A Private Ancillary Fund (PAF) is a powerful way to make a lasting charitable impact while maintaining control over how and when donations are distributed. It’s a structured giving vehicle that combines tax benefits with the ability to create a long-term philanthropic legacy. But before you begin, it’s important to know exactly who can set up a PAF and whether it’s the right fit for your circumstances.
Understanding What a PAF Is
A PAF is a type of charitable trust designed for structured, strategic giving. It allows you to make tax-deductible contributions, invest those funds, and distribute at least 5% of the net assets annually to eligible charities. Under the Private Ancillary Fund Guidelines 2019, a PAF must meet specific legal and governance requirements.
If you’d like a deeper overview of the structure and compliance requirements, you can explore the guidance on The Giving Advisory pafs.
Eligible Individuals and Groups
Individual Philanthropists
High-net-worth individuals often establish PAFs as part of their personal giving strategy. This structure allows them to receive tax advantages, choose the charities they support, and ensure their donations are managed for long-term impact.
Families
Families frequently use PAFs to create a multi-generational culture of giving. Involving children and grandchildren in the decision-making process fosters shared values and builds a strong family legacy.
Businesses & Corporate Entities
Companies can set up PAFs to formalise their corporate giving programs. This enhances corporate social responsibility (CSR) initiatives while offering potential tax benefits.
Existing Trusts or Foundations
Some philanthropists already operating charitable trusts choose to convert them into PAFs, or establish a PAF alongside their existing structure to take advantage of the benefits and flexibility it offers.
Legal and Regulatory Requirements
Trust Deed
A PAF must be established through a compliant trust deed that aligns with both Australian Taxation Office (ATO) and Australian Charities and Not-for-profits Commission (ACNC) requirements.
Responsible Person Requirement
Every PAF must have at least one responsible person, someone recognised as having a degree of responsibility to the Australian community, such as a lawyer, accountant, or experienced board member.
Deductible Gift Recipient (DGR) Endorsement
To accept tax-deductible donations, a PAF must be endorsed as a deductible gift recipient (DGR). This is essential for attracting contributions from external donors.
Practical Considerations Before Setting Up a PAF
While there’s no legislated minimum, most PAF specialists recommend starting with at least $500,000 to ensure the fund is cost-effective and sustainable. You must also commit to making an annual distribution of at least 5% of the fund’s net assets and maintain ongoing reporting and compliance obligations.
When a PAF Might Not Be the Right Choice
A PAF may not suit those who prefer short-term or one-off giving, or those with limited funds for establishment and ongoing administration. In such cases, contributing to a public ancillary fund (PuAF) or donating directly to charities may be more appropriate.
Seeking Expert Guidance
Setting up a PAF involves more than completing paperwork, it’s about aligning your philanthropic vision with a structure that works for you long term. Partnering with an experienced PAF advisor ensures you meet compliance requirements, implement an effective investment strategy, and maximise the fund’s potential for good.
In Summary
Individuals, families, businesses, and even existing charitable structures can set up a PAF, provided they meet legal, financial, and governance requirements. With the right advice, it can become a cornerstone of your long-term charitable giving, delivering impact for years to come.
If you’re considering establishing a PAF, The Giving Advisory can guide you through every step, from structuring and compliance to investment strategies and grantmaking, so you can focus on the impact you want to create.
