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PAFs: A tax effective way to give to charity

Glenn Fairbairn
Director/Private Client Adviser
13 Oct 2014

Australians are generally very generous with their charitable giving and are renowned for putting their hand in their pocket when others are in need, whether that be locally or internationally.

Although the primary purpose of such donations may not be to obtain a tax benefit, there is a possibility to claim a tax deduction if the institution receiving the funds is an approved tax deductible gift recipient.

For those who are interested in becoming more engaged with their charitable giving and would like to leave a long-lasting legacy, it may be worth considering a Private Ancillary Fund (PAF).

A Private Ancillary Fund (PAF) is a private established foundation to which an individual or family contributes a significant sum to then use for donations. The sum contributed to establish the PAF is fully tax deductible and can be made by way of cash, shares or property. Earnings within the PAF are exempt from tax.

The tax exempt status of a PAF means that assets can grow at a faster rate than in they were held in a taxable environment and therefore provides the opportunity to distribute more to your chosen charities. 

A PAF has similar investment and governance rules to a self managed superannuation fund (SMSF) and must have at least one trustee who holds a recognised professional position in the community, for example an  accountant. In addition, the PAF must give the greater of $11,000 per annum, or 5 per cent of its capital measured at the start of the financial year, annually. 

For high net worth individuals faced with a very large taxable income in a single year, establishing a PAF and contributing funds can provide a significant tax saving. Such situations may arise following the sale of a business or investment that realises a significant capital gain. For example, an individual realising a gain of $1,000,000 could save around $245,000 in tax by contributing funds to a PAF.

At Hewison Private Wealth, we generally suggest the minimum starting balance for a PAF should be approximately $500,000. This ensures costs and expenses do not eat away too much of the earnings of the fund. However, individual circumstances will vary and you should seek appropriate advice.

For more information on PAFs, please speak to your financial adviser.




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.