Your Frequently Asked Questions about Private Ancillary Funds, Answered
Private Ancillary Funds (PAFs) are a powerful tool for structured giving, enabling donors to make a lasting impact through their charitable contributions. Designed to offer individuals and families the opportunity to create a sustainable philanthropic legacy, PAFs come with specific guidelines, restrictions, and opportunities.
Here are the most common questions about PAFs, answered to help you decide if they are right for you.
1. What’s the Difference Between a Private Ancillary Fund, a Public Ancillary Fund and a charitable trust?
While all three are established to support charitable giving, each has unique legal and operational characteristics.
Private Ancillary Fund (PAF):
- A PAF is a specific type of private charitable trust designed to distribute funds exclusively to other deductible gift recipients (DGRs). It operates under strict operational guidelines established by the Australian Taxation Office (ATO). This structure ensures that PAFs focus solely on distributing funds rather than raising them.
Public Ancillary Fund (PuAF):
- A PuAF can receive donations from the public but must also distribute funds only to DGRs. It is subject to specific ATO guidelines but has slightly different requirements due to its ability to fundraise publicly.
Charitable Trust:
- A charitable trust can be either private or public and has broader fundraising capabilities, including the ability to solicit funds from the public. While it must comply with general trust law and charitable trust requirements, it is subject to less stringent ATO rules compared to PAFs and PuAFs.
2. How to Establish a PAF?
To establish and register a PAF, you’ll need to undertake several crucial steps:
- Draft a Trust Deed: Ensure it adheres to the PAF guidelines and the Income Tax Assessment Act 1997.
- Appoint Trustees: All trustees must be constitutional corporations and commit to following PAF guidelines.
- Obtain an ABN: Apply via the Australian Business Register or a tax agent, classifying the trust as a ‘Discretionary trust – investment.’
- Seek DGR Status: Apply through the Australian Charities and Not-for-profits Commission (ACNC) or directly with the Australian Taxation Office (ATO), providing all required documentation.
- Initial Funding: Commit a specific amount of financial resources to establish the fund’s assets.
You can manage this process independently or work with partners like The Giving Advisory to navigate the operational complexities effectively.
3. How Much Does It Cost to Set Up a PAF?
The cost of setting up a PAF can vary but generally includes fees for drafting the trust deed, registration fees, and initial administrative expenses.
4. What’s the Minimum Distribution for a PAF?
PAFs are required to distribute at least 5% of the market value of the fund’s net assets (as valued at the end of the previous financial year) each year to eligible charities. This ensures that funds actively contribute to their charitable purposes on an ongoing basis.
5. Who Can Contribute to a PAF?
Contributions to a PAF can generally be made by the founding members and associated parties.
6. Does a PAF Need to Lodge a Tax Return?
Yes, however PAFs are only required to lodge an annual information return with the ATO which is less disclosure than a full tax return.
Most PAFs are structured to achieve tax-exempt status, ensuring that income is tax free and more funds are available for distribution. In addition to this, a PAF can file a refund of franking credits return with the ATO to receive a refund on any franking credits it has accrued from its investment income over the year.
The PAF needs to be audited annually and lodge an Annual Information Statement with the ACNC.
7. Can a PAF Support International Causes?
While PAFs primarily support Australian DGRs, they can fund international causes if those organisations have Australian DGR status, allowing for global philanthropic efforts.
8. Is a PAF Right for You?
A PAF is suitable for you, if you:
- Aim to provide sustainable support to a cause that matters to you
- Want control over investment and grant-making decisions that shape the future
- Can commit at least $1 million initially to provide the PAF with enough earnings to support the minimum donation and running costs each year. This should allow the PAF to donate into perpetuity and provide a long lasting impact from the initial donation.
- Benefit from significant tax deductions for your donations.
Private Ancillary Funds offer a unique opportunity for donors to create lasting legacies through structured giving. Interested in learning more about how to establish your own Private Ancillary Fund?
Contact us today for guidance on how to start your philanthropic legacy.