A Private Ancillary Fund (PAF) is one of the most effective ways to give to charity in a structured and long-term way. Designed for individuals, families, and businesses, it allows donors to make meaningful contributions to the community while also benefiting from tax advantages. In recent years, PAFs have become a preferred vehicle for Australians who want their philanthropy to be both impactful and sustainable.
Understanding the Concept of a PAF
A PAF is a type of charitable trust established under Australian law. Its purpose is to provide a framework for strategic giving, allowing donors to make tax-deductible contributions that are then invested and distributed to approved charities over time. The Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC) regulate PAFs to ensure they operate ethically and transparently.
How a PAF Works
Contributions and Funding
A PAF is funded through donations, which can come from an individual, family, business, or other contributors. These donations are generally tax deductible, providing an immediate benefit to the donor. Once contributions are made, the funds are invested and managed to support long-term charitable giving.
Investment of Funds
The assets in a PAF are invested according to an established investment strategy. The goal is to grow the fund’s capital while ensuring a steady stream of income to support annual distributions. Trustees are responsible for managing investments prudently and in line with the fund’s objectives.
Annual Distributions
Each year, a PAF must distribute at least 5% of its net assets to organisations endorsed as deductible gift recipients (DGRs). This ensures that charitable causes receive consistent support, while the fund continues to grow through careful investment.
Setting Up a PAF
Establishing a PAF involves creating a trust deed that complies with the Private Ancillary Fund Guidelines 2019, appointing trustees, and including at least one responsible person—someone with recognised standing in the community, such as an accountant, lawyer, or senior professional. The fund must then obtain DGR endorsement from the ATO to ensure that donations are tax deductible. While there’s no legislated minimum to start, most advisers recommend a starting capital of around $500,000 to make the fund cost-effective and sustainable.
Benefits of a PAF
A private ancillary fund offers a number of benefits that make it an attractive choice for structured giving. It allows donors to plan their philanthropy strategically while enjoying significant tax efficiencies. Because PAFs are designed for long-term use, they create a steady source of funding for charities while also enabling the donor to build a personal or family legacy. They can also encourage collaboration within families, allowing multiple generations to participate in decision-making and share the experience of giving together.
Governance and Compliance
PAFs operate under strict compliance requirements set out in the Private Ancillary Fund Guidelines 2019. Trustees must ensure the fund meets its annual 5% distribution requirement, lodges annual reports with the ACNC, and keeps transparent financial records. The involvement of a responsible person helps maintain good governance and ensures the fund operates ethically and within the law.
Is a PAF Right for You?
A PAF is ideal for those who want to make a lasting philanthropic impact and have the financial means to establish a long-term charitable structure. It’s especially suited to families who wish to create a legacy of giving that can span generations. For those seeking a simpler or smaller-scale option, a public ancillary fund or direct charitable donations may be more suitable alternatives.
Bringing It All Together
A Private Ancillary Fund is a flexible, tax-effective, and rewarding way to contribute to the community. It combines the benefits of structured investment with the satisfaction of long-term charitable giving. Whether you’re an individual, family, or business, establishing a PAF can help you make a meaningful difference while creating a lasting legacy of generosity.
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