The Federal Government has announced significant reforms to the regulation of Private Ancillary Funds (PAFs) and Public Ancillary Funds (PuAFs) as part of its broader objective to increase philanthropic giving in Australia.

These changes flow from recommendations by the Productivity Commission and recent Treasury consultations and are expected to have a significant impact on how ancillary funds operate and plan their distributions. This also builds on the broader regulatory focus outlined in our previous article, which discusses similar issues around the interpretation of benefits and compliance expectations for ancillary funds.

Renaming of ancillary funds to ‘Giving Funds’

Private and Public Ancillary Funds will be renamed ‘Giving Funds’.

The government has indicated that this change is intended to more clearly reflect the core purpose of these structures, which is to distribute funds to eligible charities rather than to accumulate capital over time.

Minimum annual distribution rates

The government has announced it will align the minimum annual distribution rates for Private and Public Ancillary Funds to 6%.

At present:

• Private Ancillary Funds are required to distribute 5% of net assets each year.
• Public Ancillary Funds are required to distribute 4% of net assets each year.

Distribution smoothing

To offset the impact of higher annual distribution requirements, the government has announced that Giving Funds will be allowed to smooth distributions over a three-year period.

This means funds will be able to average their minimum distribution obligation across multiple years, rather than meeting the minimum on an annual basis. The measure is intended to:

• support more strategic grant making
• reduce the risk of forced asset sales in years of weaker investment performance.

Timing of change and transitional rules

The new rate will apply from the first financial year following amendments to the Giving Fund guidelines, and existing Giving Funds will not need to meet the new distribution rate for two years.

How SW can help

For trustees of Giving Funds, the changes create both compliance obligations and strategic opportunities. SW can help with:

• modelling the cash flow and investment impact of a 6 percent distribution rate across different market return scenarios
• reviewing trust deeds and governing documents to ensure they permit higher distributions and three-year averaging
• designing grant strategies that use averaging effectively while still meeting annual compliance requirements
• aligning distribution timing with investment performance and liquidity needs
• support large capital distributions
• documenting trustee decisions to support ACNC and ATO expectations.

Contributor

Heather Dyke

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I have built a successful career providing business and tax advice to high-net-worth family groups, and I lead our Family Office team. I am passionate about philanthropy and help my clients manage the financial and governance aspects of their grantmaking activities.

I also lead our Corporate Social Responsibility Committee, Co2, which engages with our people, local communities, the wider world, and the environment to create a positive impact.

My experience includes:

• managing clients’ tax and accounting requirements
• connecting clients with a broad range of professionals who add value to their business interests, including stockbrokers and property agents
• working closely with our Wealth Management team to provide a full-service offering to high-net-worth families
• holding directorships, trusteeships, and company secretarial positions in private companies and not-for-profit organisations
• advising on succession and estate planning.

I am a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

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