How to create an ongoing legacy using a private ancillary fund

A number of our clients have recently established their own Private Ancillary Funds (PAFs).

A PAF is a charitable trust that gives grants to eligible charities over time. It’s controlled by a company as trustee, and the board is usually comprised of family or friends. However, every PAF must have at least one independent director.

PAF earnings are tax exempt, and donors receive tax deductions for any donations they make to it. This can make PAFs quite tax effective for families with a high taxable income in a given year (e.g. through a one off capital gain) who want to direct some of that income to charitable causes over time. It’s also an excellent estate planning tool to reduce tax when the deceased wants to create an ongoing legacy by giving part of their estate to charitable causes.

Distributions are made from the PAF to charities with Deductible Gift Recipient status, and at least 5% of the fund (basically the earnings) must be distributed each year.

PAFs are governed by the Australian Taxation Office and the Australian Charities and Not for Profit Commission. That means they have a number of compliance obligations, including the need to prepare Financial Statements and be audited each year.

You may not have the funds of Bill and Melinda Gates to donate to great causes around the world every year. But you can get a real sense of satisfaction by creating a fund that continues to make a difference well beyond your lifetime.

If you’d like to explore the option of setting up your own Private Ancillary Fund, get in touch with us here at KLM Accountants.