Changes to Charitable Giving Funds
The Federal Government has announced changes to the minimum annual distribution requirements for both Public Ancillary Funds (PuAFs) and Private Ancillary Funds (PAFs), lifting the minimum distribution rate to 6% of net assets per year for both fund types. Overall, this is good news for the charitable sector. The aim is to increase the amount of funding flowing into charitable work sooner.
What’s the difference between the two?
Both PuAFs and PAFs allow donors to claim an upfront tax deduction while the gifted funds are invested and distributed to eligible charities over time. The key distinction is their structure and donor base: Public Ancillary Funds are open to donations from the general public and are typically operated by community foundations or other public entities, while Private Ancillary Funds are often established by families, companies or a small private group. They’re essentially a private philanthropic vehicle, popular with high-net-worth donors and family foundations. PAFs have been around since 2000, while PuAFs have existed since 1963.
What’s changing?
The new 6% minimum distribution rate applies to both fund types. Currently, roughly two-thirds of PuAFs and about half of PAFs are already distributing above this level, meaning the change will have the most practical impact on PAFs, where more funds have been distributing below the new threshold.
Importantly, the Government is also introducing a three-year distribution smoothing provision, which allows funds to average their distributions over three years. This is particularly helpful for funds supporting larger, project-based charitable work — it gives fund managers more flexibility without forcing them to over-draw on capital in any single year.
On timing, the new rate takes effect from the first financial year after the guidelines are amended, and existing funds have a two-year transition period before they must comply.
What this means for you
If you’re thinking more seriously about your charitable giving, talk to Cathy and the team about putting a structure in place. Cathy and the team are also available to review existing PuAF’s and PAF’s to ensure compliance ahead of these changes.
