Private Ancillary Funds (PAFs) are vehicles for families or individuals to exercise greater control over their charitable giving. PAFs provide a structure to strategically manage both tax and the quantum of philanthropic gifts in any given year.
PAFs were created in 2001 as Private Prescribed Funds (or PPFs) as they were then known and now make up more than $2 billion in philanthropic funds.
A Private Ancillary Fund is akin to a private foundation, where a family contributes funds into a trust controlled by the family.
PAFs may be utilised to provide ongoing funding for charitable organisations and suit families wishing to take a 'hands-on' approach to their charitable giving. PAFs can also be used to establish a charitable legacy for the perpetual memory of a family or individual.
Corporations may also establish Private Ancillary Funds as a mechanism to fund and manage their philanthropic gifts.
The amount contributed to a PAF is tax deductible in the year of contribution, rather than when philanthropic gifts are distributed, this allows for the strategic management of both charitable gifts and tax planning.
For instance, a family could place a lump sum into a PAF during a year where significant tax liabilities may arise and claim a deduction for the full amount contributed to the PAF. This sum could then be gifted to charitable causes over a period of years.
Conversely, a family may make regular contributions to a PAF over a period of years and then gift a large sum as a single charitable gift. The ATO requires 5% of the value held in the fund to be gifted each year and there are other regulations to understand prior to the establishment of a PAF.
Private Ancillary Funds are structured as a trust with a trustee who controls the fund, much like a self-managed super fund. Like a SMSF, capital gains and income are tax exempt and franking credits can be claimed from the ATO.
PPM can assist in the investment management of money held in Private Ancillary Funds.
We do not provide advice or assistance on the establishment or operations of the PAF, although there are other organisations with expertise in these areas.
When managing the corpus within a Private Ancillary Fund, we utilse Individually Managed Accounts and have particular consideration for:
We structure investment portfolios for the particular investment management needs of the Private Ancillary Fund and its stakeholders.