iscover APS raises major concerns with changes to ancillary funds
RegulationIncreasing the minimum distribution rate for both private ancillary funds and public ancillary funds will have negative impacts in the future, Australian Philanthropic Services has warned.
Australian Philanthropic Services has cautioned that the government's decision to raise the minimum distribution rate for Private Ancillary Funds (PAFs) from five to six per cent and for public ancillary funds (PuAFs) from 4 to 6 per cent is a short-term fix with negative long-term consequences.
The changes follow recommendations from the Productivity Commission's 2024 Future Foundations for Giving review, which suggested a rate between five and eight per cent will ensure more philanthropic funds are directed to charities sooner.
The increase contradicts the apparent government intent to build a culture of giving in Australia, according to the chief executive of APS, Judith Fiander, who highlighted that addressing serious community issues requires encouraging more people to donate rather than forcing more out of those already engaged in giving.
Fiander added that the current rate is already high by international standards, and many APS clients already distribute at rates above the 5 per cent minimum.
She continued: “On the surface, raising the minimum might sound like a way to push more money to charities faster, but Treasury’s own modelling shows this is only a short-term fix with a negative impact into the future.”
The Treasury’s Discussion Paper Giving Fund Reforms from 2025 read: “Higher distribution rates see aggregate distributions to deductible gift recipients (DGRs) maximised over short term” but also acknowledged that “in the longer term, distributions are maximised when the distribution rate is set at its current rate of 5 per cent.”
In addition, the rate aligns with government future funds, such as the recently created Housing Australia Future Fund (HAFF) and the Medical Research Future Fund (MRFF).
The MRFF failed to even reach the minimum distribution rate.
Fiander also called out the supposed contradiction that the government is “applying a different standard to philanthropists than they are to themselves.”
She reinforced that the current system operates effectively, stating: “Since their inception, PAFs have provided more than $6.7 billion to charities, while preserving long-term capital and encouraging generosity by Australians in a structured context. The system does not need changing.”
The success, she explained, was due to a consistent compliance regime that promoted generosity and “maintained the capital base to ensure sustained giving for generations to come.”
According to Fiander, however, the change risks derailing progress, and potential donors will question whether the rate may go up again. Tinkering with the regime risks future giving.” She added that the once-in-a-generation opportunity to embed philanthropy into Australian culture is being put at risk.
“With patient capital, philanthropy can help tackle long-term challenges like homelessness, disadvantage and medical research. But this requires confidence in a system that works. The government’s decision on minimum distribution levels is disappointing and doesn’t align with their own stated aims”, she said.
However, Fiander praised the government for increasing the number of new community charities, and said: “The two-year lead time for application of the new minimum distribution level for existing ancillary funds is sensible and aligning distribution rates across all ancillary funds is sensible. Further, the provision of smoothing of distribution levels over three years will support large charitable projects.”
“Finally, stability of ancillary find [sic] guidelines was recognised as being important by the Productivity Commission which recommended that changing minimum distribution levels should only be considered once a decade.”
Fiander urged the government to confirm its agreement on this point and to also increase distribution levels from its own funds.
Amelia is a Professional Services Journalist with Momentum Media, covering Lawyers Weekly, HR Leader, Accountants Daily and Accounting Times. She has a background in technical copy and arts and culture journalism, and enjoys screenwriting in her spare time.
