Private Ancillary Funds (PAFs) are gaining traction across Australia as more individuals, families, and businesses seek structured, long-term ways to give back. Whether you’re looking to make your charitable giving more strategic or want to create a lasting family legacy, a PAF can offer numerous benefits. But what exactly are those benefits—and why are so many people choosing this path?
Here, we explore the key advantages of establishing a PAF and how it can help maximise your philanthropic impact.
Tax Benefits
One of the most immediate and appealing reasons to set up a PAF is the tax advantage.
- Tax-deductible donations: Contributions made to your PAF are fully tax-deductible in the year they’re made, or you can elect to spread the deduction over five years. This is particularly useful in high-income years or after a capital gains event.
- Tax-free investment earnings: Once funds are inside the PAF, any investment income the fund earns is exempt from income tax.
- Capital gains planning: If you’re selling a business, property, or shares, a PAF can be a smart way to offset the tax impact while giving back.
Long-Term and Structured Giving
A PAF offers a platform for consistent, considered philanthropy.
- Strategic giving: Rather than making reactive or ad-hoc donations, you can plan your giving in line with your values and goals.
- Multi-year support: PAFs are designed to fund causes over the long term, giving you the ability to provide stable, ongoing support to organisations that matter to you.
- Defined focus areas: You can target specific sectors—such as education, mental health, or environmental causes—and develop a strategy around them.
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Control and Flexibility
A major benefit of private auxiliary funds is the degree of control it offers.
- Choice of beneficiaries: You decide which charities (with DGR Item 1 status) receive funding, how much, and when.
- Timing of distributions: Funds can be distributed annually or held for larger gifts down the track, provided the minimum annual distribution (currently 5%) is met.
- Adaptable strategy: As your priorities evolve, so can your grantmaking approach.
Family Involvement and Legacy Building
A PAF is an ideal vehicle for passing on philanthropic values.
- Intergenerational involvement: Family members can join the board, participate in decision-making, and help shape the fund’s future direction.
- Legacy planning: Whether you name the fund after yourself, your family, or a cause, a PAF creates a long-lasting presence in the charitable landscape.
- Meaningful engagement: Regular discussions around funding decisions can bring families closer and provide opportunities for younger generations to learn about giving.
Investment Growth Over Time
A well-managed PAF doesn’t just hold funds—it grows them.
- Investment strategy: Funds can be invested with the aim of growing the capital base, allowing the fund to give more over time.
- Professional management: You can choose to manage the investments yourself or work with financial advisers.
- Sustainability: Investment earnings help ensure the fund remains viable and generous year after year.
Transparency and Governance
PAFs operate under a robust regulatory framework, which supports transparency and accountability.
- Annual audit and reporting: Ensures the fund is operating properly and funds are used as intended.
- Trustee oversight: A trustee company or board manages the fund and ensures it complies with the ATO’s requirements.
- Public credibility: While distributions are not publicly listed, a well-run PAF reflects your commitment to responsible philanthropy.
When Does a PAF Make Sense?
A PAF is best suited to individuals, families, or businesses with the financial capacity to make a meaningful donation—generally $500,000 or more—and a desire to give over the long term. They’re particularly valuable in scenarios such as:
- Selling a business or investment
- Estate and legacy planning
- Involving children in charitable decision-making
- Consolidating and formalising existing charitable activity
If you’re considering your options, it’s worth reading more about who can set up a PAF and whether it’s the right fit for your giving goals.
In Closing
Establishing a PAF is about more than just tax deductions. It’s about putting purpose behind your philanthropy, involving your family in meaningful giving, and creating a sustainable, long-term impact on the causes you care about most. With the right support and structure, a PAF can be one of the most rewarding financial and personal decisions you make.
