What is a Private Ancillary Fund (PAF)?
Private Ancillary Funds have become a popular choice among Australians who want to give back in a structured, strategic, and effective way. Whether driven by personal values, family legacy, or long-term charitable goals, a PAF offers a formal pathway to turn philanthropy into lasting impact. Understanding what a PAF is and how it fits into Australia’s giving landscape is the first step toward deciding if it’s the right approach for you.
Understanding the Purpose of a PAF
A PAF is a type of charitable trust designed to support long-term philanthropic giving. It allows donors to make tax-deductible contributions, invest those funds, and distribute money to eligible charities each year. A helpful overview of how a private ancillary fund operates can clarify its role as a structured vehicle for charitable generosity. PAFs are regulated by the Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC), ensuring transparency, accountability, and responsible management of donated funds. Their purpose is simple: to make philanthropy more strategic, more sustainable, and more accessible for donors who want their giving to endure.
How a PAF Works
Contributions and Funding
A PAF is funded through donations made by the founder, family members, businesses, or other contributors. These donations are generally tax deductible, providing immediate financial benefit while building a pool of capital for long-term giving. Donors can also choose to spread their tax deduction over multiple years, depending on their financial planning needs.
Investment of Capital
Once funds are contributed, they are invested to generate returns. Trustees develop an investment strategy that balances growth, income, and risk, ensuring the fund can support annual charitable distributions. The investment approach must comply with relevant regulations and reflect the long-term goals of the fund.
Annual Charitable Distributions
Every PAF must distribute at least 5 percent of its net assets each financial year. These distributions go only to organisations endorsed as deductible gift recipients (DGRs). This rule ensures that funds are actively directed toward charitable work while allowing the remaining capital to continue growing.
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Setting Up a PAF
Establishing a PAF begins with creating a trust deed that aligns with the Private Ancillary Fund Guidelines. Trustees are appointed to manage the fund, and at least one responsible person—someone with recognised standing in the community—is required for governance oversight. The fund must then obtain DGR endorsement so donors can receive tax deductions. While there is no mandatory minimum balance, most advisers suggest starting with at least $500,000 to ensure the structure is cost-effective.
The Benefits of Establishing a PAF
A PAF offers a well-defined structure for philanthropy, making it ideal for long-term planning. Donors benefit from tax deductions, investment growth, and the ability to support multiple charities over many years. PAFs can also help build a philanthropic legacy, engaging children and future generations in charitable decision-making. For families and organisations with a strong desire to give meaningfully, a PAF provides a reliable and rewarding framework.
Governance and Compliance Requirements
PAFs must follow strict regulatory requirements set by the ATO and ACNC. Trustees are responsible for keeping accurate financial records, preparing annual reports, and ensuring compliance with distribution rules. The responsible person plays a key role in maintaining ethical oversight and ensuring the fund operates in line with its purpose and legal obligations.
Is a PAF the Right Option for You?
A PAF is most suitable for those who want to give consistently and substantially over time. It works well for individuals, families, or businesses seeking a structured approach to philanthropy. For those with smaller donation goals or simpler needs, alternatives such as public ancillary funds or direct giving may be more appropriate.
Final Word
A Private Ancillary Fund provides a tax-effective, strategic, and highly flexible way to support the causes you care about. By combining contributions, investment growth, and regular donations, a PAF makes it possible to create meaningful and long-term charitable impact. With the right guidance, it can become a cornerstone of your personal or family legacy.
