Philanthropic Giving via a Public Ancillary Fund
Sub-funds are one option available to structure your philanthropy. They can be thought of as a form of ‘giving account’ which sits within a larger public foundation, and are generally fast to establish. They are particularly attractive to those who want to focus first and foremost on giving.
A Public Ancillary Fund (PuAF) is a communal tax exempt philanthropic trust that enables a number of donors to establish and name a ‘sub-fund’ under the broader PuAF structure. With a sub-fund, you do not need to worry about the trustee obligations and responsibilities associated with a Private Ancillary Fund (PAF) and can instead put your energy into choosing the charities you would like to support.
There are a range of providers with whom you can establish a sub-fund. These include community foundations, wealth managers and trustee companies. Your financial adviser can help you in selecting a PuAF which aligns with the values you wish to impart in your charitable giving.
Anyone can donate to a donor sub-fund and its purpose is to collect donations from the public. Once you donate, the funds are credited against your sub-fund and are then invested together with the assets of all the other sub-funds managed by the provider, to generate a return.
The minimum grant is 4% of the opening 30 June value of the sub-fund each tax year. The Trustee will advise the amount, but any amount above this minimum is also possible.
Like a PAF, grants must be to an eligible Deductible Gift Recipient (DGR) endorsed as DGR Item 1 by the ATO. The grant recipient must also be a registered charity with the Australian Charities and Not-for-profits Commission (ACNC).
It is important to note that the Trustee of the PuAF has the final decision on grants. Therefore, if you establish a sub fund you are not entitled to direct, but only to recommend, the disbursement of your funds. Unlike a PAF, you will not have complete control over where your grants are directed.
“A PuAF must have a single investment strategy covering all giving, or sub-funds”, says David Ward, Technical Director of the Australian Philanthropic Services. “The nature of that investment strategy is one of the factors to be considered in choosing a giving fund provider, with other key facets being investment performance, the approach to portability, fees, frequency of reporting, and availability of granting windows.”
How much control do you have?
The Board of Trustees of the PuAF has complete control over all aspects of the investments held. However, you are free to choose the DGR recipients within the guidelines and also to name your sub fund. There are also minimums imposed by Trustees for grant amounts (such as $1,000) and donations (for example $5,000). The Trustee may also undertake its own due diligence on the recommended charity before approving a grant recommendation.
“The Trustee of the PuAF is responsible for all the investments of that fund and they are obliged to review the investments each year and make changes they deem as most prudent,” explains Ward. “However, any such changes would normally be communicated to giving fund holders.”
“There are PuAFs that apply ethical screens to their investments to different degrees, and you can certainly ask trustees about the investment strategy of the fund,” says Ward.
There are also fees involved. Generally, the fee charged for a PuAF is 1%-1.5% p.a. of the value of the sub fund. This covers all aspects of running expenses such as administration, compliance and investment costs. You should speak to your financial adviser who can help you understand the fee structure of PuAFs and how this might impact your investment position.
Giving in Australia
Total giving to Australian charities in 2016 was $10.5 billion, according to data from the Australian Charities and Not-for-profits Commission1. About $1.5 billion of that was ‘structured philanthropy’ – that is, philanthropy through legal structures such as a PAF, PuAF or testamentary trust.
“Philanthropy is open to every member of society,” says Ward. “However, using a long-term structure makes most sense for those with more resources starting from $50,000 for a giving or sub-fund (some providers allow lower amounts) through to over $1m for those wanting a standalone independent foundation.”
“Ancillary funds, whether a PAF or a giving fund in a PuAF, have the advantage of donations being income tax deductible,” explains Ward. “Utilising other structures such as testamentary charitable trusts established under a will are not as tax effective. While philanthropists are driven by the desire to give back or contribute to the community, doing it in a tax-effective way maximises the benefits that flow to the community organisations being supported.”
You may decide to establish a separate legal giving structure for a variety of reasons. You may wish to build a solid governance structure around your giving to enhance its effectiveness; you may want to involve your family; or, you might just simply want to build a legacy that can continue to contribute to the community. Whatever your motivation, there are efficient and tax-effective ways to put a structure around your particular style of philanthropy and ensure your legacy continues for many years to come.
1 ACNC, Australian Charities Report 2017.
Important information and disclaimer
This article has been prepared by Godfrey Pembroke Limited ABN 23 002 336 254 AFSL 230690. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this article is current as at 19/11/2019. While care has been taken in the preparation of this article, no liability is accepted by Godfrey Pembroke Limited or its related entities, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change. Any tax information provided in this article is intended as a guide only. It is not intended to be a substitute for specialised tax advice. We recommend that you consult with a registered tax agent.