A public ancillary fund is a communal philanthropic structure that helps you take a planned approach to your giving. While a private ancillary fund (often referred to as ‘PAF’) is a ‘DIY’ philanthropic structure, a public ancillary fund has the administration, investment and governance activities as the responsibility of the trustee, leaving donors solely to think about the charities they would like to support.
Using a public or private ancillary fund to facilitate your charitable giving is very tax effective. You receive a full tax deduction up front for the amount you contribute to a public ancillary fund. Grants from the fund are then directed over many years to the charitable sector.
Public ancillary funds: Key advantages
- Public ancillary funds are arguably a simpler and less time consuming structure to participate in than a PAF, as a trustee already exists that handles the administration, investment and compliance with the laws – freeing up donors to solely focus on grant making.
- Public ancillary funds operate as aggregators in much the same way as managed investment funds do, to give access to a deductible charitable foundation vehicle to those with less money than is required for a PAF.
- There is no requirement to establish a new trust or trustee company or arrange for separate auditing with each new donor. A donor simply opens a new ‘sub-fund’. There is no cost to do this.
- A sub-fund can be established immediately. In contrast, PAFs take at least 1 – 2 months to establish because of the necessary approvals required from the Australian Taxation Office (ATO).
- You can open a ‘sub-fund’ in a public ancillary fund and later request the trustee and ATO Commissioner to transfer the balance into your own PAF.
- You can give your sub-fund a specific name (such as your family name) and grants to charities from the sub-fund will refer to this name. Anonymous grants are also possible.
Public fund v private fund: What’s the difference?
There is a significant amount of consistency between a public ancillary fund and a private ancillary fund:
- Contributions to the funds are tax deductible for individuals.
- Investment earnings within the funds are income tax exempt and franking credits can be reclaimed.
- Grants from the funds can only go to DGR Item 1 Tax Concession Charities. • The fund’s financial statements and compliance with the legislated guidelines needs to be audited and reported to the ATO annually.
- Administrative penalties apply for non-compliance with the legislated guidelines.
- New funds must have a corporate trustee.
But there are also some key differences:
- The minimum per annum amount to be granted to charities from a PAF is 5% of opening fund value each year, while for public ancillary funds it is 4%.
- A PAF is restricted in accepting money from nonassociates of the founder (no more than 20% of the fund value in any one year).
- Public ancillary funds must be controlled by a board with a majority of Responsible Persons whereas a PAF trustee can be controlled by family members but is required to have one Responsible Person who is independent of the founder and his/her family.
- A public ancillary fund can and must solicit funds from the public while a PAF must not.