Two forms of philanthropic ancillary funds are often discussed when it comes to charitable trusts.
Basically, an ancillary fund is a form of charitable trust which acts like a conduit for parties who wish to make donations to a charity that can receive tax deductible gifts.
The ancillary fund does not undertake any charitable work itself but supports charities by donations.
There are two types of ancillary funds:
- private ancillary funds
- public ancillary funds.
Ancillary funds are regulated by the Australian Taxation Office (ATO) and each has a specific Deductible Gift Recipient (DGR) category.
A Private Ancillary Fund (PAF) enables a person, family, association or business to a establish their own charitable foundation where all donations are tax deductible, and all income generated is tax-free.
A PAF can be created by a will or in a party’s lifetime.
The benefits of a PAF are:
- Control over the distributions
- Flexibility of asset management and distributions
- Donations are tax deductible
A Public Ancillary Fund (PubAF) receives, pools and distributes money from the public and a wide donor group to charitable organisations where all donations are tax deductible, and all income generated is tax-free.
The benefits of a PAF are:
- Wide range of contributions can be received
- Lower minimum donations
- Donations are tax deductible
What is required to set each type of fund up?
Private Ancillary Fund
- Define the objectives of the fund
- Establish the Trust Deed which must comply with the Charities Act 2013 (Cth)
- Appoint a trustee
- Register the fund with the Australian Charities and Not-for-profits Commission (ACNC) as a charity
- Apply for an Australian Business Number (ABN)
- Apply for Income Tax Exempt Funds (ITEFs) status with the ATO
- Ensure compliance with the Taxation Administration (Private Ancillary Fund) Guidelines 2019.
- Develop and implement an investment strategy
PAFs can only give funds to organisations with DGR status and must meet annual minimum distribution requirements which is usually 5% of the net assets of the fund.
Generally, a fund will set up with around $1million.
It is very important to remember the fund must follow governance standards of the ACNC.
Public Ancillary Fund
- Define the objectives of the fund
- Establish the Trust Deed which must comply with the Charities Act 2013 (Cth)
- Appoint a trustee company ensuring the majority of people in control of the fund must be ‘responsible persons’
- Register the fund with the ACNC
- Apply for an ABN
- Apply for Income Tax Exempt Funds (ITEFs) status with the ATO
- Ensure the majority of people in control of the Fund must be ‘responsible persons’
- Ensure compliance with the Taxation Administration (Public Ancillary Fund) Guidelines 2022
- Develop and implement a development strategy
How can FC Lawyers assist?
FC Lawyers have assisted many charities to set up both public and private ancillary funds.
Contact our team to discuss any of the above or if you have any other legal requirements.
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