Booklet: Private Ancillary Funds (PAFs) (Chapter 12 – Overview of a PAF)

Booklet: Private Ancillary Funds (PAFs)

Below is Chapter 12 of our ‘Private Ancillary Funds’ booklet. To read the other chapters of our booklet, click the links below:

Overview of a PAF

Feature/Terms Private Ancillary Fund
Overall purpose

To hold and distribute property for the sole purpose of advancing charitable purposes.
Regulations

See attached Schedule: Legal Framework
Trustee

Corporate with at least 1 responsible person director who cannot be:

  • The founder;
  • A donor that has contributed more than $10,000; or
  • An associate of the above.
Location

Established and operated only in Australia
Source of contributions
  • Must not solicit donations from the public.
  • Must be a close relationship between those who establish the fund and those who donate to it.
  • In any one financial year, fund must not accept donations totalling more than 20% of market value of assets from entities other than:
    • The founder;
    • Associates of the founder;
    • Employees of the founder; or
  • The deceased estate of any of the above.
Beneficiaries

Can only make distributions to ‘Item 1’ Deductible Gift Recipients.
Minimum annual distribution

5% of market value of the fund’s net assets (as at end of previous financial year)*

OR

$11,000 (or the remainder of the fund).

No distribution is required in the year of establishment of the Fund.

* Can apply to Commissioner to vary distribution rate
Distribution and investments

Trustee’s power is limited as follows:

  • Cannot borrow money or maintain an existing borrowing of money (subject to limited exceptions).
  • Investments must be made and maintained on arm’s length basis.
  • Must not give security over, or in relation to, an asset of the Fund.
  • Must not acquire asset (except by way of gift) from:
    • Founder;
    • Donor;
    • Trustee; or
    • Director, officer, agent, member or employee of above entities,
  • unless by way of arm’s length commercial basis, and on terms more favourable to fund than that expected at arm’s length.
  • Must not make a loan or provide any other kind of financial assistance to:
    • Founder;
    • Donor;
    • Trustee; or
    • Director, officer, agent, member or employee of above entities,
  • unless by way of arm’s length commercial basis, and on terms more favourable to fund than that expected at arm’s length.
  • Must not acquire asset if it is capable of being a ‘collectable’ (e.g. artwork, jewellery, ancient manuscripts etc).
  • Must not carry on a business (subject to limited exceptions).
Records, financial statements & reporting
  • Must prepare and maintain current investment strategy that complies with requirements of the Guidelines.
  • Must issue a receipt for all gifts received, including name & ABN of fund, name of donor and confirmation that contribution is a gift.
  • Must:
    • Estimate market value of assets annually (except for land – once every 3 years); and
    • Report that estimation to ATO annually.
  • Must prepare financial statements each financial year in accordance with accounting standards.
  • Must make financial statements available to ATO on request (unless already provided to ACNC).
  • Must report annually either:
    • If registered with ACNC: by lodging Annual Information Statement by 31 March each year; or
    • If not registered with ACNC: by lodging Annual Information Return in paper format to ATO by 28 February each year.
  • Must notify ATO or ACNC of any changes to Governing Rules within set timeframes.
Audit

Annual accounts must be:

  • Audited if either revenue or assets over $1 million for financial year; or
  • Reviewed or audited if both revenue and assets under $1 million.
Winding up/vesting

Surplus assets must be distributed to Item 1 Deductible Gift Recipient (unless Commissioner approves otherwise).
Tax position
  • Donations to the Fund can be claimed as a tax deduction by the donor.
  • If registered with the ACNC:
    • Income Tax Exempt (incl. CGT); and
    • Able to claim franking credits.

 

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The information contained in this post is current at the date of editing – 26 March 2024.

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