The introduction of Private Ancillary Funds (PAFs) in 2001 has been arguably the single most important boost to charitable giving in Australian history. There are now over 1200 operational PAFs in Australia today, distributing in excess of $1.5 billion to Australian charities every financial year.
A PAF is a tax deductible philanthropic trust that helps a donor(s) take a more planned approach to giving and taxation planning. When correctly structured, a PAF is a Deductible Gift Recipient (DGR) under Australian taxation laws.
The ATO provides a fact sheet of PAFs here.
The benefits of a PAF include:
The PAF structure allows the trustee to have complete control over the investment strategy for the capital and also the annual charitable recipients (5% of the funds gross asset value must be distributed every year)
Legacy & Family Involvement
A PAF can be created in perpetuity creating a lasting legacy of charitable giving handed from generation to generation. Many PAF owners involve the whole family in determining what institutions should be supported and assign responsibilities to monitor what the charities do with the funds.
The money donated into a PAF can be tax deductible both now and into the future. A PAF is a tax exempt structure and franking credits are refunded, which means there is significant value in setting up a PAF if a family is dedicated to structured philanthropic giving.
The minimum investment to establish a PAF through the charitable firm we use at Stanford Brown is $500,000. Importantly once deposited, the money can not be withdrawn, accordingly this strategy is reserved for genuine High Net Worth investors.
As an alternate strategy to PAF, clients who cant justify the start up capital or don’t want the administrative burden of a PAF can establish a sub-account in a Public Ancillary Fund which allows the same taxation benefits and control over the charitable institutions supported with a smaller upfront minimum ($50,000). The key differential is in a PUAF the depositor has no control over what the PUAF invests in as the trustee responsibility is outsourced.