Since 2009 the Federal Government has given considerable attention to the basis of operating an ancillary fund.
An ancillary fund is a type of fund that is entitled to deductible gift recipient (DGR) endorsement and donations to which are tax deductable.
They might be described as a tax deductable fund raising mechanism to distribute to other DGRs.
There are 2 categories:
- Private Ancillary Funds (previously called Prescribed Private Funds); and
- Public Ancillary Funds (sometimes previously referred to simply as “Ancillary Funds”).
A Public Ancillary Fund is distinct from a Private Ancillary Fund in that it must invite the public to contribute to the fund.
A Private Ancillary Fund allows businesses, families and individuals to establish and donate to charitable trust of their own, without the need to seek contributions from the public, for the purposes of disbursing funds to other DGRs.
Commencing 1 October 2009 a new regime for the oversight of Private Ancillary Funds came into place.
In relation to the Public Ancillary Funds a new regime came into effect from 1 January 2012, including the Public Ancillary Fund Guidelines 2011.
If you operated an endorsed Public Ancillary Fund at that time, you are taken to have agreed to comply with the guidelines from 1 January 2011. (There are transitional rules included in the Guidelines for such funds).
The changes will greatly impact the operation of Public Ancillary Funds.
Only properly resourced and administered funds will thrive under the new regime.
A Public Ancillary Fund cannot carry on other activities.
Public Ancillary Funds are now required to have a written Investment Strategy and to lodge an annual return with the ATO.
If you operate such a fund you will need to check your position as the “ball-game” is now different and penalties for non-compliance far more serious.
The new guidelines are enforced through a tailored system of administrative penalties. These apply to trustees but can apply to individual directors where the penalty cannot be recovered from the trustee company.
The Commissioner of Taxation will have the power to suspend or remove the Corporate Trustees of Public Ancillary Funds that consistently breach the guidelines or other relevant Australian laws.
Apart from the Public Trustee of a State all the trustees of Public Ancillary Funds must be Corporate after 1 January 2012. There is no intention to force individual trustees of existing funds to introduce a corporate trustee.
New penalties are introduced
The Corporations Act 2001 cannot apply to provide relief to a director from the administrative penalties.
Examples of penalties include:
- $550 for failure to notify the ATO within 21 days of any change to the Funds Governing Rules;
- Failure to keep proper accounts or make accounts available to the ATO – $1,100;
- Failure to comply with minimum annual distribution – $3,300;
- Breach of any investment guidelines – $3,300.
The changes introduce welcome certainty by clearly providing what must be distributed each year and what may be retained for accumulation.
If you currently operate this kind of fund, you should review both your documentation and operations as a matter of urgency to ensure compliance with the new regime.
Please contact us if you require any assistance.
What next? Contact one of our Business Development Officers today …
Business Development Officers
We now have a dedicated team of Business Development Officers to assist you in engaging with us. Our Business Development Officers will assist you with:
- understanding what your need is and what your time frames are
- identifying the best lawyer on our team for you and your need
- explaining what it will cost
- explaining what you need to do next and what initial information you will need to have for us
- getting your initial appointment locked in
- hearing your feedback so that we can always be improving our services
Communication with our Business Development Officers is absolutely free. Call (07 3252 0011) or email one of our Business Development Officers (General Enquiry) now.