The Federal Government has announced reforms to the rules governing Private Ancillary Funds and Public Ancillary Funds, aimed at increasing the flow of philanthropic funding to charities in Australia. The reforms form part of the Government’s response to the Productivity Commission’s ‘Future foundations for giving’ report as well as the ‘Not-for-profit Sector Development Blueprint’ and are expected to have a significant impact on how ancillary funds operate and plan their distributions.
Key changes
- Renaming ancillary funds
Private Ancillary Funds and Public Anciliary Funds will now be known as Private Giving Funds and Public Giving Funds. The name change is designed to better reflect the purpose of these structures. - Increase to the minimum distribution rates
The minimum annual distribution for both Private Ancillary Funds and Public Anciliary Funds will increase to 6% of net assets from 5% and 4%, respectively - Transition period for existing funds
The new minimum distribution rates will apply from the first financial year following the amendments to the giving fund guidelines. Existing funds will have a two-year transition period before the new minimum distribution rate must be met. - Three-year distribution smoothing
Giving funds will be able to smooth their distributions over a three-year period, providing greater flexibility for funds to support large or multi‑year charitable projects without requiring significant capital draw‑downs in a single year. - Expansion of community charity eligibility
The Government has endorsed 34 community charities as deductible gift recipients,enabling more community charities to receive tax-deductible donations.
Balancing present support and long-term giving
Minimum distribution rules are designed to ensure that philanthropic funds actively support charities while maintaining capital that can continue generating funding over time. Adjusting the minimum rate can influence both the short-term flow of funds to charities and the long-term sustainability of philanthropic capital.
In Australia, the current minimum distribution requirement for PAFs has historically been considered relatively high by international standards. As a result, changes to the rate have prompted discussion across the philanthropic sector about the potential long-term impact.
These announcements are not yet law. Implementation will depend on amendments to the relevant giving fund guidelines and any supporting guidance issued by the Australian Taxation Office (ATO). Please reach out to your Engagement Partner if you have any questions about how these developments may impact your current or future philanthropic activities.
