As trusted advisers to people with wealth, accountants are perfectly poised to introduce strategic giving as a solution to a tax challenge. However, some are uncertain about the options available, or assume that charitable structures are complex or costly to establish. In reality, the process is often simpler than expected, and the benefits extend well beyond tax planning.
Private ancillary funds (PAFs) are a type of charitable trust, often referred to as a family foundation. PAFs are a popular choice for structured giving, particularly for those looking to create a long-term philanthropic legacy, or on the sale of a taxable asset such as a business or property.
A donation to a PAF provides an immediate tax deduction which can be used in that year or spread flexibly over up to five years. An ancillary fund is a tax-exempt entity, allowing the donation to grow over time. PAFs are required to distribute a minimum percentage of their corpus to eligible charities each year, allowing trustees to make thoughtful decisions about which causes and charities they would like to support. In many ways, a PAF functions like a self-managed super fund - but for giving.
At this time of year, in particular, accountants are focussed on managing their clients’ tax positions. Even if charitable donations are tabled as a potential solution, often it is thought to be too late to establish a structure….it isn’t!
Establishing a PAF typically takes around five weeks. However, a lesser-known alternative - the Public Ancillary Fund (PuAF) – generally has zero establishment fees and can be set up in just one day right up until 30 June, which means there is still time to claim a deduction in the current financial year.
PAFs and PuAFs share many similarities. Both provide a vehicle to accept tax deductible donations with the ability to claim the deduction in the year of the donation or over a period of up to five years, allowing the tax benefits to be tailored to clients’ needs. Both provide a tax-free environment to grow philanthropic capital, with the flexibility to support a range of charities over time.
The key differences between the structures lie in the roles and responsibilities for compliance, governance and investment.
The assets of a PuAF are pooled for investment purposes, which typically provides donors the ability to access a diversified investment portfolio even with a small balance. The trustee handles all administrative, compliance, and governance responsibilities, enabling donors to focus solely on their charitable objectives. This approach to giving is particularly appealing for those seeking a light touch approach or who are just starting their philanthropic journey. PuAFs are also an effective choice for those wanting to leave a giving legacy via their will or where there are no successors to take over the responsibility of a PAF.
We often hear that people feel a significant burden to “make the right decision” when donating a one-off significant amount of money to charity. They want to ensure they make a good choice and that their donation is effective. Structured giving allows for more considered and strategic decisions, often leading to deeper engagement by donors and the opportunity to see the impact of giving during their lifetime, often alongside future generations of their family.
Data from the Australian Charities and Not-for-profits Commission (ACNC) shows that a number of PAFs have balances well below the recommended $1 million to $1.5 million minimum. Interestingly, about one third of PAFs are established by accountants collectively, which suggests there may be limited awareness of more accessible alternatives.
PuAFs provide a more accessible entry point for those with smaller amounts to donate, or who wish to build their charitable funds over time. For example, a giving fund in the APS Foundation can be established with $40,000, while PAFs are generally most suitable for clients with at least $1 million to $1.5 million to donate.
Some PuAFs offer the option to establish a named sub-fund or giving fund. When choosing a sub-fund provider, it’s important to consider factors such as whether donors can recommend charities, the investment performance (net of fees), and whether balance transfers to other ancillary fund providers are permitted (known as portability). The answers to these questions can help accountants ensure their clients are in the most appropriate solution to meet their needs – both now and into the future.
Research tells us that high-net-worth individuals are increasingly seeking strategic advice on philanthropy, including setting up foundations, identifying impactful charities and ensuring donations are tax effective. By partnering with a specialist provider like Australian Philanthropic Services, accountants can expand their service offering and focus on other high-value areas of their client relationships.
While the tax advantages of ancillary funds are especially relevant at this time of year, their true power lies in what they enable: meaningful impact, joyful giving, and the opportunity to bring families together around shared values.
Judith Fiander, CEO, Australian Philanthropic Services
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