This article is an update of article on 3 June 2023: here.
As we near the end of the financial year we are commonly asked to establish private ancillary funds (PAF) for clients.
A PAF is a private philanthropic vehicle typically established and operated by a high net worth individual or family. PAF do not carry out charitable activities themselves on a day to day basis but instead act as a sieve through which the high net wealth individual or family is able to stream donations to charities which have their own Deductable Gift Recipient (DGR) status. In fact they are the only charities to whom the PAF can make donations to. The high net wealth individual is able to obtain an immediate tax deduction for making a donation to the PAF. Hence we often see PAFs being established in say the year when a successful business is sold and the individual or family may otherwise be liable for a significant capital gains tax bill.
PAFs are completely creatures of statute and have to comply with strict requirements in relation to:
- the form of trust deed;
- only operating in Australia;
- distributing at least 5% of their net assets each year;
- dealing at arm's length with the founder and their associates; and
- having at least one trustee, or if a corporate trustee is acting then at least one director, who is a "responsible person". This is defined as someone with a degree of responsibility to the Australian community as a whole (e.g. because they perform a public function or belong to a professional body which has a code of ethics) and includes an individual before whom a Statutory Declaration can be made.
Provided that the above requirements are satisfied then upon registration with the ATO the fund is automatically granted DGR status without separate application having to be made.
Whilst a PAF offers tremendous benefits such as promoting societal uplift through philanthropic contribution they are complex instruments which require specialist advice. Pointon Partners has extensive experience with creating PAF and understand the legal complexities that can hinder the establishment of a PAF. Below sets out some of the ways in which our specialist team can offer support when setting up a PAF;
- conducting a client meeting to discuss how private ancillary funds are established and how they operate;
- incorporating the trustee company;
- preparing the trust deed in accordance with ATO requirements;
- making application to the ATO for registration of the PAF and granting of DGR status;
- making application to the ACNC for registration of the charity on their register;
- making application to the ACNC for tax exempt status for the private ancillary fund;
Additionally our specialist team has extensive knowledge and expertise in numerous charitable entities that extend beyond PAFs; whether that be charitable trusts, incorporated associations or companies limited by guarantee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.