Our answers to your top 5 questions about Private Ancillary Funds

If you’ve already read our article ‘What do I need to know about setting up a Public (or Private) Ancillary Fund?’ you know that a PAF can be a useful structure to pool and distribute resources for charitable causes.  In a nutshell, a PAF is a type of trust that has the sole purpose of providing money, property or benefits to charities.

Before establishing a PAF, you are likely to have some questions about whether this is the right structure to support your desire to engage in philanthropy.  To help you make an informed decision, we’ve pulled together our answers to the top 5 questions that we get asked by those considering establishing a PAF.

Can I maintain anonymity?

This is an issue that seems to weigh heavily on some philanthropists as while they want to do good, they don’t necessarily want to go public or be the subject of unsolicited requests for donations.

The good thing is that, in the case of PAFs, the following details can be withheld from the (otherwise public) online Charity Register maintained by the Australian Charities and Not-for-profits Commission (ACNC):

  • Name and ABN of the Fund;
  • Contact details of the Fund (including the address for service);
  • Governing Rules;
  • Name of responsible person / entity;
  • Information in Annual Information Statement; and
  • Information in financial report, audit or review report.

When establishing a PAF and during its operation, you can specifically request that the ACNC does not publish any of these details on the national Charity Register.  This means that you can control the extent to which your PAF is visible to the public and recipients of your donations.

Do PAFs have an ‘expiry date’?

The ‘expiry date’ of a trust is also known as a ‘perpetuity date’ or ‘vesting date’.  In most Australian jurisdictions, an expiry date is imposed on trusts through legislation (read more about this in our article ‘My trust is expiring – can I get an extension?’).  These rules do not apply in South Australia, so a PAF established in SA will not be subject to a mandatory expiry date – unless this is specifically included in the trust deed.  This is good news if you want your PAF to carry on a long-lasting charitable legacy.

We can help you establish a Private Ancillary Fund, for more information call us on 1300 654 590.

On the other hand, there may be reasons why you want your PAF to have a specific ‘expiry date’ or other circumstances where you would like the PAF to come to an end.  In this situation, we can assist you to tailor the PAF’s governing documents to ensure that your wishes are fulfilled.

How much do PAFs cost to operate?

As you will appreciate, this will often depend on the value and type of assets held by the PAF and the donations it receives.  You will likely need some professional assistance to manage your PAF along the way (and ensure that it meets its compliance obligations), so there may be costs associated with the following:

  • Making distributions (for example, conducting due diligence on potential recipients of donations, assessing grant applications etc.);
  • Managing the investments and assets held within the PAF (for example, maintaining an investment strategy and obtaining financial advice);
  • Maintaining financial records / accounting for the PAF;
  • Annual review / audit fees;
  • Services provided by professional trustees / directors (if applicable); and
  • Reporting to the ACNC / ATO.

Many of the above functions can be performed by you and those associated with the PAF, but it will really come down to the degree of involvement that you want to have in its day-to-day operations.  Ultimately, you can choose the level of professional input and cost incurred by the PAF.

If you would rather leave some of the day-to-day administration of the PAF to others, we can assist to put you in touch with qualified and appropriate professional advisers.

Can a donor claim a tax deduction for the value of real property donated into a PAF? 

Yes, donors can donate real property to a PAF and claim a tax deduction if:

  • the property was purchased within 12 months of the donation; or
  • the property is valued over $5,000.

The property must be valued by the ATO for the purposes of determining the applicable tax deduction.

In these circumstances, we recommend that the donor obtain specific advice from a professional tax adviser and make sure that the donation is recorded and the deduction is appropriately claimed.

Can a PAF run a business?

No, PAFs are prohibited from carrying on a business.

The question then is – what does it mean to ‘carry on a business’?

The PAF Guidelines confirm that the ‘mere holding of, or dealing in, investments, such as shares or rental properties’ does not classify as carrying on a business. On that basis, most activities that a PAF will likely carry out will not be classified as ‘carrying on a business’.

If you are proposing to engage in activities that may go beyond this definition, it’s best to seek specific advice to check that those activities will not breach the PAF Guidelines.

We can assist you with that, call us on 1300 654 590.

PAFs can be an excellent way to be more strategic in your charitable giving and make a real impact on the community, while creating a lasting legacy as part of your family’s story.  If you would like to find out more about establishing a PAF and how we can help, please contact us on 1300 654 590

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