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Ancillary Funds
Philanthropic endeavours

Private Ancillary Funds – the devil in the detail

Chris Morcom
Partner/Private Client Adviser
17 Mar 2014

Ancillary Funds are popular for those wanting to establish a perpetual grant-making structure to formalise their own or their family’s philanthropic endeavours.

When you make a deposit to your Private Ancillary Fund (PAF), you are able to claim a tax deduction for that contribution – the same way as you would for any donation to a registered charity.
The PAF is then required to grant the greater of 4% of its capital (as at 30 June each year) or $11,000 each year.

These grants must be made to an “eligible entity”, such as a fund, authority or institution:

  • Which is Charitable; and,
  • Gifts to which are tax deductible under item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997.

The table referred to above lists the types of entities that can accept donations and provide you with a tax deduction – they are separated into the following categories:

Item 1 refers you to lists of funds, authorities and institutions such as public hospitals, overseas aid funds and public museums (including entities listed by name).

Item 2 are called ancillary funds and describes funds set up solely for:

providing money, property or benefits for Deductible Gift Recipient (DGR) covered by item 1, or  the establishment of such DGRs.

Item 4 describes funds, authorities or institutions that may receive donations of property under the Cultural Gifts Program.

An organisation is Charitable if it meets the definition of such within the governing law (the law of the state in which the organisation is founded), the laws of the Commonwealth, and the common law.

The list of organisations under “Item 1” of the table mentioned does not include other ancillary funds. This means a PAF cannot make legitimate grants or donations to other PAFs or to Public Ancillary Funds (PuAFs).

Some registered charities use a PuAF structure as their fundraising arm, and while such structures work fine for individuals donating to the charity, they do not work for PAFs.
To be sure your PAF is making donations to eligible entities, it is worthwhile spending a few minutes checking the ABN website at http://abr.business.gov.au/ which will provide you with the details of the institution to which you are about to benefit. If your PAF is granting the money, make sure it is listed on this site as a Type 1 entity.

Operating a PAF requires diligence and a sound knowledge of the rules – much like a Self Managed Super Fund. Be sure to get advice from an expert before you set off on the adventure of operating your own family foundation.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.