With investors seeking more socially responsible means of investing, ‘giving while living’ is gaining traction.
Rather than waiting to benefit charitable causes via bequests under the terms of a Will, discerning and generous donors are finalising their philanthropic intentions sooner rather than later.
There are a number of ways to bring forward charitable giving – most notable through public or private ancillary funds. These are tax-advantaged trust structures commonly used for strategic long-term giving and provide a link between those who wish to give and organisations which are eligible to receive tax-deductible donations (known as deductible gift recipients, or DGRs). Public and private ancillary funds are tax exempt for both income and capital gains earned within the structure.
There are currently over 3000 of these funds in Australia. In the 2015-16 financial year they distributed over $850 million. The largest private ancillary fund in Australia is the Ramsay Foundation, holding approximately $4 billion in assets.
Public ancillary funds (PAFs) are communal philanthropic structures established for the purpose of making distributions to DGRs. They are quick and simple to establish – usually with an amount of at least $20,000 – and offer tax deductions to donors that can be spread over four years, helping to spread the cost of the upfront contribution. These funds are required to have a formal investment strategy, and to distribute a minimum of 4 percent of the fund’s net assets annually.
Private ancillary funds were introduced by the Federal Government in 2001 to encourage personal and corporate philanthropy. Contributions to PAF’s are also tax-deductible, but they are unable to receive contributions from the public.
They are often established as family foundations and are best understood as the SMSFs of the philanthropy world. They offer a high level of control to those wishing to direct their gifts for specific charitable purposes, and must distribute 5 percent annually (or $11,000, whichever is greater) of the fund’s value. An extra benefit is the opportunity these funds provide to establish a long-term legacy within a family’s business affairs by including younger generations in investment and distribution decision-making.
Professional advice will ensure philanthropic structures are established correctly within the legal framework, and that investments are well-managed, tax advantages are maximised, and grants are directed effectively.