The structure that started contemporary giving-while-living in Australia, the Private Ancillary Fund (PAF) has just turned 20. Over that time, it’s enabled a lot of giving - both in gifts to charity as well as precedent for other philanthropic options.
It all began in 2001 with the introduction of Prescribed Private Funds (PPFs), the precursor to the PAF - a milestone which changed Australian philanthropy. The Howard Government’s initiative was in response to a 1999 report by the Business and Community Partnerships Working Group on Taxation Reform, which focused on improving our philanthropic culture. PPFs gave businesses, families and individuals greater flexibility to start their philanthropic journey and effectively structure their giving.
The conversion of PPFs to PAFs followed the release of a discussion paper commissioned by Rudd, Improving the Integrity of PPFs in November 2008. After extensive consultation and the introduction of new legislation which included variations to the PPF framework, PAFs came to be in October 2009.
For some families, tax effectiveness is an important feature supporting their decisions to establish a PAF because the structure provides:
The ability to create or contribute to a PAF in financial years where it makes tax sense to do so, which can also maintain granting momentum because annual distributions come from the investment earnings of the PAF.
The opportunity to spread tax deductions over a five-year period, including in the years different to the year of the donation.
The requirement to donate to DGR1 accredited organisations which have reporting and audit obligations in order to maintain their DGR1 endorsement.
For many, it is the passion for giving to a particular cause or organisation that drives the establishment of their PAF. For these people;
The structure of a PAF is a sound proposition – seed the structure, invest the capital prudently and then distribute a portion annually (in the case of PAFs, 5% of funds under management) to for-purpose beneficiaries.
The time horizon is attractive. With PAFs designed exist over the long-term or into perpetuity, it allows philanthropists and their successors to sustain engagement in their charitable giving.
Multi-year giving is central to the way a PAF is structured so it is aligned with those who are often already advocates of going beyond one-off gifts and want to establish trust-based relationships through exploring multi-year partnerships with for-purpose organisations.
There are now about 1,850 PAFs in Australia valued at about $400m. This represents about 16% of the structured giving market. Philanthropy Australia has recently launched a Blueprint to Grow Structured Giving, which Equity Trustees contributed to. It outlines a roadmap that aims to double structured giving over the next ten years, from $2.5bn to $5bn.
Over the past 20 years PAFs have become a critical part of the philanthropic ecosystem in Australia, bringing benefits to those who establish them, and those who are funded by them.
If you want to find out more about PAFs, contact us