A founder’s guide to the most popular philanthropic structures.
What is a private ancillary fund (PAF)?
- Tax effectiveness – Claim your tax deduction upfront or spread it over five years
- Control – As a director, you oversee how funds are invested and distributed
- Investment flexibility – The PAF can hold a range of investments, including unlisted shares in your company
- Long-term impact – Your PAF grows as your assets grow, allowing you to give more over time
- Choice of charities – You choose the causes that matter most to you. PAFs can give to any charity with deductible gift recipient status in Australia
What is a public ancillary fund (PuAF)?
Want to make a meaningful impact without the complexity of managing a foundation? A public ancillary fund lets you set up your own mini philanthropic fund within a larger, professionally managed structure.
All you need to do is choose a name for your fund and select the charities you want to support, everything else, from investment management to compliance, is handled for you.
Key benefits:
- Tax-deductible donations – Receive a tax deduction for your donations
- Support your favourite causes – The PuAF distributes a minimum of 4% of its balance annually to charities recommended to it by the sub-fund holders. PuAFs can give to any charity with deductible gift recipient status in Australia
- Hassle-free – No need for directors’ meetings or ongoing management or paperwork
- Start small, grow over time – If you continue to top up your fund, you can transfer it to a private ancillary fund (PAF) later
This is a great option for those looking to start with a smaller donation (some PuAFs allow you to open a sub-fund with around $20k) or seeking a flexible and stress-free approach to structured giving.
Most public ancillary funds won’t accept donations of unlisted equity. If you are looking to donate shares in your company, a private ancillary fund is likely a more suitable option.
Familiar with superannuation? Think of a PAF like a self-managed super fund (SMSF), where you have full control. A PuAF is more like a retail or industry super fund where you have your own member account, but it’s part of a larger, professionally managed fund.
What are the most popular legal structures for philanthropic giving?
Private ancillary funds (PAFs) and public ancillary funds (PUaFs) are two of the most popular options for structured giving in Australia. However, depending on your goals and focus areas, there are other legal structures that may be a better fit.
Discretionary charitable trusts
A discretionary charitable trust offers greater flexibility in how funds are distributed compared to ancillary funds. There are some tax advantages to setting up a discretionary charitable trust, but you do not get an upfront tax deduction for donations.
These trusts are often used if you:
- Don’t need a tax deduction for your donations, and
- Wish to support charities that don’t have DGR1 status, such as some religious bodies or overseas charities
Setting up your own charity
You can establish your own charity, tailored to the specific causes you wish to support.
A common structure is a public benevolent institution (PBI). These are a type of registered charity providing direct relief to people experiencing poverty, sickness, suffering, or distress. PBIs must be registered with the Australian Charities and Not-for-profits Commission (ACNC) and meet specific criteria.
Importantly, PBIs have deductible gift recipient (DGR) Item 1 status, which means donations to them are tax-deductible.
A PBI might be the right choice if you:
- want to run your own charitable programs, rather than partnering with existing charities
- plan to work with overseas charities that do not have DGR status in Australia
- have the capacity and resources to manage a standalone charitable entity.
Other types of charities include scholarships funds and environmental funds – you can see a full range of charity types on the ACNC website.
Some, but not all, of these structures allow donors to receive a tax deduction. The right structure depends on your goals, the types of activities you wish to undertake, and the causes you wish to support.
Special listing
In rare cases, some founders have sought a special listing from the Australian Government, allowing their charity or foundation to receive tax-deductible donations without meeting the typical DGR requirements. This path is a complex process, generally pursued by larger, well-resourced philanthropic entities.
If you would like to explore what structure might work for you, please get in touch.
What assets can I hold in my PAF?
A private ancillary fund (PAF) can hold a variety of assets. These include:
- Cash
- Managed funds
- Listed shares
- Unlisted shares
- Property
- Alternative assets
- Impact investments
All assets held in a PAF must be invested prudently, and at least 5% of the fund’s net assets must be distributed to eligible charities each year.
If you’re considering donating assets to a PAF, it’s important to seek professional advice to ensure compliance with legal and tax obligations.
When is the best time to set up a personal foundation?
There are two common times in a founder’s startup journey when it makes sense to think seriously about setting up a personal charitable foundation. You certainly don’t have to be a billionaire to get started.
Anyone approaching a transaction – at any level
An exit, major secondaries, funding round, or IPO is the ideal time to think seriously about structuring your giving.
You don’t want to miss the opportunity of a philanthropic tax deduction in a high-tax year, and to maximise your impact by starting to give.
If you have cash to donate, there are two easy options:
- You can set up a sub-fund in a public ancillary fund (PuAF) with a starting donation as low as $20,000.
- You can set up a private ancillary fund (PAF) with a recommended starting donation of upwards of $1 million.
With either option:
- All donations are fully tax deductible, and the tax deduction can be spread over five years. This helps offset capital gains tax and income tax, allowing you to commit a larger sum to philanthropy.
- You can choose the charities you wish to support. Charities must be a Deductible Gift Recipient Type 1 of which there over 20,000 registered in Australia.
Setting up a PAF or sub-fund can also be an impactful and tax effective solution for employees, especially those with a high annual income or around the time of a major secondaries or IPO.
Founders who are asset rich but cash poor
You don’t have to wait for a liquidity event. It is possible to set up a PAF using unlisted equity – or a mix of unlisted equity and/or cash.
The easiest time to move unlisted shares to your PAF is when there is a funding round which drives a valuation of the company. The ATO has provided guidance about valuations of philanthropic gifts of unlisted equity. Contact us for a copy.
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, if you have have $20m of on-paper wealth, you could consider putting 5% into a PAF. You receive an upfront tax deduction – and with $1m invested, have $50k to give in year one. $1 million is about the minimum required to make a PAF viable.
Whenever you want to formalise your giving
- If you’re already making charitable donations and want to commit to a sustainable, long-term approach, setting up a fund can provide structure, governance, and a lasting impact.
- A PAF is a good option for those who want control over investment decisions, while a PuAF is ideal for those seeking a simpler, lower-maintenance structure.
The best time to start is now
Whether the time is now or sometime in the future, it is always a good time to take some time to reflect on key questions of how much is enough, what money means for you and how to give back.
