Private Ancilliary Funds (PAF)
Private Ancillary Funds (often referred to as a private Foundation) enable you to establish a legacy.
A Foundation is a trust that is established by a Founder – the person who makes the initial contribution to the PAF. The Australian Taxation Office (ATO) has a complying trust deed that can be used to create the trust, and you can also apply for Deductible Gift Recipient status with the ATO, so that you can obtain a tax deduction for the donations that you make to your Foundation.
While the Foundation may not be required to lodge an income tax return, each year it is required to report it’s financial information to the Australian Charities and Not-for-Profit Commission.
The Founder and close relatives can make further contributions/donations to the PAF – the advantage of having your own Foundation is that you can make a single (or multiple) donations in any year without the need to immediately donate to individual charities – the PAF allows you time to consider who will be the beneficiary of your Foundation in each year.
The reasons to establish a PAF are many and varied – in one example, the Founder may have no other family, and significant wealth that they would like to see gifted over a period of time both before and after their passing. For others, they may establish a fund to educate their children, great grandchildren etc in the value of giving, enlisted them in the process of researching worthy recipients for the required annual minimum donation(s).
If established as a Deductible Gift Recipient with the Australian Taxation Office, there are significant tax benefits associated with donations made to your own Foundation, but there are also annual reporting and gifting obligations to be complied with.
Foundations can be commenced with cash or the contribution of assets. An investment strategy for the fund is essential, to ensure that it has cash available to meet the outgoing minimum donation requirement each year, especially where the fund holds extensive property assets.
The assets of the Foundation are valued at market value each year, and this forms the basis of the amount to be donated to other Deductible Gift Recipients during the following financial year. The minimum outgoing donation amount is 5% of the net market value of the assets of the Foundation at the previous 30 June, after a period of establishment of the Foundation.
If you are interested in establishing a Foundation, we can refer you to the professionals in this area that can assist. Our role in this process is to provide information and support for those wanting to create a Foundation. We also provide administration services for the Foundation itself.
