Exploring the Power of Private Ancillary Funds (PAFs)

Philanthropy and Private Ancillary Funds

When it comes to philanthropy, the desire to make a meaningful and lasting impact on the world is a common aspiration for many individuals, families, and organisations. However, achieving this goal requires a structured approach and a well-thought-out strategy. One avenue to channel your generosity and create a legacy of giving is through a Private Ancillary Fund (PAF).

This article will explain a PAF and help you determine if it’s the right philanthropic avenue for you.

Understanding the Private Ancillary Fund (PAF)

A Private Ancillary Fund (PAF) serves as a powerful vehicle for individuals, families, and organisations to set aside funds in a trust to support charities over the long term. It provides an effective and rewarding way to manage your philanthropic endeavours. Here’s how it works:

• Tax Deductions: As a donor, you contribute money to the PAF and, in return, receive an immediate tax deduction, which can be spread over five years.
• Controlled Trust: A PAF is established as a charitable trust controlled by a company acting as the trustee. The board typically comprises family members, including at least one independent director, known as the ‘Responsible Person.’
• Investment Strategy: Directors of the PAF set the investment strategy, ensuring that your wishes manage your philanthropic dollars.
• Tax Benefits: Earnings within a PAF are income tax exempt, and franking credits are reclaimable. Furthermore, testamentary gifts to a PAF have Capital Gains Tax (CGT) exemption.
• Distributions: Funds are distributed to charities with Deductible Gift Recipient (DGR) Item 1 status, and a minimum of 5% of the fund’s value must be distributed each year.
• Regulation: PAFs are governed by the Australian Taxation Office (ATO) Guidelines and have Australian Charities and Not-for-profits Commission (ACNC) compliance obligations.

The Benefits of a PAF

PAFs offer a range of benefits that make them an attractive philanthropic tool:

• Rewarding: With a PAF, you can see the immediate benefits of your giving and, if you choose, be directly involved with the causes you support.
• Family Engagement: Giving through a PAF can unite family members, increase their social awareness, and inspire future generations.
• Tax Effectiveness: PAFs enable you to make the most of tax benefits, maximizing the impact of your philanthropic contributions.
• Control: You act as a director of the trustee company, maintaining control over all investment and grant-making decisions.
• Flexibility: PAFs allow you to take the tax deduction immediately and decide where to distribute the funds in the coming years.
• Sustainable Funding: By establishing a trust in perpetuity, you can provide charitable causes with long-term, sustainable funding, even when financial situations change.
• Community Impact: A PAF allows you to be more thoughtful in your grant-making, planning for multi-year grants and adapting your support as community needs evolve.
• Legacy: Creating a PAF can help you build an enduring legacy, support charitable causes that hold special significance to you, or in memory of a loved one.

Is a PAF Right for You?

A PAF may be the ideal philanthropic avenue for you if:

• You desire full control over investment and grant-making decisions.
• You aim to provide a long-lasting gift to a chosen cause or causes.
• You have a recommended minimum of $1 million for an initial donation for a PAF, otherwise you can consider a Public Ancillary Fund for any donations less than $1 million.
• You seek a tax deduction for your donations.

How Morrows Can Help

Morrows Private Wealth has partnered with Australia’s most reputable organisations to offer a comprehensive solution for establishing and administrating PAFs. This partnership covers all aspects, including accounting, secretarial services, compliance, and reporting requirements, ensuring your philanthropic journey is impactful and seamless. Whether you want to make a difference during your lifetime or leave a legacy, a PAF can provide the framework and structure you need to achieve your charitable goals.