The ACNC is encouraging charities to exercise caution if they are offered barter credit donations.
Barter credits are a type of alternative currency used in some business networks. Unlike cash, they generally cannot be converted into money and may only be used to obtain specific goods or services through a barter exchange.
The Australian Taxation Office (ATO) has warned about schemes involving barter credits that may impact charities endorsed as deductible gift recipients (DGR).
How the scheme works
These schemes typically involve someone receiving barter credits with a much higher face value than what they paid for them.
The credits are then donated to a DGR, and the donor claims a much larger tax deduction – based on the inflated face value of the credits – than they are actually entitled to.
This could result in the donor needing to pay back the tax, as well as other serious consequences.
What charities need to know
A charity receiving a barter credit donation will be aware that they are receiving a donation in a non-standard currency, but it may not be aware that they are being involved in a tax scheme.
While charities are not prohibited from accepting barter credits as donations, it is important to consider whether the credits will provide a genuine benefit to the charity and whether they can realistically be used at fair market value for charitable purposes.
If your charity is offered barter credits, you may want to consider:
- What goods or services can the credits be used for?
- Where and how can they be used to further our charitable purpose?
- Are there any conditions, restrictions or fees associated with using them?
- Does the stated value reflect what your charity could realistically obtain using the credits?
- Will accepting and managing the credits create additional administrative work for your charity?
If a charity accepts barter credits but does not use them to further its charitable purpose, it may be at risk of being viewed as a vehicle for providing tax deductions to individuals or organisations seeking to avoid paying income tax.
More information
The ATO has advised that donors who participate in these schemes, or the people who promote them, may face penalties.
Charities that are approached with arrangements that seem too good to be true should be wary and seek further information before proceeding.
If you are unsure about an offer, consider seeking independent professional advice before accepting barter credits or issuing a donation receipt.
Read the ATO's guidance on barter credit tax schemes for more information.
If you have been offered a scheme you suspect may be unlawful, you should reject it and report it to the ATO. Reports can be made confidentially by phoning 1800 060 062 or completing an ATO tip-off form.