An important milestone in philanthropy just turned 20. We look at the evolution of the private ancillary fund.

The introduction of the private ancillary fund reshaped philanthropy in Australia, giving businesses, families and individuals greater flexibility to start philanthropic trusts and to properly structure their giving. 

As structures for strategic long-term giving, PAFS can give donors tax deductibility, flexibility, and deeper engagement in their charitable giving.  

PAFs started life as part of the Howard Government’s response to a March 1999 report by the Business and Community Partnerships Working Group on Taxation Reform to improve philanthropy in Australia. 

This led to the introduction of the prescribed private fund (PPF) being available as a philanthropic structure from March 2001, and the first PPF funds being established in June 2001. 

The attraction of PPFs included tax deductions for donations into them, exemptions from income tax and no public fundraising requirements unlike public ancillary funds (PuAFs), which are required to invite and accept donations from the public. 

PPFs were required to grant income to eligible deductible gift recipient (DGR) organisations, complete an annual audit, and provide an annual return to the Australian Taxation Office (ATO) while having at least one external trustee/director of the fund. 

By 2008, 769 PPFs had been established. The conversion of PPFs to PAFs began after the Rudd government released a discussion paper, Improving the Integrity of PPFs, in November 2008. After extensive consultation and the introduction of new legislation, PAFs came to life in October 2009. Changes included replacing minimum annual distributions from an income measure to the simpler 5% of assets and the requirement for a formal investment plan. 

PAFs got off to a slow start due to the Global Financial Crisis (GFC) but today there are 1,850 PAFs with an estimated $10 billion in assets and annual granting of approximately $500 million. In the years from 2001-2018 PAFs have distributed $3.6 billion to charities. 

Welfare is PAFs number one cause, with medical research, arts and the environment also highly favoured. Mass market giving is quite different, dominated by a few causes – religion, international aid and medical research. PuAFs tend to focus their giving on welfare and health. 

 At the Generosity Forum this year, John said that while funding from PAFs was important area for charities to focus on, strategy around structured giving vehicles should be informed by your cause area.

Despite some annual volatility, the favoured causes haven’t changed

While both forms of ancillary funds have welfare as the largest cause, medical research, arts and environment are favoured by PAFs compared to education and health by PuAFs

In a 2020 report for JBWere, The Outlook for Philanthropy during Covid-19, John McLeod notes that the growth of PAFs may slow as it did during the GFC, although a confounding factor was the uncertainty surrounding the new PAF guidelines at that time. 

The growth of PAFs did indeed slow down in 2020, at about 69% of the number established in 2019. McLeod believes the number of PAFs should grow to around 30,000 but it’s still early days but they should increase as they become more well known.  

In April this year, David Gonski, a champion of the PAF and its precursor, was honoured with a lifetime membership of Philanthropy Australia. In a special presentation by Philanthropy Australia CEO Jack Heath, Gonski was recognised for his outstanding contribution to philanthropy and his leadership role in the creation of PAFs. 

Philanthropy Australia has an ambitious plan to double structured giving over the next 10 years. A recent report, A Blueprint to Grow Structured Giving, outlines a roadmap to grow structured giving from $2.5 billion to $5 billion per year. Other structured giving vehicles include PuAFs, sub-funds, private charitable trusts and bequests. According to 2017/18 figures, PAFs represent 16% of structured giving in Australia.  

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