Private Ancillary Funds are designed to encourage private philanthropy by giving private groups (such as families, business and individuals) the ability to be endorsed by the Australian Taxation Office as deductible gift recipients. That then allows donors to claim tax deductions for most gifts or donations. Special Counsel, Rod Foster Jones explains.
The Private Ancillary Fund Guideline 2009 (PAFG) issued by the ATO gave Private Ancillary Funds (PAFs) until 1 October 2012 to seek to have the deed or will constituting the fund amended so as to comply with PAFG. This particularly affected funds that were previously Prescribed Private Funds and established before 1 October 2009.
Consequently, PAFs that were Prescribed Private Funds (PPF) established before October 2009 may need to consider the deed establishing the fund to ensure its compliance with the charitable purposes provisions of the Taxation Administration Act and the Income Tax Assessment Act. Even if the PPF has been using one of the three forms of model trust deed Suggested by the Australian Taxation Office (ATO), amendment of the deed may still be required to ensure compliance with Part 2 of the PAF Guidelines so far as possible without breaching the trust deed or will.
There are several guidelines in Part 2 of the PAFG not allowed for in the model PPF trust deeds, namely guidelines 10.2, 18 and 50. These requirements pertain to:
- distribution of assets upon winding up, and
- trustee indemnities for an employee, officer or agent of the trustee.
The ATO has suggested that the simplest way for compliance of a former PPF to amend its deed would be to adopt the model deed it has published. However, PPF and PAF trustees should be concerned not to amend the deed so as to cause a resettlement of the trust so as to avoid stamp duty implications. Inadvertently, this may for example be easily be done if a trustee were to accept the definition of “Associate” in the ATO model deed.
Non compliance with the PAFG may lead to the imposition of fines and a loss of deductible gift recipient (DGR) status.