Booklet: Private Ancillary Funds (PAFs) (Chapter 2 – Brief history)

Booklet: Private Ancillary Funds (PAFs)

Below is Chapter 2 of our ‘Private Ancillary Funds’ booklet. To read the other chapters of our booklet, click the links below:

Brief history

Philanthropic Trusts or Ancillary Funds have existed in Australia for over a hundred years and were traditionally exempt from income tax.  It was not until 1963 with the introduction of Public Ancillary Funds that tax deductible donations were allowed.  However, these funds had a public fundraising obligation and were not suitable for private or family philanthropy. 

Following a 1999 report by the Business and Community Partnerships Working Group on Taxation Reform about how to foster philanthropy in Australia, a new form of philanthropic structure was introduced by the Howard Government in 2001.  The Prescribed Private Fund (PPF) was described by the Prime Minister as a philanthropic structure that “allowed families and individuals to donate to a trust of their own, which then disburses funds to a range of other gift-deductible recipients”.  Importantly, PPFs allowed tax deductions for donations, were exempt from ongoing income tax, permitted family control and had no public fundraising requirements. 

PPFs were put under scrutiny over the next 10 years and, following extensive consultations, a new regulatory framework came into force in 2009, for what are now called private ancillary funds (PAFs).  There are some key differences between PPFs and PAFs.  Specifically, PAFs require: 

  • Corporate trustees (not individuals); 
  • A 5% minimum distribution per annum; 
  • A formal investment strategy; and 
  • Annual auditing and compliance obligations with the Taxation Administration (Private Ancillary Fund) Guidelines 2022 (the Guidelines). 

In 2012, the Australian Charities and Not-for-profits Commission Act established a regulatory body for the charitable sector, which includes charitable trusts and PAFs, called the Australian Charities and Not-for-profits Commission (ACNC). 

Since 2001, most individual and family foundations established in the last 20 years are PAFs.  As of February 2021, there were 1,853 PAFs in Australia (although only about half of these appear in the ACNC Charity Register).  Tax statistics suggest that there is a correlation between the increase in the number of PAFs and the growth of higher value individual philanthropy in Australia with higher value donors (those giving $25,000 or more in the year) being responsible for fully 50% of the $3.7 billion in individual giving claimed for in 2017-18.  Interestingly, these donors represent only 0.17% of the total number of those giving: fewer than 8,000 people in a total of 4.4 million donors.

Interestingly, welfare is the focus of most PAFs, with medical research, arts and the environment also prioritised. Mass market giving tends to focus on religion, international causes and medical research, while Public Ancillary Funds favour welfare and health.

 

To download a PDF of our booklet, enter your email below.

 

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

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