Just prior to Christmas 2015, the Government issued an exposure draft of amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011 with accompanying explanatory material for public consultation.
The amendments are proposed to commence on 1 July 2016. The closing date for submissions is Friday, 12 February 2016.
What are the proposed amendments to the Guidelines?
Some of the key proposed changes for Private Ancillary Funds (PAFs):
- A greater number of individuals will qualify as responsible entities. Currently, at least one of the individuals involved in the decision making of the fund must be an individual with a degree of responsibility to the Australian community as a whole. It is proposed to expand the category of such persons to an individual before whom a statutory declaration may be made such as a nurse, a pharmacist and a bank officer or officer of a building society or credit union with five or more continuous years of service.
- Materials provided to the ACNC will not also be required to be provided to the ATO. Currently, under Guideline 17, the trustee must notify the Commissioner of Taxation of any change to the fund’s governing rules in the approved form within 21 days. If the trustee has provided the relevant material to the Australian Charities and Not‑for‑profits Commission (ACNC) it will not have to make the same notification to the ATO.
- The guidelines for the minimum annual distribution required to be made by the PAF have changed. There will no longer be a requirement for a PAF to distribute at least 5 per cent of the market value of the fund’s net assets during each financial year. The PAF must now distribute the “minimum annual distribution percentage” as that term is defined in the new Guideline 19 which is the lesser of the average of the Reserve Bank of Australia’s target for the cash rate, which is the overnight money market interest rate, over the previous financial year (expressed as a percentage) or the rate calculated under the method statement set out in the new Guideline 19.1A.
- The matters required to be reflected in the current investment strategy for the PAF will now also include the status of the fund as a registered charity (if applicable) and perceived or actual conflicts of interest in holding particular investments (including those relating to individuals involved in the decision‑making of the PAF).
- A PAF will be permitted to transfer assets to another PAF with the agreement of the Commissioner of Taxation and provided certain conditions are satisfied. Similar provisions are already incorporated in the current PubAF Guidelines.
Some of the key proposed changes for Public Ancillary Funds (PubAFs):
- A number of the proposed changes to the PAF Guidelines will be replicated in the PubAF Guidelines such as the expansion of the category of persons who will qualify as an individual with the requisite degree of responsibility to the Australian community as a whole.
- The guidelines for the minimum annual distribution required to be made by a PubAF have changed. There will no longer be a requirement for a PubAF to distribute at least 4 per cent of the market value of the fund’s net assets (as at the end of the previous financial year).
- An additional note is to be inserted in Guideline 44 to remind trustees that it is good practice to review the non‑binding preferences of donors prior to making distributions from the fund to deductible gift recipients.
Both the PAF Guidelines and the PubAF Guidelines will be updated to reflect the introduction of the ACNC.
Key take away points
Trustees and persons involved in the decision making of a PAF or PubAF should:
- immediately review the exposure draft of amendments and consider making a submission about the proposed changes, should they have any concerns.
- looking ahead, once the amendments have been finalised, review the governing documents for the PAF or PubAF, including the investment fund rules, to determine if any amendments are required. Do not assume that the PAF and PubAF Guidelines will be amended in the specific form outlined in the exposure draft material.
- take the opportunity of the release of the exposure draft of amendments to generally review the governing documents for the PAF or PubAF in the context of the obligations and responsibilities for registered charities (if applicable).
The exposure draft of amendments and explanatory material can be found here.