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A More Tax Effective Way to Donate: Ancillary Funds

Article By Adam Hurwood | | Accounting & Tax
Are you passionate about a particular charity or cause? Do you wish to take a more long term approach to donating? If the answer is yes, then Ancillary Funds (AF) might be an option worth considering.

An AF is a tax-deductible philanthropic trust, which exists for the purpose of providing grants to eligible charities over time. It was introduced in 2001 by the Federal Government as a way to promote greater levels of philanthropy in Australia. Public ancillary funds (Public AF) and private ancillary funds (PAF) are the two types of trusts that facilitate immediate income tax deductions for individuals while supporting the charities of their choice over many years. Being involved in an AF allows you to fulfil your philanthropic goals, engage deeply with the organisations you support, and leave an enduring legacy.

Public Fund vs Private Fund: What’s the difference?

A private ancillary fund is a ‘DIY’ philanthropic structure, where as the director of the trustee company you are responsible for controlling the PAF, including directing all investment and grant making decisions. A public ancillary fund is a communal philanthropic structure that has the administration, investment and governance activities as the responsibility of the trustee, leaving donors (ie. yourself) solely to think about the charities they would like to support.

What are the benefits of an Ancillary Fund?

Tax effectiveness: Donations are fully tax deductible and can be spread over 5 years to maximise tax benefits. Further to this, franking credits are refunded and any income earned in the fund will be completely tax free. As a result, the assets in an AF can accumulate faster than in a taxed environment, allowing you to distribute more to your chosen causes over the medium to long term. This means that over the long term you may be able to give significantly more to your chosen causes than the sum of your donations to the AF.

Personal satisfaction & family engagement: Experience the impact of your giving first-hand by providing sustainable gifts to your chosen causes and having the option to be directly involved in their activities. PAF’s give you the ability to involve your whole family in the act of giving, supporting your chosen charities over the long term and inspiring future generations to continue the journey.

Choice in the level of your involvement: A PAF is good for those who like to have full control over their investment activities and don’t mind the extra time involved. If you are after a simpler and less time consuming structure to participate in, as a donor in a public AF, the administrative, investment and compliance duties are handled by the pre-existing trustee.

Is an Ancillary Fund right for me?

To learn more about Ancillary Funds and discuss your options for establishing or joining one this year, please speak to your Financial Adviser at Altitude Financial Group.