A Private Ancillary Fund (PAF) is a form of charitable trust introduced by the Federal Government in 2001 to encourage greater personal and corporate philanthropy in Australia. A PAF allows individuals, families and businesses to establish their own charitable trust and enjoy full tax deductibility for donations into the PAF. Within a PAF you can grow the assets in a tax effective environment. This means that over the long term you may be able to give significantly more to your chosen causes than your initial donations to the PAF.
Amendments to Private Ancillary Fund Guidelines
Effective from 5 May 2016, the Government introduced a number of amendments to the Private Ancillary Fund Guidelines 2009. The guidelines, which until now have never been updated, set the minimum standards for the governance of PAFs and their trustees.
The amendments to the Private Ancillary Fund Guidelines 2009 include:
- the greater of the 5% Minimum Annual Distribution Rate (MADR) or $11,000 still applies in determining the minimum annual distribution of a PAF. However, trustees can now request the Commissioner of Taxation to consider lowering a PAF’s MADR in appropriate circumstances. Fortunately the complicated minimum annual distribution calculation referred to in the Exposure Draft (published earlier this year) did not go ahead.
- providing further guidance on calculating the distribution in relation to social impact investments;
- updating the investment strategy rules to, amongst other things, ensure PAFs must consider both their status as a registered charity and conflicts of interest in preparing and maintaining a strategy;
- allowing PAFs with both revenue and assets of less than $1 million for that year to seek a review instead of an audit;
- the introduction of portability rules to allow a PAF to transfer net assets on wind-up to another PAF with the agreement of the Commissioner;
- greater guidance on and expansion of the definition as to whom may be considered a Responsible Person;
- updating provisions to reflect the introduction of the Australian Charities and Not-for-profits Commission (ACNC); and
- removing red tape by ensuring that material provided to the ACNC is not also requested separately by the ATO.
Blaze Acumen has extensive experience in both the establishment and ongoing management of PAFs.
Please contact your Blaze Acumen adviser if you have any questions in relation to the amendments to the Private Ancillary Fund Guidelines or if you would like more information on Private Ancillary Funds and charitable gift giving.