PAFs to overtake other tax-deductible giving in under 10 years

PAFs to overtake other tax-deductible giving in under 10 years

PAFs, Private Ancillary Funds

PAFs, Private Ancillary FundsBy 2026 there will be more deductions claimed through PAF growth and giving than any other deductible giving source.

Private Ancillary Funds (PAFs) are a steadily growing funding base that is bringing an ever-widening change on philanthropy in Australia.

Recent findings made from analysis and projections on annual PAF distributions and annual tax-deductible giving data published by the Australian Tax Office (ATO) indicate that there is a high chance that within ten years, there will be more deductions being claimed from PAF growth and giving than all other tax-deductible giving claims combined.

This is not an inconsequential finding as the crossover point that we have identified in 2026 involves billions of dollars in giving from both PAFs and other donors.

The very straightforward implication of this is that non-profit organisations will have to pay close attention to PAFs and the individuals who are involved so they do not miss out on a sizeable amount (i.e. at least half) of all tax-deductible giving being offered throughout Australia each year.

What is a PAF?

A PAF allows wealthy individuals to claim tax deductions over time and distribute money to non-profit organisations that have a mission and vision aligned with the interests of the donor. PAFs have become an increasingly crucial tool for financial planners, lawyers, accountants and wealth management professionals whose goal it is to ensure that their wealthy clients pay less tax and support good causes.

PAFs are typically created as a lump sum (usually a $500,000 minimum), which can be topped up over time as they diminish in size in accordance with legislation that compels them to distribute funds every year. For the individuals who establish PAFs, there are income tax deductions that can be spread over a 5 year period. Each PAF is governed by individual directors and the money can only be gifted to approved Deductible Gift Recipient (DGRs).

AskRIGHT has modelled PAF deductions against other tax-deductible giving claims.

We started with the reasonable assumption that newly established PAFs will spread deductibility over a 5 year period. We then applied the real and projected annual PAF deduction totals against real and projected tax-deductible giving totals from data published by the ATO.

PAFs, Private Ancillary Funds

The results indicate that the gap between PAF giving and all other tax-deductible giving will continue to narrow the point where sometime around 2026 it is possible that the two lines will cross over.

It is of course possible that other factors may accelerate or delay this, but on what we can reasonably assume and currently know, the modelling suggests by 2026 we will see PAF giving overtake other deductible giving mechanisms and then outperform them.

The cross over point is also noteworthy in that on this modelling, total giving would likely be exceeding $8 billion per annum.

An opportunity too big to ignore

For those in fundraising, this is a stark reminder that if you’re a registered DGR 1 organisation and are not engaging with PAFs, you are arguably behind the eight-ball already!

Fortunately, getting started is not difficult if you have prior experience in major gifting, as PAF engagement is similar to major gift engagement strategies that your organisation may be running.

If you are not, or you would like to do something about starting, then you can contact Malcolm Gill at pafguide@askright.com

AskRIGHT is the ONLY comprehensive source on PAF funds with 1,645 currently recorded. You can find out more by visiting www.pafguide.com.au.