The Australian Taxation Office (ATO) is warning the community to steer clear of an emerging tax scheme involving barter credits – a type of alternative currency used in some business networks.
A tax scheme that involves artificially inflating deductions for donations of barter credits to deductible gift recipients (DGRs) is on the rise. While it may seem enticing, promoters and taxpayers could face potentially significant consequences if they are involved.
ATO Deputy Commissioner Erin Dale said the ATO is putting the promoters and participants of such schemes on notice.
‘While it’s not unlawful for DGRs to accept barter credits as donations, participating in arrangements where deductions for barter credits are artificially inflated could be fraud and may result in an investigation by the ATO,’ Ms Dale said.
We are concerned that such schemes are being enabled by several barter exchanges that are allowing participants to access barter credits with a nominal face value that is much more than any payments actually made to the exchange. For example, someone might pay the barter exchange a small cash sum to access barter credits that are larger than their actual value. Participants then donate these barter credits to a DGR and claim a larger tax deduction than they’re entitled to.
Those involved may have to repay the tax, plus face heavy penalties, interest and potential legal action.
As well as taking money away from the community, this scheme is undermining public trust in not-for-profits with DGR status. The DGRs receiving these donations may not be aware they’re involved in a tax scheme.
Under the promoter penalty laws, the ATO can impose heavy civil penalties on anyone promoting unlawful tax schemes.
‘Be wary of people promoting this scheme, or any scheme that promises to significantly reduce or avoid paying tax. Some may even be financial advisers or tax agents. Our website lists examples of tax schemes we’re concerned about,’ Ms Dale said.
‘If it sounds too good to be true, it probably is. If you think you're involved in an unlawful tax scheme, we can help you. If you proactively approach us, you may be eligible for a reduction in penalties.’
Taxpayers who have been offered a scheme that they suspect is unlawful, should reject it and report it to the ATO. Reports can be made confidentially by phoning 1800 060 062, or completing a tip-off form.
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