After only four years the success of Prescribed Private Funds (PPFs) as a vehicle to encourage philanthropy is becoming glaringly evident. John McLeod details the rise and rise of PPFs.

Financial support given by Prescribed Private Funds to not-for-profit organisations in Australia totaled $17.7 million in the financial year ending June 2003, an increase of $11 million, or 164% on the previous year.

Conceived to provide an effective way for individuals, families or companies to establish their own charitable foundations, PPF’s enjoy full tax deductibility for donations and nearly always a non-taxed environment for earnings.

The good news is that PPFs are gaining in popularity as a giving vehicle, and 2004 saw the greatest increase in the number of PPFs (another 92) established since the first one in 2001.

The average corpus of a PPF in Australia is around $1.5 million, although it is believed that they range in size from around $100,000 to tens of millions of dollars. As at June 2003 the total funds under management (FUM) in PPFs was $169 million. However, with the addition of 92 new PPF’s since then, it is thought FUM has been increased by a further $150 million.

What is a Prescribed Private Fund?

A PFF is a relatively new form of charitable trust proposed by the federal government in 1999 to encourage greater corporate and personal philanthropy in Australia. The first ones were created in 2001, and there are now 228 that have been approved.

A PPF has Deductible Gift Recipient (DGR) status allowing tax deductibility for any donations made to it. Donations may be in the form of cash or property and are irrevocable once made.

The PPF will also normally apply for tax concession charity status meaning any income earned is not taxed. It is also able to claim a rebate of franking credits on franked dividends, boosting investment returns beyond the already attractive tax-free environment they operate in.

Funds in a PPF are invested (“prudently”, as per Trustee Acts with appropriate diversification) with the annual net income used to support charitable DGRs (in the year after it is earned). The capital value of the PPF can be maintained to match CPI moves and it can be added to, in line with an accumulation plan, which is submitted when the PPF is established.

Capital from the PPF can also be distributed to charitable DGRs and the full corpus could be given to DGRs at any time if the trustee so desired. Each year PPFs must be audited and provide a simple information return to the Australian Tax Office.

Growing the philanthropic pie

It is now more than four years since the first PPF was established in Australia, and their popularity continues to grow. This is particularly so for individuals with a relatively limited period of high income and tax liability (perhaps from the sale of a business, property or share portfolio or those in the latter stages of paid employment), but who want to be able to continue to give well beyond this period.

In their first two years, donations into PPFs represented a significant part of total donations made by individuals. They also proved to be incrementally adding to existing giving levels, rather than merely taking the place of existing philanthropic destinations, showing a real promise of providing a new force in Australian philanthropic giving in years to come.

The relatively low administrative requirements of PPFs have also made them attractive.

Not-for-profits wishing to access the benevolence of PPFs may not find it easy. As stated in their name, Prescribed Private Funds are mostly that, private. The heads of many PPFs prefer to keep the details of their giving to themselves, so they do not tend to promote the work they do in the community or invite applications for grants. While some will choose to be more public, many will give in the same way as existing individual giving is done – with great care, compassion and privately.

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