed tax deductions of 100 per cent,” Dyce said.

Dyce said the Federal Court had found that DWB was working on at least five grounds that were not available under the law and that there was no actual delivery of the AIDS medicine to the charities concerned at the relevant time.

“When it comes to schemes, we have seen some unscrupulous promoters,” he 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 awarding the large penalty, Justice Edmonds said it was intended that it would act as a deterrent to other tax cheats attempting to use a charity as a guise.

“Specific deterrence is a significant factor where, as here, the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse,” Justice Edwards said.

“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 the detection by the Commissioner.”

DWB has posted a video online in which they refute the claims from the ATO.

In the video a representative of the organisation, Lindsay Clark, presented a health clinic in Soweto, Kenya, which he claimed had received medical donations from DWB.

“The HIV issues here are endemic in the local population,” Clark said.

“The pharmaceuticals supplied by Donors Without Borders are helping many hundreds of people and the generosity of Australians is appreciated not just by the recipients but by all the volunteers that are working in this clinic.”

The video showed footage of medicine that it was claimed was donated by DWB.

DWB claimed that in 2010 a total of 32,230 medical treatment kits costing donors $6.4 million were sent to Africa.

“The ATO is preventing this life-saving initiative from continuing. They say the medicine you saw in this video does not exist,” DWB said.

“They have asked the only company in Australia selling these goods to donors to stop and are forcing them out of business.

“They are intimidating the charities who participated in this initiative and have asked them not to ship their medicine to Africa.

“They are asking people to sign “voluntary undertakings” not to support this initiative.”

DWB also claimed that the ATO’s actions against them could have deadly consequences.

“They are more concerned about tax deductions than saving lives,” DWB said.

“Without continued medicine supply from members of DWB to those in need in Kenya and Burundi, many will die.”

The article is located at: http://www.probonoaustralia.com.au/news/2015/02/australian-%E2%80%98charity%E2%80%99-fined-record-15-million?

About five years ago I discussed these schemes on our blog at http://www.globalphilanthropy.ca/blog/australians_cracking_down_on_canadian-style_abusive_charity_gifting_tax_she

Here is a link to the Australian decision: http://law.ato.gov.au/atolaw/view.htm?DocID=JUD/2015ATC20-486/00001

Here is the copy of the text of the Australian decision: FC of T v ARNOLD & ORS 2015 ATC 20-486

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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