Whether it’s getting fit, losing weight or saving money, Australians love to make New Year’s resolutions. But what if your resolution was less about yourself and more about your impact on others? What if you decided this is the year you’re going to do ‘something good’ for the world?
iving back to the community can take many forms: donating time, labour and expertise, or making financial donations. When it comes to money, there are three main ways an individual or family can donate to charity.
1. Donate directly to the chosen charity.
2. Donate to a Public Ancillary Fund.
3. Establish a Private Ancillary Fund.
Donating directly is the way many of us are used to interacting with the charitable sector. Ongoing donations are generally preferred by charities, as it provides greater certainty and helps them with forwardplanning. But of course, they welcome one-off donations too!
In addition to the satisfaction of helping others, another benefit is that the amount you donate can be deducted from your taxable income, as long as the charitable organisation has DGR-1 status from the Australian Tax Office. You can check with the organisation if you’re not sure.
Structured giving:Creating a lasting legacy
If you’re keen to make philanthropy a priority, there are two structures that will help to ensure your charitable donations have a positive, longterm benefit to the community.
A Public Ancillary Fund
A Public Ancillary Fund (or PuAF) is an established foundation to which you can direct your donation. As the donor, you receive a tax deduction for your contribution to the foundation, and then the foundation directs your donation to charitable organisations.
Most PuAFs have an option to choose the types of charities you wish to benefit – for example, the arts, medical research, social welfare or the environment; some also allow you to specify particular charities. You can also establish ‘sub-funds’ under the auspices of a larger PuAF to benefit from their expertise and management while still exerting influence over the grants made with your donation.
The PuAF option can be attractive for those who don’t require a high degree of control over their gift giving arrangements, have a smaller principal amount to invest or who wish to minimise management costs.
A Private Ancillary Fund
A Private Ancillary Fund (PAF) is a private foundation to which an individual or family contributes a significant sum to use for donations. Every year, the foundation must give the greater of $11,000 per annum or 4% of its capital measured at the start of the financial year. Donors receive a tax deduction for the amount contributed to the PAF, and the PAF cannot solicit donations from the wider public.
A PAF has similar investment and governance rules to a Self-Managed Superannuation Fund, and must have at least one trustee who holds a recognised professional position in the community.
One of the great advantages of a PAF is that it can provide a family with a formal gift giving strategy that will have a life in perpetuity. In other words, while you’re donating the income generated by the capital, that principal amount continues to grow over time and provide charitable funding, even beyond your lifetime.
For those faced with a very large taxable income in a single year, establishing a PAF and contributing funds can be a way to formalise a gift giving program for the longer term, while at the same time deriving a substantial tax advantage.
Consider, for example, the sale of a business, where the owner receives proceeds of $15 million, which results in a taxable capital gain of $7 million…
- Bill and Mirana Gates: $1.9 billion
- George Soros: $763 million
- Mark Zuckerberg: $519 million
By Chris Morcom, Private Client Adviser, Hewison Private Wealth.
Excerpted from an article originally published in the February/March 2014 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your February/March 2014 issue of TGR. If you are not a subscriber, click here to subscribe.