Private Ancillary Funds, commonly known as PAFs, have become a preferred option for Australians who want to give back in a structured, tax-effective way. They provide a long-term framework for philanthropy while offering flexibility, investment growth opportunities, and ongoing impact. Understanding how a PAF works helps donors decide if this structured giving vehicle aligns with their goals.
What Is a Private Ancillary Fund?
A PAF is a type of charitable trust established to support long-term philanthropic giving. It allows individuals, families, or businesses to make tax-deductible contributions, invest those funds, and distribute money each year to eligible charities. For a clear overview of how a private ancillary fund functions, it helps to understand that these structures are designed for donors who want their giving to be strategic, well-governed, and enduring. PAFs are regulated by the Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC), ensuring transparency and compliance.
Key Components of a PAF Structure
A PAF is built on a trust structure. Trustees oversee the administration of the fund, manage investments, and decide which charities receive funding each year. Every PAF must include at least one responsible person, someone with recognised community standing who provides independent oversight. These components work together to ensure the fund is managed ethically, efficiently, and in line with its charitable purpose.
How a PAF Works Step by Step
Step 1 – Establishing the Fund
The process begins with creating a compliant trust deed that outlines the fund’s purpose and governance rules. Trustees are appointed, and a responsible person is included in the structure. The fund must also obtain deductible gift recipient (DGR) endorsement so contributors can receive tax deductions for donations.
Step 2 – Making Contributions
PAFs can receive contributions from founders, family members, businesses, and other donors. These contributions are generally tax deductible, and donors may choose to spread their deductions over several years. The capital contributed forms the base from which the fund grows and operates.
Step 3 – Investing the Assets
Once capital is contributed, trustees develop an investment strategy to grow the fund’s balance. Investments must be managed responsibly, balancing growth with risk management. Returns generated from investments help ensure the PAF can meet annual distribution requirements while maintaining long-term sustainability.
Step 4 – Distributing Funds to Charities
Every PAF must distribute at least 5 percent of its net assets each financial year. These distributions can only go to DGR-endorsed charities. This ensures that charitable organisations receive ongoing support while allowing the fund to preserve and grow its capital over time.
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Governance and Compliance Requirements
PAFs must comply with strict regulatory guidelines. Trustees are responsible for financial reporting, audit requirements, and maintaining accurate records. Annual reporting to both the ATO and ACNC is mandatory. The responsible person provides oversight to ensure the fund meets ethical and legal standards, reinforcing accountability and transparency.
Benefits of Operating a PAF
A PAF offers numerous advantages. Donors benefit from tax deductions, the ability to invest contributions for long-term growth, and the opportunity to support multiple charities over time. PAFs also encourage family involvement, enabling future generations to participate in charitable decision-making. For donors who value structure, impact, and legacy, a PAF is a powerful philanthropic tool.
Is a PAF the Right Option for You?
A PAF is ideal for individuals or families who wish to give consistently and substantially. While there is no set minimum amount required to start one, most advisers recommend beginning with at least $500,000 for cost-effectiveness. For those seeking a simpler option, public ancillary funds or direct giving may be more suitable.
Parting Words
A PAF offers a strategic, enduring, and impactful way to support charitable causes. By combining tax-effective contributions, investment growth, and structured annual giving, it provides donors with a flexible and meaningful framework for long-term philanthropy. With the right guidance, a PAF can become a lasting legacy that supports communities for generations.
