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New Guidelines for Public Ancillary Funds

The Taxation Administration Act 1953 (‘the Act’) provides that the Minister must formulate guidelines for public ancillary funds and their trustees for Deductible Gift Recipient (‘DGR’) purposes. Until this year, this was enshrined in the Public Ancillary Fund Guidelines 2011

As the legislated 10-year sunset period for the Public Ancillary Fund Guidelines 2011 (‘2011 Guidelines’) was due to take effect on 1 April 2022, Treasury has now (after a period of consultation) issued new guidelines: Taxation Administration (Public Ancillary Fund) Guidelines 2022 (‘2022 Guidelines’) 

The 2022 Guidelines are accessible here, and effectively remake the 2011 Guidelines with only minor changes.  

Recap – what are Public Ancillary Funds and Private Ancillary Funds? 

Private Ancillary Funds and Public Ancillary Funds are DGR funds which are entitled to receive donations that are tax deductible, essentially for the purpose of distributing to other DGRs, and which cannot engage in any other activities. In other words, Private/Public Funds do not do themselves deliver charitable relief, but instead collect donations on a tax-deductible basis to be later distributed to other endorsed charities to deliver the charitable relief.  

Distinct from Private Ancillary Funds, Public Ancillary Funds invite the public to contribute to the fund. As a result, Public Ancillary funds invariably need fundraising licenses in the jurisdictions that they fundraise in.1  

So, what has changed? 

Most of the changes are minor amendments to drafting which to not change the overall effect of the provisions. However, we draw your attention to some changes / clarifications of note: 

  1. Establishment by Trust  

Section 9 (purpose and objects of the fund) no longer refers to a Public Ancillary Fund having to be established by a trust which is ‘a valid trust under State law or Territory law’. This change removes any misconception that the trust establishing the Public Ancillary Fund is not also required to comply with all relevant common law and Commonwealth law.   

  1. Operation only in Australia    

Section 11 (operated only in Australia) clarifies that although a Public Ancillary Fund must be established and operated in Australia, this does not prevent a Public Ancillary Fund from making a distribution to an eligible DGR that operates outside of Australia. 

  1. Minimum Annual Distributions  

The 2022 Guidelines reaffirm the existing requirement for minimum distributions each financial year (being the greater of: $8,800 or an amount equal to 4% of the market value of the Fund’s net assets). There is a still a 30 penalty point penalty for a distribution shortfall greater than $1,000. 

The key change under the 2022 Guidelines is that there is now a process for applying to the Commissioner to reduce the minimum annual distribution rate for a Public Ancillary Fund. In making a decision, the Commissioner must have regard to: 

  • the purpose and object of the Fund;  
  • the general market conditions in Australia;  
  • the past, current and expected levels of returns from the Fund’s investments;  
  • the long‑term impact on the assets of the Fund from not reducing the rate for a financial year;  
  • the level of distributions made by the Fund in previous financial years;  
  • the investment strategy and distribution strategy of the Fund;  
  • the size of the Fund;  
  • the compliance history of the Fund and the trustee;  
  • the fees and expenses of the Fund;  
  • the terms and other circumstances relating to any gift to the Fund under a will;  
  • any other matter the Commissioner considers relevant. 

Furthermore, if a Public Ancillary Fund is unsatisfied with the Commissioner’s determination, the Public Ancillary Fund now has the ability to seek merits review of this decision. 

  1. Donors  

Consistent with the 2011 Guidelines, there continues to be a requirement for Public Ancillary Funds to regularly invite the public to give to the Fund. However, the 2022 Guidelines now provides that a failure to do so will result in an administrative penalty of 30 penalty units.2  

The policy reason behind the change is ‘the importance of a public fund being open, accountable, and marketed as public’. The intent is that ‘higher awareness and knowledge of the fund and its activities can contribute to higher trust’.3  

We accordingly recommend that the responsible persons of Public Ancillary Funds take care to ensure that their Public Ancillary Fund has proactive fundraising plans which are reviewed at least annually.  

What to do from here? 

If you are a responsible person of a Public Ancillary Fund, or work for an institution which has a related Public Ancillary Fund (such as an independent private school), we recommend that you take this as an opportunity to re-familiarise yourself with Guidelines and ensure ongoing compliance.  

If you need assistance with legal compliance matters concerning Public Ancillary Funds, or you are interested in establishing a Public Ancillary Fund, please do not hesitate to contact us for assistance on (07) 3252 0011.  

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