First off, if you’re thinking about setting up a public or private ancillary fund, hats off to you. Philanthropy is an amazing way to give back to your community and give purpose to wealth. And hats off again, because you’ve come to the right place. Through the Be BlueRock Foundation, BlueRock provides consulting services to help you establish a Private Ancillary Fund (PAF), or you can streamline your giving by creating a Charitable Fund Account, or Public Ancillary Fund (PUF), within our very own Be BlueRock Foundation.
There are three main legal structures available for a charitable family foundation. A private ancillary fund (PAF), a sub-fund with a public ancillary fund (PUF) such as the BeBlueRock Foundation, or a testamentary charitable trust. We’ll focus on PAFs and PUFs.
If you're considering setting up a private ancillary fund, or a sub-fund with a public ancillary fund, you'll be happy to know that either way, you'll receive a tax deduction for the funds invested into the foundation.
With a private ancillary fund, you'll have full control over the foundation's investments and grant program.
Keep in mind that in order to receive the tax deduction, your foundation must only fund organisations with charitable purposes that have been endorsed by the Australian Taxation Office (ATO) as deductible gift recipients. But don't worry, there are over 30,000 charities in Australia that have been endorsed as Item 1 deductible gift recipients (DGR), so there are plenty of options!
Another great thing about PAFs is that the ATO allows donors to spread their tax-deductible donations across their taxable income in the year they make that donation and the subsequent 4 years, so a family would enjoy the same tax benefits as if they had donated the same amount over 5 years.
From an administrative and regulatory perspective, a PAF must be externally audited and an Information Return filed annually.
If you're short on time or just don't want to deal with the administrative and investment management responsibilities that come with setting up your own foundation, then a sub-fund or charitable fund account might be a better fit.
For example, BlueRock as trustee of the BlueRock Foundation, fulfils the trustee duties and administration of the PUF, such as filing the annual information return with the ATO and organising the external audit which lessens the administrative burden, allowing our clients to concentrate on the interesting and most rewarding part – the giving!
There are a number of financial advantages of setting up a PAF or a sub-fund with the Be BlueRock Foundation, including:
We recommend a starting capital of $500,000 and upwards to ensure that a new PAF is sustainable. This is so it can cover the minimum distribution requirements and administration costs. A sub-fund with the Be BlueRock Foundation can be established with a minimum of $50,000.
There are specific but different distribution requirements for a PAF and a PUF. The advantage of using the PUF sub-fund option rather than a stand-alone PAF is that a PUF has lower minimum distributions requirements, allowing you to build the capital of the fund.
PUFs must distribute the equivalent of 4% of the fund’s market value (capital and income) across the whole fund. This is calculated at the consolidated trust fund level giving fund holders more flexibility to decide on distribution levels, whereas PAFs are required to distribute 5% of market value.
The table below shows the features of the Be BlueRock Foundation sub-funds compared with private ancillary funds (PAFs).
Compare a Be BlueRock Foundation Sub-Fund with a Private Ancillary Fund
*As a public ancillary fund, the Be BlueRock Foundation must distribute 4% of the opening value of its corpus each year. This is calculated at the consolidated fund level, providing flexibility to sub-fund holders.
When you work with our philanthropy experts and the Be BlueRock Foundation, we take care of the administration of your philanthropy, including maintaining financial records, distribution requirements, secretariat services and reporting to the Australian Taxation Office (ATO) and the Australian Charities and Not-for-Profit Commission (ACNC).
When it comes to the good stuff – supporting charities you care about – our grantmaking service can help you and your family or business decide on your giving philosophy and the causes and charities that you would like to support…all with the right tax strategy in place.
Get in touch with our team to discuss what option best suits you.