The Federal Government has amended the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011. These guidelines set minimum standards for the governance of ancillary funds and the conduct of trustees.

The changes improve the consistency between the two guidelines, reduce red tape and increase the attractiveness of ancillary funds as a way to use personal assets for philanthropic purposes.

The changes will take effect from 1 July 2016.

WHAT ARE PRIVATE AND PUBLIC ANCILLARY FUNDS?

Ancillary funds are a form of charitable trust set up by individuals for philanthropic purposes. These funds provide money or property to charitable organisations who are deductible gift recipients (DGRs). Private ancillary funds (PAFs) can only accept funds from associates of the founder of the fund.

Public ancillary funds (PuAFs) are public funds which are able to solicit ‘gifts’ from the public as a whole, without limitations.

IDENTICAL CHANGES TO BOTH GUIDELINES

RECOGNISING THE INTRODUCTION OF THE ACNC

Both Guidelines have been updated to reflect the introduction of the Australian Charities and Non-for-profits Commission (ACNC). Please note that most PAFs are registered charities with the ACNC.

RED TAPE REDUCTION

To reduce red tape, any materials, including financial statements and auditing reports, provided to the ACNC do not have to be separately provided to the ATO.

As an example, where the trustee is required to notify the ACNC of a change to the fund rules, the trustee is not required to notify the ATO of the changes.

INVESTMENT STRATEGY RULES

The requirements that trustees must consider, in preparing and maintaining an investment strategy for the fund have been amended to include 3 additional requirements:

  • the fund’s status as a registered charity (if applicable);
  • any perceived or actual conflicts of interest in holding particular investments (including those relating to individuals involved in the decision-making of the fund); and
  • the terms and other circumstances relating to any gift to the fund under a will.

LOAN GUARANTEES

Ancillary funds are now able to provide guarantees over their assets for the ‘sole benefit’ of a DGR, provided such guarantees are consistent with the governing rules of the fund. This change is designed to enable the PAF to provide greater assistance to DGRs the PAF was established to support.

REDUCTION IN MINIMUM ANNUAL DISTRIBUTIONS

An ancillary fund must distribute a percentage of the market value of its assets as at the end of the previous financial year (the ‘annual distribution rate’). The guidelines have been amended to allow for greater flexibility in unexpected economic conditions.

There is now an opportunity to apply to the ACNC Commissioner to lower the minimum annual distribution rate for a financial year if the Commissioner considers it is appropriate. In making its decision the Commissioner will consider any relevant circumstances, including general market conditions, the size of the fund, the fees and expenses of the fund, its investment and distribution strategies and the compliance history of the fund and the trustee.

EXPANSION OF RESPONSIBLE PERSONS

PAFs and PuAFs must have ‘responsible persons’ as a part of the decision-making of the fund. Before the amendments, only in the PuAF Guidelines did the category of ‘responsible persons’ extend to individuals before whom a statutory declaration may be made. The PAF Guidelines have been amended to now also include individuals before whom a statutory declaration may be made in the category of ‘responsible persons’.

The changes are listed in the table below.

 

CURRENTLY A RESPONSIBLE PERSON FOR A PAF

ADDITIONAL CATEGORIES OF RESPONSIBLE PERSONS FOR PAFS WITH EFFECT FROM 1 JULY 2016

Individuals with a degree of responsibility to the Australian community as a whole, except for a founder, a donor to the fund who has contributed more than $10,000, or an associate of a founder or such a donor.

These individuals would generally include school principals, judges, religious practitioners, solicitors, doctors and other professional persons, mayors, councilors, town clerks and members of parliament.

An individual before whom a statutory declaration may be made, which includes those licensed or registered to practice in occupations such as:

  • dentists, nurses, pharmacists, bailiffs;
  • bank officers or officers of a building society or credit union with 5 or more continuous years of service;
  • clerks of the court; justices of the peace, magistrates;
  • members of various professional associations including Engineers Australia, Chartered Secretaries Australia and various professional accounting associations in Australia; and
  • marriage celebrants, mayors, town clerks, government employees with 5 or more years of continuous service and teachers employed on a full-time basis at a school or tertiary education institution.

Note that the responsible person requirements do not apply to the Public Trustee of a state or territory. This was always the case for PuAFs, and it is now also the case for PAFs as a result of the amendments.

CHANGES TO INDIVIDUAL GUIDELINES

The following table sets out the differences between the two sets of Guidelines with respect to the amendments.

CHANGE

PRIVATE ANCILLARY FUNDS

PUBLIC ANCILLARY FUNDS

Portability

PAFs now have the ability to transfer their assets to other ancillary funds which allows for the portability of funds between trustees and managers, provided that:

  • the PAF may transfer all of its net assets to another ancillary fund with the consent of the Commissioner;
  • the PAF has complied with the guidelines regarding minimum annual distributions for the financial year; and
  • any of the assets of the PAF have not been received from another ancillary fund during the previous two financial years.

 

PuAFs already had the ability to transfer their assets to other ancillary funds, provided that:

  • the PuAF may transfer all of its net assets to another ancillary fund with the consent of the Commissioner (or if the PuAF has sub-funds, may transfer all the net assets of the sub-fund to that ancillary fund);
  • the PuAF has complied with the guidelines regarding minimum annual distributions for the financial year; and
  • any of the assets of the PAF have not been received from another ancillary fund during the previous two financial years.

There is however a new restriction on transfers of assets from a PuAF if the transfer involves moving assets contributed, either directly or indirectly, by the general public from a PuAF to a PAF.

Auditing and review

PAFs with both revenue and assets of less than $1 million for the financial year may now have financial statements and compliance with these guidelines reviewed rather than audited may now, unless the Commissioner provides otherwise.

The reviewer must be a registered company auditor under the Corporations Act 2001 (Cth).

No changes have been made to the PuAF Guidelines. Annual reviews instead of audits continue to be allowed for PuAFs in the same way as provided in the changes to the PAF Guidelines.

OTHER CHANGES

Some other minor amendments to the Guidelines include:

  • guidance on calculating annual distributions, including an example regarding social impact investments; and
  • changes to reflect the closure of the Australian Valuation Office.

KEY TAKEAWAYS

Trustees and any persons who are involved in the decision-making for an ancillary fund should:

  • review the changes to the PAF and PuAF guidelines to understand the changed obligations;
  • review the governing documents of the ancillary fund to determine if any amendments are required; and
  • consider the obligations and responsibilities for registered charities and dealing with the ACNC in general.