Looking for a tax-effective way to structure your charitable giving? A private ancillary fund (PAF) could be the solution. PAFs offer flexibility, allowing Australian individuals, families, and businesses to manage their philanthropy strategically while receiving tax benefits and growing their donations over time.
In this blog post, we’ll explain what a PAF is, who should consider setting one up, the steps to create a PAF, and whether to manage it yourself or hire professional help.
What is a private ancillary fund?
A private ancillary fund (PAF) is a charitable trust in Australia that allows individuals, families, or businesses to donate to eligible charities over time, benefiting from tax advantages. By setting up a PAF, you can control the timing and amount of your charitable distributions while allowing the fund’s investments to grow.
The flexibility of a PAF lies in how it is managed. You can contribute assets such as cash, shares, or property to the fund, which is then invested. Each year, a portion of the fund must be distributed to registered charities. This structured approach is perfect for those looking to make a long-term impact to the causes they feel passionate about.
Who should consider setting up a private ancillary fund?
A private ancillary fund is ideal for individuals or businesses with specific financial and philanthropic goals. People who use PAFs include:
- High-net-worth individuals or families: If you want to leave a lasting legacy through charitable giving, a PAF provides a structured way to manage your donations over time.
- Business owners: PAFs allow businesses to formalise their corporate social responsibility initiatives, offering tax-efficient solutions for charitable contributions.
- Those seeking tax benefits: Contributions to a PAF are tax-deductible in the year they’re made, offering immediate tax savings.
- People who value control: PAFs allow you to manage where your donations go over time, giving you flexibility to direct your funds as needed.
How to set up a private ancillary fund
Setting up a PAF can seem complex and time consuming. But the right professionals can simplify the process and make it a rewarding experience. Below are some of the steps necessary to set up a PAF.
- Define your philanthropic goals: Clarify the causes or issues you wish to support. This will guide the fund’s structure and future distributions.
- Create the legal framework: A PAF requires a trust structure, which involves working with a legal professional to draft a trust deed. This deed outlines the purpose of the fund and how it will be managed.
- Register with the Australian Tax Office (ATO): Your PAF must be registered with the ATO as a Deductible Gift Recipient (DGR) to ensure donations are tax-deductible.
- Appoint trustees: Trustees manage the fund’s investments and ensure distributions to charities are made each year. You can act as a trustee or appoint professionals to take on this role.
- Fund the PAF: Once the PAF is set up, you can contribute cash, shares, or property to the fund. These assets are then invested with the goal of generating returns.
- Invest the fund: The goal is sustainable growth. Investments are made to ensure the PAF grows over time while generating enough income to make annual charitable distributions.
Can I set up a PAF myself?
When it comes to managing your PAF, you can either do it yourself or hire professionals. DIY management works best if you’re confident in your financial skills. It requires time, knowledge of investments and the ability to navigate legal and compliance obligations.
Hiring a financial adviser to manage your PAF saves you time and ensures expert guidance. While there may be a cost for the advice, outsourcing the management to a financial adviser gives you peace of mind knowing your fund is growing strategically and meeting all legal requirements.
How Financial Spectrum can help
At Financial Spectrum, we specialise in setting up and managing PAFs. Our comprehensive service guides you through every stage, from establishing the legal framework to developing an investment strategy that maximises your fund’s impact. With our expert support, you can focus on supporting the causes that matter most to you, while we handle the details. We are committed to supporting our clients’ philanthropic efforts and are open to considering the waiver of any associated costs on a case-by-case basis for existing clients who establish a PAF. Contact us to learn more.
Antony specialises in family practice, guiding families through significant life transitions and ensuring their money aligns with their values to empower their lives and legacies. Read his full bio here.
