How it
Works
Doing good at scale
Setting up a giving structure is an effective and tax-efficient way to manage your philanthropy and support causes that matter to you.
There are two popular options.
Private ancillary funds (PAFs)
Private ancillary funds, or PAFs, are tax-efficient structures developed by the Australian Government to encourage more people to give more money to charity.
You can set up a PAF to structure your giving with cash and/or equity in your business.
It works like this:
- Move shares and/or cash into a PAF to create your own personal charitable foundation
- Receive an immediate tax deduction
- Give away a minimum of 5% of the balance to causes of your choice every year
Public ancillary funds (PuAFs)
If you want to start smaller and simpler, you can establish a sub-fund within a communal structure called a public ancillary fund.
Getting started at the right time for you
With cash
If you have cash, you can set up a PAF or sub-fund immediately.
Options exist to set up a sub-fund from $20k, whereas you need nearer $1 million to make a PAF viable. You will receive an immediate tax deduction, helping to offset capital gains and reduce tax – and can keep topping up the structure if you have more cash in the future.
With paper wealth
If your wealth is tied up in unlisted equity in your company, it can be hard to know how to give to charity meaningfully. The good news is that you don’t have to wait for a liquidity event to get started and can donate shares to create your PAF today. As your company grows, so does the value of your PAF, allowing you to scale your giving and impact year on year.
Not too little, not too much
We recommend that the initial donation to set up your foundation should be a meaningful amount but at a level that won’t compromise your financial security.
As a general rule, we think that if you have $20m of on-paper wealth, you should consider putting 5% into your PAF. You receive an upfront tax deduction – and with $1m invested, you’d have $50k to give in year one. If you have a lump sum of cash after a liquidity event, you may wish to give a larger percentage.
More about PAFs
A private ancillary fund (PAF) is a type of charitable foundation. You donate cash, equity in your business, or other assets into your PAF and receive an immediate tax deduction for the amount, which can also be spread over five years. The donation is irrevocable, so you can’t take the money, equity or assets back out of the structure.
Over time, assets held in your PAF can be invested, with the returns accruing to the balance, while private shares will grow as your company does, allowing you to scale your impact in parallel.
Every year you must give away a minimum of 5% of the PAF’s balance to support charities of your choice.
More information
Other structured giving options
A PAF is a good structure if you are donating unlisted equity rather than cash.
However, if you cannot commit $1 million to a PAF, there are other structured giving options, such as a sub-fund in a public ancillary fund. A sub-fund generally requires cash (not equity), but you can get started with as little as $20k.
