Private Ancillary Funds

A more formalised philanthropic focus as part of your financial position.

Australians are well known as very generous and giving individuals; no better example of this being the support and monetary donations Australians have provided to communities and charities during the recent bushfires across the country. The Australian Taxation Office (ATO) reports that the total amount donated and claimed by individual taxpayers in 2018 was $2.9 billion.

For those however, wanting a more formalised philanthropic focus as part of their financial position, the use of Private Ancillary Funds (PAFs) in Australia has been rising strongly. In the space of 6 years, PAF distributions have almost tripled and in the 2016 financial year, $457 million was distributed to Australian charities from PAFs.

A type of charitable trust, a PAF exists to provide grants to eligible charities over time. A PAF is available to individuals, families or organisations and can be an efficient, tax effective way to put a structure around your philanthropic objectives.

A PAF is controlled by a company as trustee. The board is generally made up of family members but must have at least one independent director. Amounts are contributed to the Trust (taking into consideration certain limitations), to which donors receive a tax deduction. These deductions can be spread over 5 years.

Generally, a PAF must distribute a minimum of 5% of the PAF’s assets to deductible gift recipients each financial year. Deciding on the charities to support can be a very rewarding experience, but also difficult when there are so many worthy eligible charities. If involving other family members such as your children or grandchildren, it can be a satisfying means of family engagement and encouraging social awareness for future generations. It also means you can create an enduring legacy in support of charitable causes that are important to you, or in the memory of loved ones.

PAFs are governed by the ATO guidelines and have Australian Charities and Not-for-profits Commission (ACNC) compliance obligations. So for individuals who want to give on an ad-hoc basis, a PAF may not be required, particularly in the case of the individual having limited time to devote to giving.

It is generally suggested that a minimum of $1 million is made as an initial donation to a new established PAF to improve cost effectiveness of the structure. A PAF can then invest these funds in a wide range of investments (taking into account certain restrictions) including cash, equities, fixed interest securities and property. The directors must develop a written investment policy and earnings on the investments are income tax exempt when certain conditions are met. A financial adviser, such as those at Accru Wealth Management, are in a position to be able to provide trustees with advice around the management and administration of these investment assets.

For more information on the use of Private Ancillary Funds, contact one of our Financial Specialists.
About the Author
Kate Rhodes
Kate is an extremely focused and driven individual, which for her clients translates into providing them with a personable and proactive service. Her superior time management and organisational skills allow her to be on the front foot with the service she provides and ensures she attends to her clients’ needs in a timely manner.
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