CPD: Tax and philanthropy

01 Jul 2025

From AdviserVoice - This Tax (Financial) Advice CPD article is proudly brought to you by Allianz Retire+

How can your clients participate in philanthropic activities and benefit from the associated tax advantages?

Philanthropy offers a dual advantage: it supports charities, not-for-profits, and community groups while also providing tax benefits to the donor. This article, proudly sponsored by Allianz Retire+, examines the benefits your clients can garner from philanthropy.

Philanthropy plays a vital role in building stronger, more inclusive communities by addressing social, environmental and economic challenges. It enables individuals, families and organisations to contribute to causes they care about and help drive meaningful change and support those in need. Beyond charitable giving, philanthropy fosters a culture of generosity, collaboration and importantly, long-term impact. As our society faces growing complexity and inequality on a global scale, the importance of philanthropy in promoting equity, opportunity and resilience has never been greater.

Amid ongoing economic, humanitarian and geopolitical challenges, the latest research^[1] reveals that people remain committed to helping others. The fourteenth edition of the World Giving Index, based on responses from over 145,000 people across more than 140 countries, shows more individuals are donating money to a broad range of causes. The global giving score has reached its joint-highest level, equalling the peak recorded during the Covid-19 pandemic.

Australia is the eighth most generous country in the world^[2]. This rank is derived from three scores based on the number of people who: helped a stranger (69%), donated money (59%) or volunteered their time (34%). However, our ranking has slipped; Australia was ranked the fourth most generous country in 2022^[3]. A KPMG tax analysis found there to have been a significant decrease in the number of Australians donating over the past decade due to lower income pressures^[4]. The rising cost of living has no doubt compounded this.

Philanthropy in Australia

There many ways your clients can be involved in philanthropy.

At its simplest, clients can make one off or regular donations to charities; these donations are tax deductible if the recipient organisation has been endorsed as a deductible gift recipient (DGR) by the Australian Tax Office. Of note is fewer than half of Australia’s charities have DGR status.

Donating to a DGR allows your clients to make tax-deductible donations to a charitable organisation; they can deduct the amount of their donation from their own taxable income when they lodge their tax return.

At the other end of the giving spectrum, individuals or families may choose to establish a private foundation – such as a Private Ancillary Fund or a Charitable Endowment Fund – or contribute to a Public Ancillary Fund. These structures typically involve more substantial donations and are used to provide significant, multi-year grants to charitable organisations. Like simpler forms of giving, contributions to organisations with Deductible Gift Recipient (DGR) status may be eligible for tax deductions.

Philanthropy is defined as the planned and structured giving of time, expertise, goods, services, influence and money to enhance the wellbeing of individuals and communities. While it can take many forms, philanthropy most often refers to the financial support of charitable causes.

In Australia, it plays a vital role in sustaining a wide range of not-for-profit organisations and community initiatives. By directing private wealth toward the public good, philanthropy helps to:

Support vulnerable populations
Enrich cultural life
Protect the environment
Address the underlying causes of social and environmental challenges.

Crucially, philanthropy often steps in to meet needs that fall beyond the reach or priorities of government.

Grantmakers

Nearly one fifth of all charities are Grantmakers^[5]; that is, they are individuals, organisations or institutions that provide funding, typically in the form of grants, to support charitable activities, projects or organisations. Their role is to allocate financial resources to causes aligned with their mission, values or strategic goals.

There are several types of grant-making charities including:

Ancillary funds which are trusts established for the purpose of providing money, property or benefits to deductible gift recipients. There are two types of ancillary funds:
- Private ancillary funds (PAFs) are established for private philanthropy – for example by family groups
- Public ancillary funds (PuAFs) collect donations from the public
‘Other types of trusts’ which have been established to hold and distribute funds for charitable purposes.

Private Ancillary Funds

A Private Ancillary Fund (PAF) is a charitable trust established by individuals, families or corporates to facilitate philanthropic giving. PAFs are structured to receive and distribute funds for charitable purposes, with the primary goal of providing long-term support to eligible charitable organisations and projects and make a positive impact on society. The most recent measure of PAFs showed there to be 2,035 Private Ancillary Funds in operation^[6].

A PAF is suitable for individuals, families, or businesses who wish to take a more active and personalised approach to structured philanthropy. It is ideal for those clients who:

Have significant wealth and want to set aside a substantial amount (typically $500,000 or more) for long-term charitable giving
Want greater control over how funds are invested, and which organisations receive grants
Prefer to involve family members or trusted advisers in governance and decision-making, potentially creating a legacy of giving across generations
Seek flexibility in timing, allowing donations to the fund in one year (for tax purposes) and distributing grants over future years.

PAFs are well suited to those clients who are committed to long-term giving, value strategic involvement, and are willing to take on the governance and compliance responsibilities that come with managing a charitable trust.

The key features of a PAF include the following:

Private control: The fund is overseen by trustees, who are usually the donors themselves or individuals they appoint. This structure allows donors to retain substantial influence over how the funds are invested and distributed.

Sustainable giving: The charity or causes supported by the PAF can benefit from the foundation in perpetuity.

Legacy creation: Individuals and family groups can create a giving tradition and name the PAF in honour of the family or in memory of a loved one. A PAF can operate in perpetuity, ensuring the funds invested continues to be used for the intended purpose.

Investment growth: PAFs are structured to invest their funds to generate income and grow the capital over time, thereby increasing the impact of their charitable giving.

Distributions: PAFs are required to distribute a minimum of 5% of their net assets each year to eligible charitable organisations and projects.

Regulation: PAFs are regulated by the Australian Taxation Office (ATO) to ensure compliance with the relevant laws and regulations governing charitable trusts and philanthropic giving.

Tax benefits: As long as the PAF is a registered DGR, contributions made to it are tax-deductible for the donor, providing a financial incentive for philanthropic giving. Investment earnings are income tax exempt and franking credits are reclaimable.

To be endorsed under the DGR category for PAFs, the fund must meet all the following requirements:

Have an Australian business number (ABN)
Be located in Australia
Have acceptable rules for the transfer of surplus gifts and deductible contributions on winding-up or revocation of endorsement
Apply to the ATO for endorsement as a DGR.

Importantly, the trustees of the PAF must comply with the rules in the Private Ancillary Fund Guidelines; the most recent Private Ancillary Fund Guidelines are the Taxation Administration (Private Ancillary Fund) Guidelines 2019, as updated in February 2022.

A PAF is entitled to receive income tax deductible gifts from the date its DGR endorsement starts and while it is endorsed. The donor (person or organisation) that makes the gift to the DGR must also be the entity to claim the available tax deduction.

During each financial year, apart from the year the fund is established, a PAF must distribute at least 5% of the market value of the fund’s net assets (as at the end of the previous financial year). The fund must distribute at least $11,000 – or the remainder of the fund if that is worth less than $11,000 – during that financial year, if both of the following applies:

The 5% is less than $11,000
Any of the expenses of the fund in relation to that financial year are paid directly or indirectly from the fund’s assets or income.

The ATO can apply penalties for failing to meet minimum annual distribution requirements; however, a PAF can apply to reduce the minimum annual distribution rate.

A PAF might be a suitable philanthropic option for clients who:

Want control over the choice of organisations they support
Would like to provide a sustainable gift to a chosen cause(s)
Have a recommended minimum of $500,000 for an initial donation.

Using a PAF for philanthropic giving attracts several favourable tax advantages for clients. Over the longer term, these tax benefits can increase the amount available to distribute to the selected charities.

Tax deductibility: as long as the PAF has DGR status from the ATO and meets its obligations, clients will receive a full tax deduction for every dollar donated.

Flexibility to spread deduction: for a donation of cash, publicly listed shares or other property worth more than $5,000, clients can claim a tax deduction over a period up to five tax years. This enables to your client to claim the tax deduction in a manner that best suits their individual circumstances.

Imputation credits: Because a PAF holds tax-exempt status, imputation tax credits can be claimed as a rebate from the ATO for any franked dividends received.

Public Ancillary Funds

A Public Ancillary Fund (PuAF) is a type of charitable trust that is established for the purpose of distributing funds to eligible charitable organisations and projects. Unlike Private Ancillary Funds, which are controlled by individual donors or families, Public Ancillary Funds are established for public benefit and are open to receiving donations from the general public.

A PuAF is suitable for those clients who wish to engage in structured, long-term giving without the administrative responsibilities of running a private foundation. It is ideal for those clients who:

Want to support multiple charities over time rather than making one-off donations.
Prefer professional management of the fund’s investment and compliance obligations.
Are looking for a cost-effective and tax-efficient giving vehicle without needing to establish and manage a separate trust.
Value flexibility, as donations can be made over time while retaining a level of control over which charitable organisations receive grants.

PuAFs are particularly attractive to those clients with a philanthropic intent who want to make a lasting impact, but who may not have the resources or desire to establish a Private Ancillary Fund (PAF).

Key features of a Public Ancillary Fund include:

Public benefit: PuAFs are established for the public benefit and are designed to receive contributions from multiple donors, rather than being controlled by a single individual, family group or organisation.

Support for charitable causes: PuAFs are required to distribute a minimum of 4% of their net assets each year (or a minimum of $8,800 – whichever is greater) to eligible charitable organisations and projects. These distributions support a wide range of charitable purposes, including (but not limited to) health, education, social welfare, environmental conservation and the arts.

Investment growth: PuAFs are structured to invest their funds to generate income and grow the capital over time, thereby increasing the impact of their charitable giving.

Regulation: PuAFs are regulated by the Australian Taxation Office to ensure compliance with the relevant laws and regulations governing charitable trusts and philanthropic giving.

Governance: The management and governance of a PuAF is typically overseen by a board of trustees or directors, who have a fiduciary duty to manage the fund prudently and in accordance with the fund’s charitable objectives.

Tax deductibility: Contributions made to a PAF are tax-deductible for the donor, as long as the PuAF is a registered DGR. This provides a financial incentive for philanthropic giving.

For a PuAF to be endorsed as a DGR it must meet the following requirements:

Have an Australian business number (ABN)
Be located in Australia
Comply with the rules in the Public Ancillary Fund Guidelines 2022
Have acceptable rules for the transfer of surplus gifts and deductible contributions on winding-up or revocation of endorsement
Fall within the DGR category for PuAFs.

The PuAF must also have following characteristics:

It is a ‘fund’.
It is established and maintained under a will or an instrument of trust
It is established and operated on a not-for-profit basis
It is allowed, by the terms of the will or instrument of trust, to invest money in ways that an Australian law allows trustees to invest trust money
It is established and maintained solely for the purpose of providing money, property or benefits to DGRs (except other PAFs or PuAFs) or the establishment of such DGRs.

While clients can donate to a PuAF that supports charities that resonate with the individual or group, those with a philanthropic bent can establish a feeder fund into that PuAF. An example is a charitable endowment fund; such structures are offered by several organisations, such as Australian Philanthropic Services.

Charitable Endowment Funds

Individuals, family groups or corporations can establish a Charitable Endowment Fund (CEF), which is generally a sub-group of a PuAF. It is a flexible, professionally managed tax-effective structure that can be used to manage long-term charitable giving. It enables the donor/s to provide enduring gifts to charitable organisations without the administrative burden associated with the establishment and management of a Private Ancillary Fund.

The key features of a CEF include:

Reduced administrative burden: Those managing the PuAF into which the CEW feeds are responsible for the ongoing management and compliance of the fund.

Tax deductibility: Contributions/donations made to a CEF will entitle the donor to claim a tax deduction (as long as the underlying PuAF is a DGR).

Flexibility to spread deduction: for a donation of cash, publicly listed shares or other property worth more than $5,000, the donor is able to claim a tax deduction over a period up to five tax years. This enables to the donor to claim the tax deduction in a manner that best suits their individual circumstances.

Testamentary trusts

Philanthropy often forms part of estate planning. Clients can establish a testamentary trust to support nominated charitable endeavours. This is established by the will of the benefactor and does not come into operation until after the individual’s death.

The will or trust deed can nominate family members and colleagues to be initial trustees and can specify appointment processes and other requirements of trustees in perpetuity. The trustees are responsible for and control governance, compliance, investments and giving strategies.

A testamentary trust can attain income tax exemptions, but donations are not tax deductible. Testamentary trusts must use their income to fund the charitable purpose as specified in the individual’s will.

Integrating philanthropy into financial advice is essential for delivering a holistic approach to wealth management, one that goes beyond financial goals to reflect clients’ personal values and desire for social impact. By incorporating philanthropic strategies into financial planning, advisers can help clients align their wealth with causes they care about, creating opportunities to make a meaningful difference in their communities and beyond.

This approach supports strategic, long-term giving, enhances the impact of charitable contributions, and can establish a lasting legacy for future generations. Philanthropy also offers practical benefits, such as tax deductions and concessions for ancillary funds, making it a valuable tool for tax-effective planning. Ultimately, weaving philanthropy into financial advice enables clients to achieve not only financial wellbeing but also deeper fulfillment and purpose through their giving.