ATO Draft Determination TD 2025/D3: New guidance on when ancillary funds ‘provide a benefit’
15/12/2025
On 12 November 2025, the ATO released draft Taxation Determination TD 2025/D3, offering the first detailed guidance on when ancillary funds are considered to ‘provide a benefit’.
The draft provides the first comprehensive guidance on when private and public ancillary funds ‘provide a benefit’ under the Taxation Administration (Private Ancillary Fund) Guidelines 2019 and the Taxation Administration (Public Ancillary Fund) Guidelines 2022 (collectively, the Guidelines).
SW provided feedback on the Treasury’s Giving fund reforms in August. Based on our discussions we found that trustees were concerned that the change is inconsistent with their Funds’ objective of providing long-term charitable support.
This draft determination represents a significant development in the regulation of ancillary funds, clarifying key interpretive questions that have implications for fund trustees, donors, and related entities. The determination addresses two critical provisions, those being:
- subsection 15(4), which governs how ancillary funds can satisfy their mandatory distribution requirements
- subsection 22(3), which prohibits ancillary funds from providing benefits to related entities.
Background to ancillary funds
Ancillary funds benefit from favourable tax treatment, with income generally exempt from tax and donations to them deductible. However, these concessions could be misused for private benefit. To safeguard the philanthropic purpose, ancillary funds are governed by strict Guidelines that set out general principles requiring ancillary funds to be both philanthropic in character and vehicles for philanthropy.
The Guidelines impose two key obligations relevant to TD 2025/D3:
- Mandatory distributions (section 15(4)): Ancillary funds must make annual distributions to deductible gift recipients (DGRs) to meet or exceed the minimum annual distribution rate (4% of the market value of the fund’s net assets for public ancillary funds and 5% for private ancillary funds).
- Prohibition on benefits to related entities (section 22(3)): Ancillary funds must not provide benefits, directly or indirectly to related entities such as trustees, donors, founders, their relatives, or associates (except for reasonable expense and remuneration).
Private Ancillary Funds have been in focus recently with the Treasury recently releasing a consultation paper on Giving Fund reforms.
Overview of TD 2025/D3
The determination addresses two critical questions:
- When does a distribution to a DGR constitute a ‘benefit’ for purposes of satisfying mandatory annual distribution requirements (subsection 15(4))?
- When does an ancillary fund provide a prohibited ‘benefit’ to a related entity such as a trustee, donor, founder, or their associates (subsection 22(3))?
What is a ‘benefit’?
The Guidelines do not define ‘benefit’. TD 2025/D3 clarifies that a benefit includes an advantage, a profit, or a gain, and is not limited to the payment of money or transfer of property.
The draft determination outlines that a benefit can have the following key characteristics:
- A benefit may be anything that puts a recipient in a better or more favourable position.
- Benefits may be immediate, future, or contingent.
- A benefit may arise by addition (e.g., providing services) or by removing a detriment (e.g., paying a liability on another’s behalf).
- A benefit under subsection 22(3) may not necessarily qualify as a ‘benefit’ under subsection 15(4).
Provision of benefits under section 15(4) of the Guidelines
As outlined in the Guidelines, a distribution is the provision of money, property or benefits. The draft determination provides the following requirements for a benefit to qualify as a distribution under section 15(4):
- Benefits must be provided to a DGR – a fund will only have provided a benefit if it caused the DGR to have it (i.e. the benefit must be directly allowed, conferred, given, granted or performed).
- Benefits must be objectively ascertainable and have market value – the advantage, profit or gain must be objectively ascertainable, and it must present an actual benefit to the DGR and be capable of having a market value.
- The benefit must be a net benefit – a fund will not provide a benefit where it receives money, property or benefits of equal or greater value in return from the DGR.
Non-binding promises of future payment
The new determination clarifies that a promise of future payment by an ancillary fund to a DGR is not a ‘distribution’ under section 15(4) of the Guidelines. A non-binding promise of a future payment creates, at most, a mere expectancy or possibility which has no legal existence and therefore does not amount to a benefit.
The new determination sets out that a promise of a future payment can only be binding if, when the promise is made, the trustee exercises a power that the trust deed permits to be used at that time in relation to the relevant income or capital of the fund.
Provision of benefits under section 22(3) of the Guidelines
Section 22(3) of the Guidelines provides an integrity provision which states that the trustee of an ancillary must ensure that the fund does not provide any benefit (except where permitted by section 23) directly or indirectly to a related entity. In this context, a related entity will be any of the following:
- the trustee
- a member, director, employee, agent or officer of the trustee
- a donor to the fund
- a founder of the fund
- a relative of an individual covered by (3) or (4)
- an associate of any of those entities (other than a DGR).
In the context of section 22(3), benefit is not limited to financial gain, but encompasses things such as:
- relief from an obligation or liability
- opportunities that place the related entity in an improved position, even if uncertain
- improvements to cash flow, even where net financial entitlements are unchanged.
It is further outlined that ancillary funds may provide benefits by omission. This may occur by failing or refusing to take actions, such as not requiring related entities to fulfill financial obligations for example.
The phrase ‘directly or indirectly’ broadens the meaning of how benefits may be provided under subsection 22(3). It captures not only the ancillary fund’s direct actions but also any indirect arrangements or omissions that result in a benefit to a related entity, even if that entity is not directly involved in the transaction. The draft determination focuses on the overall effect of the fund’s conduct, ensuring that all contributing factors are considered.
How SW can help
SW can assist ancillary funds in ensuring that any benefits they wish to provide fall within the scope of the Guidelines as clarified in TD 2025/D3. We can review proposed distributions and related party arrangements to confirm they meet the ATO’s definition of a ‘benefit’ and do not trigger penalties under subsection 22(3).
Taxpayers can still make comments on the draft guidelines until 30 January 2026.
For assistance in establishing or managing a Fund please contact our private client specialists, Heather Dyke or Matthew Oakey.
