David Ward (Technical Director, Australian Philanthropic Services) is considered a leading authority on ancillary funds and is the author of Philanthropy Australia’s Trustee Handbooks for both Private and Public Ancillary Funds.
Although one of the most popular philanthropic structures, a private ancillary fund (PAF) is not the only choice for donors who want to be more effective with their giving. The tax advantages offered by PAFs, including upfront deductibility of donations, income tax exemption on earnings, and the capacity to reclaim franking credits, are also available to public ancillary funds (PuAFs).
The key practical differences between the two structures are cost, and a philanthropist’s involvement in operational compliance, administration, and investment management.
Why set up a philanthropic structure?
Philanthropists use private ancillary funds (PAFs) or sub-funds (also known as giving funds) in a public ancillary fund (PuAF) to put aside some money in a trust to support charities over the long-term. It’s an efficient, satisfying, and tax-effective way of giving to charity.
By setting up a philanthropic structure, donors can:
- Make a tax-deductible donation now and decide which charities to support later
- Invest their charitable funds over the long-term
- Provide an enduring revenue stream to charities
- Involve family members, children, grandchildren, and generations to come
- Create a lasting legacy
Private ancillary funds (PAFs)
PAFs are great for those seeking full control of their charitable trust, particularly of the investment of funds. They require founders who are willing to take on and commit time to the compliance responsibilities of running an independent foundation. PAF founders may want to introduce community engagement and the discipline of running structures and investments to other family members.
A giving fund in a PuAF
For those without the time or inclination to be involved in the administration and investment management, or who have fewer funds to commit to philanthropy immediately, a sub-fund or giving fund in a PuAF can be a more sensible option than a PAF.
A sub-fund in a public ancillary fund (PuAF) has the same tax advantages as a PAF but it is part of a communal structure. Unlike a PAF, there is no requirement to establish a new trust or trustee company. APS can establish a sub-fund in 24 hours (even just a few days before 30 June) and there’s no set-up cost to do this.
While the administration and compliance support service we provide at APS reduces the PAF administration burden on PAF-holders to a minimum, many people wish to focus their time on choosing charities to support. A sub-fund makes for an excellent option.
Sub-funds also provide an effective structured giving solution for those with $50,000 (less for some providers) to commit to their philanthropy. In contrast, a PAF requires at least $1m to be cost-effective.
A minimum of 4% of the PuAF assets must be given away each year, slightly lower than with a PAF (5%), with 25,000 charities eligible for support.
Given several PuAFs in Australia offer sub-funds, selecting the right provider is essential. Potential donors should compare the benefits in the same way they would for an investment or superannuation fund. It is vital to ensure that the PuAF provider gives the option to transfer the balance of the fund to another PuAF or PAF. This is called portability, and not every PuAF offers it. Portability gives the flexibility to move between ancillary funds in the event donors wish to establish their own PAF in future or are dissatisfied with a provider.
Additionally, donors should compare total fees (including investment and management fees), the capacity to recommend grants throughout the year, investment returns, and the regularity of reporting on the balance of their fund.
About Australian Philanthropic Services (APS)
APS sets up and administers private ancillary funds and offers a public ancillary fund, the APS Foundation, in which people can establish a giving fund. We also provide client-centred giving guidance and advice to help our clients to be more effective with their giving.
Being client-centred means we do not promote specific organisations to our clients. However, we actively investigate organisations doing great work in the community that might fit the interests of particular clients.
For more about how we work with not-for-profit organisations, visit our website.