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Thoughtful giving

 

9 June 2014

 

They say it’s the thought that counts.
But having the right structures in place can make your charitable dollar go further for longer.

 

 

 

Just over a decade ago, the practice of setting up your own fund for charitable giving was relatively rare in Australia, even among high net worth individuals.

But according to the JB Were Philanthropy Survey conducted in December 2013, there are now 1, 116 Private Ancillary Funds (PAFs) established in Australia since 2001 – collectively giving approximately 1.5 billion to charity each year. These figures do not include charitable foundations established as legacies in wills, for these there is no reliable data.

For high net worth individuals, establishing a foundation can be an effective way to execute your particular style of philanthropy. The first step is understanding your options.

What is a ‘foundation’?

A foundation is generally one of two types of organisations:

  1. One that delivers benefits to the public by a particular activity it undertakes itself (e.g. The Fred Hollows Foundation) and is run by a board of directors., and
  2. One that funds charitable activities of other organisations (e.g. Bill & Melinda Gates Foundation) and is run by a board of trustees.

Each of these types of foundations can apply for and receive Deductible Gift Recipient or ‘DGR’ status from the ATO, which means they can provide a tax deduction for donations over $2 received by them.

Foundations that deliver benefits to the public receive DGR 1 status, while foundations that fund charitable activities receive DGR 2 status. Below is more information about the common foundation structures you can establish if you want to fund the charitable activities of other organisations or individuals in the community.

Why create a foundation to fund charitable activities?

These foundations are usually started by donating an endowment (or ‘corpus’). This endowment is prudently invested to produce income that can be distributed to charities on an ongoing basis, following guidelines set by the ATO.

Having charitable status with the ATO means the endowment can grow in an environment where:

  • all income and capital gains are tax-free, and
  • all franking credits are refunded.

This can help the endowment go further than a large one-off donation to a charity, providing a sustainable income stream to support your chosen charities.

Ways to structure a foundation

The type of structure you choose will determine the legal, financial and operational requirements of your foundation. The main options are:

1. Public Ancillary Funds (PuAFs)

  • Governed by a committee of ‘responsible persons’ who have a degree of responsibility in the community.
  • Can raise money from the general public.
  • Can provide a tax deduction for donations over $2 (DGR 2).
  • Can only give funding to DGR 1 organisations.

2. Private Ancillary Funds (PAFs)

  • Often set up by businesses, families or individuals.
  • Governed by a company, usually with family members as directors and at least one independent ‘responsible person’ director who has some responsibility in the community.
  • Can only take donations from the original donor and close family members.
  • Can provide a tax deduction for donations over $2 (DGR 2).
  • Can only give funding to DGR 1 organisations.

3. Testamentary Charitable Trust

  • Established by the Will of the benefactor and does not come into operation until after his/her death.
  • Can attain income tax exempt status as a charity, but donations to them are not tax-deductible.
  • Must fund the charitable purposes specified in the Will.
  • Can give to charitable purposes, as well as to DGR 1 organisations.

4. Private Charitable Trust

  • Established by a donor through a deed with a charitable purpose.
  • Can attain income tax exempt status as a charity, but donations to them are not tax-deductible.
  • Must give to the charitable purposes specified in the deed.
  • Cannot give to DGR 2 organisations.

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These structures at a glance

Structures at a glance
  Public Ancillary Fund (PuAF) Private Ancillary Fund (PAF) Testamentary Charitable Trust Private Charitable Trust
Can claim charitable status Yes Yes Yes Yes
Donations received are tax-deductible Yes Yes No No
Can receive donations from the public Yes No Yes Yes
Can commence while you’re still alive Yes Yes No Yes

Which is right for you?

The most suitable foundation structure for you will depend on your philanthropic objectives, how much financial support you want to give and when, and how personally involved you want to be in all aspects of the foundation.

In many cases, particularly if you prefer to allocate all of your available philanthropic funds immediately and directly into the community, a foundation might not be the structure for you at all.

Through ANZ Private, you have access to philanthropy specialists who can help you articulate and execute your giving goals, whatever they might be. To find out more speak to your ANZ Private Banker.

 

To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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