Public ancillary funds

TAKE AWAY: A public ancillary fund is a vehicle for public philanthropy. It is simple and quick to set up, and it offers tax deductions to donors and tax exemptions for income earned by the fund – as long as they meet a few requirements.

Ancillary funds are special funds that provide a link between people who want to give and organisations that can receive tax-deductible donations (these organisations are known as deductible gift recipients, or DGRs). They may be public or private, and they provide money, property or benefits to DGRs.

What is a public ancillary fund?

A public ancillary fund, or public AF, is a communal philanthropic structure established by a will or trust deed for the purpose of making distributions to DGRs that are not ancillary funds. A public ancillary fund is itself a DGR and is therefore eligible for income tax exemptions.

Benefits of public ancillary funds

A public ancillary fund can be used as a vehicle for public philanthropy, to provide opportunities for donors to obtain tax deductions, and to obtain income tax exemptions on income earned by the fund – including capital gains.

Trustees

The trustee of a public ancillary fund must be a corporation, not individuals.

The majority of directors of the corporation must be “responsible persons”; that is, individuals who have a degree of responsibility to the general community (e.g. church authorities, school principals, solicitors, doctors, members of parliament).

Other features of public ancillary funds

Public ancillary funds have the following additional features and requirements:

• The fund must invite the public to make donations and the public must in fact contribute (this is not a requirement of private ancillary funds).
• Generally, every year the fund must distribute to DGRs at least 4% of the fund’s net assets. If the expenses of the fund are paid out of the fund, the fund must distribute at least $8,800. No distribution is required during the year of establishment or the next four financial years.
• The fund must have its financial statements audited every year. If its revenue and assets are less than $1 million, an audit is not necessary, but a review is required.
• The fund must have a formal investment strategy.
• Generally, public ancillary funds cannot borrow money, must maintain investments on an arm’s-length basis, and must not provide assistance to related parties or acquire assets from them (other than by way of gift).

Getting help

If you’d like to explore the establishment of a public ancillary fund, please contact the Moores not-for-profit team on (03) 9843 2158 or nfpsupport@moores.com.au.

They would be happy to provide more detailed advice tailored to your circumstances and objectives, and assist with the establishment of a public ancillary fund.

Disclaimer: This help sheet has been prepared by Moores, not-for-profit legal advisers. It provides a general guide and should not be relied on as (or in substitution for) legal advice.