Sign up for the latest news and insights
Sign up for the latest news and insights
Many high net worth (HNW) individuals and families reach a point where they would like to make a real difference in their community, or leave a legacy to benefit their community. Historically, many people made such arrangements via their estate but as a result, they never get to see the benefit of their foresight and generosity.
Over the past decade interest in philanthropy has increased substantially, with HNWs keen to not only give funds but to be involved in the organisations that benefit from their generosity.
There are many options available to those wishing to gift to charity. One could give directly to the charity providing services, or alternatively could give to an existing foundation that then directs funds to organisations providing services.
PAFs for long-term giving
For those wishing instead to develop a longer term and substantial grant making program, it may be worthwhile to consider the establishment of a Private Ancillary Fund, or PAF for short. PAFs are established by an individual or family group to co-ordinate and maximise the grants made to charity.
A PAF is established using a trust deed, and must have a company as trustee. The deed must follow the model trust deed which is issued by the Australian Taxation Office (ATO) and must be registered with the ATO and the Australian Charities and Not-for-profits Commission (ACNC). Once registered, gifts to the PAF by the founding individual or family are tax deductible, which makes the PAF an attractive structure to arrange and formalise an individual’s or family’s’ philanthropic endeavours. The PAF must have at least one “responsible person” as a director of the trustee company.
Money can be accumulated in the PAF tax free, and the PAF must distribute the greater of $11,000 or five per cent of the net market value of the PAF’s assets at the end of the preceding year.
One key drawback with a PAF is that they cannot raise funds from the public, hence their private status. Another potential drawback is the requirement for all gifts to be directed towards charitable organisations that are listed as being tax deductible under Item 1 of section 30-15 of the Income Tax Assessment Act 1997. To be sure that PAF grants are being made to the correct institution, trustees should check the ABR website.
The administrative rules surrounding PAFs are similar to the rules for self managed super funds. There are restrictions on investments in and transactions with related parties, trustees cannot be remunerated, the PAF must have a written investment strategy and must lodge audited annual accounts with the ATO and ACNC.
Generally a PAF would not be established with less than $500,000, due to the administration costs associated with the structure. It is worth seeking advice from an experienced professional to ensure a PAF structure is right for you.
The difference between Private and Public Ancillary Funds
For those wanting to engage a wider audience to gift to their foundation, a Public Ancillary Fund may be more appropriate. These funds are similar to a PAF except that they must raise funds from the public, and must have a majority of directors of the trustee being a “responsible person.”
The Hewison Foundation
Last week, Hewison Private Wealth launched the Hewison Foundation.
The Hewison Foundation is a Public Ancillary Fund, which aims to accumulate corpus to ensure it is sustainable over the longer term. Grants will be made to benefit local not-for-profit organisations, to reduce the level of disadvantage in our community. This includes services to those suffering or recovering from domestic violence, and to organisations that assist those suffering depression, particularly youth.
If you are keen to hear more about the Hewison Foundation, or would like to donate to the Foundation, please contact the trustees via firstname.lastname@example.org.
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 email@example.com 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.