Aussie philanthropists missing out on massive tax breaks

By their nature, PAFs or PuAFs referred to tax-effective and accessible structures for wealthy Australians looking to plan strategic and long-term giving, but according to Fiander, “Tax data and sector research consistently show a disconnect between capacity and participation.”

As for the “alarming lack of engagement and awareness”, Fiander said Australians were very willing to give to impacted Australians in emergencies, but “the culture of regular structured giving is nascent when compared to other countries such as the USA.”

Fiander said PAFs and PuAFs came in handy as they allowed for flexibility, certainty and timely distribution to causes that often need help right away. 

This sense of predictability allowed the trusts to invest in staff, programs, and infrastructure for long-term stability.

“There is a clear opportunity to reframe giving as a core part of financial and legacy planning for high-income Australians,” she said. 

Fiander purported that greater participation would bolster the country’s social sector and reduce the need for government support.

“The opportunity now is to focus on education, advice and leadership,” she said.

Fiander added the mutual benefit of ancillary funds was to function well for the individual and channel private capital into public good.

“Doing so doesn’t just benefit charities and the broader community, but also brings tremendous joy and satisfaction to donors.”

However, it was noted not everyone felt this way, with critics having claimed PAFs allowed already wealthy individuals to amass more money, whilst not making immediate, charitable impacts.

In the 2022-23 financial year, PAF distributions were just under $800 million.

While the APS welcomed the ATO’s draft tax determination in December that sought to clarify the benefit from ancillary funds, it did suggest the tax treatment was favourable.

In addition to this, the Productivity Commission said approximately $11.6 billion was held in PAFs in 2020-21, and approximately half distributed the minimum of five per cent, or just above.

The suggestion that the concessions could pave the way for misused private benefit, however, were deemed “extremely rare” considering the strict conditions and oversight that PAFs were under.

In response to the government’s December proposal to lift the minimum annual distribution rate to eight per cent, the APS argued the potential for unintended negative consequences.

“That could reduce the overall pool of capital available to charities in the long run. Exactly the opposite of what the community needs,” Fiander said. 

As of now, annual limits remain at five per cent, with PAFs and PuAFs seeming set to continue for the foreseeable future.