A PuAF is a communal tax exempt philanthropic trust that enables a number of donors to establish and name a ‘sub fund’ under the broader PuAF structure.
With a sub fund, the donor does not need to worry about the trustee obligations and responsibilities associated with a Private Ancillary Funds (PAF) and can put their energy into choosing charities they would like to support.
Benefits of a Public Ancillary Fund
- Less money to establish – the PuAF acts as an aggregator to provide access to a deductible charitable foundation without the funds required for a PAF.
- Simple & less time consuming – as the trustee already exists and handles the administration, investment and compliance matters, the donor can focus on the granting.
- Quick to set-up – a sub fund can be established immediately, as there is no requirement to set-up a new trust or trustee company. A donor simply opens a new ‘sub fund’. There is no cost to do this.
- Tailored – a donor can name the sub fund and grants made to charities will refer to this name. Anonymous grants are also possible.
- Taxation benefits – the money donated to your sub fund is usually tax deductible in the year of the donation (or can be spread over a period of up to 5 tax years). It is a tax-exempt structure, so the philanthropic dollar goes further.
- Portability – In certain circumstances, it’s possible to transfer assets from a PuAF into your own PAF down the track. It requires the approval of the Trustee and Australian Taxation Office (ATO).
Who can donate to a PuAF?
Anyone can donate to a donor ‘sub fund’ and its purpose is to collect donations from the public. There are no limits on the amount that can donated. This is contrasted to a PAF where a PAF must not solicit funds from the public and is limited in any one year from accepting donations exceeding 20% of the PAF value from non-associates of the founder.
Making grants
The minimum grant is four per cent of the opening 30 June value of the sub-fund each tax year. The Trustee will advise the amount. Any amount above this minimum is also possible. Grants are presented to the Trustee for approval. It is rare for the Trustee not to approve the grant, provided they meet the guidelines (below) and the grant does not exceed the financial capacity of the sub-account.
Grants must be to an eligible Deductible Gift Recipient (DGR) endorsed as DGR Item 1 by the ATO. The grant recipient must also be a registered charity with the Australian Charities and Not-for-profits Commission (ACNC). It is important to note that the Trustee has the final decision on grants. Thus, donors who establish sub funds are not entitled to direct, but only to recommend, the disbursement of these funds. A PuAF cannot distribute to another PuAF or PAF.
How much control does a donor have?
The Board of Trustees of the PuAF has complete control over all aspects of the investments held. The donor is free to choose the DGR recipients within the guidelines noted above and also to name their sub fund. There are also minimums imposed by Trustees for grant amounts (such as $1,000) and donations (for example $5,000). The Trustee may also undertake its own due diligence on the recommended charity before approving a grant recommendation.
What if I am an organisation?
Organisations can also set up and administer their own PuAF.
Organisations that may be interested include:
- Financial advisory firms (to provide a philanthropic option for their clients);
- Specific geographic-based communities (to benefit their own community organisations);
- Companies (to engage with staff and clients);
- Groups with a common interest (such as sporting groups or giving circles).
What does it cost?
Generally, the fee charged for a PuAF is 1%-1.5% p.a. of the value of the sub fund. This covers all aspects of running expenses such as administration, compliance and investment costs. We often recommend the Australian Philanthropic Services (PuAF) which has a single, all-inclusive fee of 1% p.a. They also have a grant-making service with templates and tools to facilitate and assist in the grant making process.
For more information, download the Philanthropy Australia Trustee Handbook.
By Todd Stanford, Senior Financial Planner