1  What is changing?

(a) The name of both Public and Private ‘Ancillary Funds’ is changing to ‘Giving Funds’.

(b) The minimum annual distribution rate for Giving Funds will be increased to 6% per year, up from the current 5% for PAFs[1] and 4% for PuAFs.[2]

(c) In certain circumstances, Giving Funds will be allowed to meet their minimum annual distribution requirement by averaging their distributions over a three-year period. This smoothing distribution mechanism aims to provide flexibility to multi-year grants or projects - though the nuts and bolts of this change has yet to be revealed in the amended Guidelines.

2  When will the change take effect?

The Government’s announcement proposes that the minimum distribution will take effect from the first financial year following the amendments to the Guidelines, however, there is a two-year transition period for existing funds. This means there is no change to your current fund for at least the next two, possibly three years.

3  Policy rationale and stakeholder response

(a) The Australian government has a goal to double giving in Australia by 2030.

(b) In his announcement about increasing the minimum annual distribution rate, Minister Leigh said that the purpose is to “improve support for Australian charities” by ensuring “more benefits flow to charities now to help them to provide their services, while still allowing giving funds to invest and provide benefits into the future.”

(c) Many stakeholders have reacted strongly to the proposed changes, arguing this policy shift reflects a short-sighted view of what Giving Funds offer donors and the charities that can benefit from them. While it is true that higher distributions will be distributed from existing Giving Funds in the short term, the higher annual distribution rate will reduce the ability of Giving Funds to provide intergenerational support for those charities – ultimately reducing the benefit to charities over the long term. 

(d) Concerns have also been raised that an impact of this change will be a reluctance by some philanthropists to give as much to a Giving Fund, or possibly even to establish a Giving Fund at all.

4  Next steps for the management of your Giving Fund

For at least the next two years, no operational changes are required. This provides a good timeframe to plan and reassess:

(a) your current investment and distribution strategy to ensure a sustainable 6% payout while preserving real capital, if you plan to maintain the opportunity for generational giving; and

(b) consider further contribution strategies which may offset higher required distributions.

While we continue to believe that broadening and simplifying the deductible gift recipient regime will be more effective in improving support for charities in Australia, we maintain our confidence in Giving Funds as one of the most effective vehicles for Australians who want to make an enduring impact.

Please feel free to reach out to us if you have any questions.

[1] Taxation Administration (Private Ancillary Fund) Guidelines 2019 (Cth), s15(1).
[2] Taxation Administration (Public Ancillary Fund) Guidelines 2022 (Cth) s15(1).