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Understanding ancillary funds

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Ancillary funds are an important part of the Australian philanthropic landscape. They provide a secure channel for both private and public giving and are one of the most popular philanthropic structures.

The Australian Centre for Philanthropy and Nonprofit Studies (ACPNS) released an information sheet in 2021 that examined ATO data from 2018-19 about ancillary fund activity.

“In total, as at 30 June 2019, there were 3,090 ancillary funds, with combined net assets of $10.33 billion. They received $1.39 billion in donations in the 2018–19 year and distributed $967 million in grants.”

Today, we take a close look at ancillary funds and how they work.

What is an ancillary fund?

The ACNC states:

“Ancillary funds are special funds that provide a link between people who want to give (‘donors’) and organisations that can receive tax deductible donations as deductible gift recipients (DGRs). Ancillary funds are set up for the purpose of providing money, property or benefits to DGRs.

There are two types of ancillary funds that fall within a DGR category:

  • private ancillary funds, and
  • public ancillary funds.”

Ancillary funds aren’t responsible for any specific charitable work, they are simply used to manage donated funds. They are themselves registered DGRs, so when someone donates to an ancillary fund they can receive a tax deduction. Additionally, any of the ancillary funds’ investment earnings are tax exempt and even have the capacity to claim franking credits.

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Private or public

Private ancillary funds (PAFs) are most commonly used by families or other close groups that want to make combined donations to their chosen DGRs. ACPNS says, “PAFs allow families, businesses and individuals to create a tax-effective giving structure.”

While the donors don’t necessarily have to be from a single family, there is usually a relationship between the members and they have a united philanthropic goal. PAFs are not open to the public and cannot solicit donations outside their family group.

Public ancillary funds (PubAF), on the other hand, are used for public fundraising activities.

Again, ACPNS says: “PubAFs are a common structure for fundraising and community foundations. A PubAF is distinct from a PAF, in that it must establish a public fund and raise funds from the public. A majority of the individuals involved in the decision-making of the PubAF must be individuals with a degree of responsibility to the Australian community, for example, school principals, judges, religious practitioners, solicitors, doctors and other professional persons.”

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Why set up an ancillary fund?

There are numerous reasons why someone might set up an ancillary fund.

A not for profit organisation could create a PubAF in order to facilitate efficient fundraising or provide donations to other connected DGRs.

An individual might set up a PAF in order to have a foundation that continues to donate after they have died. A PAF can also enable the next generation to be easily involved in the family’s philanthropy.

A PAF is often a beneficial tax strategy not only for personal deductions, but it can be a tax exempt method of investing and building financial assets that are allocated for charitable uses.

It must be noted that there are costs involved in setting up and maintaining ancillary funds, so the amount being invested will determine viability.

Connecting with an ancillary fund

If your not for profit organisation is seeking funding, it could be worth trying to connect with an ancillary fund. There are numerous avenues you could take, such as starting with information on the Philanthropy Australia website. They outline the steps you need to take and also have details about other funding sources.

You could also consider engaging the services of a fundraising strategist as they often have connections with various funding channels.

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