Private Ancillary Funds
Private Ancillary Funds (PAFs) are a type of philanthropic trust previously known as Prescribed Private Funds (PPFs).
The PPF structure was introduced in 2001. In 2008 the Government announced legislative developments to improve the integrity of PPFs and to provide trustees of PPFs with greater certainty as to their philanthropic obligations. Subsequently a discussion paper “Improving the Integrity of Private Prescribed Funds” was published by Treasury in November 2008 which received over 130 public submissions. Following consultations, new legislation and guidelines for what are now called Private Ancillary Funds (PAFs) was announced in June 2009 to come into force from 1 October 2009, with transition arrangements provided for.
The Explanatory Statement released with the final Guidelines on 28 September states “The Guidelines aim to ensure that private ancillary funds are properly accountable and act in the manner expected of an entity holding philanthropic funds for a broad public benefit”.
Changes from PPFs
The major changes for PAFs (from PPFs) are:
- the trustees must be corporations;
- the Accumulation Plan is replaced by a 5% minimum distribution requirement;
- PAFs must have a formal Investment Plan;
- the annual audit must be of compliance with the Guidelines as well as the Financial Statements; and
- the Commissioner of Taxation has increased powers to tighten the compliance regime including administrative penalties, sharing non-compliance information with the relevant state Attorneys General and ultimately suspending or removing trustees.
The primary document for the operation of PAFs is The Private Ancillary Fund Guidelines 2009. This flows from the Tax Laws Amendment (2009 Measures No. 4) Bill 2009 and consequential amendments to the Income Tax Assessment Act that make the taxation aspects of PAFs an attractive vehicle for individual and family philanthropy. However, as PAFs are legally trusts, in addition to complying with the Guidelines and related federal income tax law, PAFs must also comply with the requirements of the relevant State trustee legislation (which is broadly consistent across all States) and common law as it relates to charitable purpose and fiduciary responsibility.
Other relevant resources include: