Choosing the right philanthropic structure

Whether you want to give as an individual, family, community group, business or workplace, there are many ways to give. Not all philanthropic structures have to be complicated – they just have to be right for you.

You can provide ongoing and sustainable support to the charitable causes you care about through structured giving. All structured giving options offer attractive tax incentives designed to encourage and grow your giving practice.

The type of philanthropic structure you set up will impact your legal, financial and operational requirements, and the cost of your giving program.

What to consider when a choosing a structure

When thinking about structured giving, the main things to consider are the amount of time and money you want to give, and how.

The type of structure you choose depends on a number of factors, including:

• the timeframe for your giving
• the level of engagement you want as the donor
• if you want to raise donations from the public
• if you want to give during your lifetime or leave a bequest on passing
• if you want to involve your family and create a family giving legacy.

You might not need to set up a philanthropic structure if you’re giving a relatively small amount or for a short period. In this case, direct giving may be for you.

Types of philanthropic structures

An overview of the types of philanthropic structures is provided below.

Private ancillary fund (PAF)

A private ancillary fund (PAF) is standalone charitable trust. A PAF allows you to create your own personalised and strategic giving program that can operate during your lifetime and after passing.

A PAF is a trust fund for businesses, families and individuals. Family members can make tax deductible donations but PAFs cannot solicit funds from the public.

See Private ancillary funds on the Australian Tax Office (ATO) website.

Donor control

• PAFs require a corporate trustee. The trust fund is controlled by a company usually with family members as directors and at least one independent ‘Responsible Person‘ director – for example, a school principal, councillor or solicitor.
• PAFs require a stand-alone investment strategy, reflecting ‘prudent person’ investment principles (as defined in trust law).
• Contributions are irrevocable (once funds are donated, they can’t be returned to the donor) and must be invested in line with the investment strategy.

Type of recipient

Grants or donations can only be made to charitable organisations that are endorsed as a Deductible Gift Recipient (DGR) by the ATO.

Tax effectiveness

• Contributions are fully tax deductible.
• Deductions can be spread out over a 5 year period.
• Assets are exempt from income tax.

Annual distribution

Minimum annual distribution requirement is usually 5% of the net value of the fund at 30 June the previous year (unless they have been granted an exemption from the ATO).

Minimum contribution

Minimum initial contribution of $500,000 with a formal investment strategy to grow the PAF beyond $1 million.

Setup and ongoing costs

One-off and ongoing administration fees apply – seek advice from service providers.

Timeframe to establish

Around 2 months – keep this in mind if a major donation needs to be made before the end of the financial year.

Sub-fund in a public ancillary fund

Sub-funds provide a more affordable and accessible entry point for many individuals and families to structure their giving. They are suitable for those who are seeking more guidance with their giving and who don’t want to be involved with any of the administration, compliance and due diligence.

A sub-fund can be with a community foundation or a charitable trust fund run by a not-for-profit, trustee company, private foundation or wealth adviser. A community foundation typically focuses on supporting community needs and local non-profits.

Sub-funds are accounts held within a philanthropic structure called a Public Ancillary Fund (PuAF). PuAFs are not-for-profit entities with the purpose of providing money, property or benefits to eligible deductible gift entities.

See Public ancillary fund on the ATO website.

Donor control

• Controlled by a committee, the majority of which are Responsible Persons.
• Sub-fund holders make recommendations for grants.
• The PuAF must raise donations from the public.
• A formal investment strategy is required and funds are pooled within the PuAF under a common investment strategy.

Type of recipient

Grants or donations can only be made to charitable organisations that are endorsed as a Deductible Gift Recipient (DGR) by the ATO.

Tax effectiveness

• Contributions are fully tax deductible.
• Deductions can be spread out over 5 years.
• Assets are exempt from income tax.

Annual distribution

Minimum annual distribution requirement is usually 4% of the net value of the fund at 30 June the previous year.

One of the benefits of a sub-fund is that this does not apply to the individual sub-fund but the PuAF as a whole.

Minimal contribution

Recommended initial contribution of at least $20,000. Some community foundations and other providers allow lower entry levels for funds from as low as $2,000.

Setup and ongoing costs

• Minimal costs to establish.
• Ongoing costs are usually between 1% to 2.5% of value of account.

Timeframe to establish

1 to 2 days

Private foundation or testamentary charitable trust

Most private foundations are established upon the death of their founder. This structure can create a legacy for the founder.

Trustees are responsible and control all governance, compliance, investments and giving strategies.

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.

Donor control

• The governing document is a trust deed or the will of the founder.
• Individuals can be appointed as trustees. Alternatively, licensed trustee companies can take on this responsibility and manage the risk and compliance associated with the ongoing management of the trust.
• Assets must be invested in accordance with prudent person principle (as defined in trust law).

Type of recipient

Fund the charitable purposes as specified in the will.

Tax effectiveness

Assets are income tax exempt.

Minimum contribution

Recommended initial contribution of $500,000 to $2 million.

Setup and ongoing costs

One-off and ongoing administration fees apply – seek advice from service providers.

Timeframe to establish

4 to 12 months depending on complexity.

Roles and responsibilities of trustees

Trustees are responsible for the ongoing management, administration and compliance of running a charitable trust.

This includes:

• executing the deed appropriately
• obtaining necessary tax concessions from the relevant government agency
• meeting trust and tax law regulatory obligations – for example, meeting annual reporting requirements and ensuring grants are distributed to eligible charitable beneficiaries.

There are professional advisers that can assist with these services, including some of our members. See Philanthropy Australia’s professional adviser members and services.

Giving Guide questionnaire

We have an online questionnaire to help professional advisers talk to their clients about giving. Professional advisers can either work through the questionnaire in consultation with their clients or the client can work complete it alone.

The Giving Guide asks your client questions about their current giving. Based on their answers, the guide provides some next steps on what philanthropic structure may be suitable when considering a giving strategy.

Complete the Giving Guide questionnaire