Thinking of setting up a public or private ancillary fund? Our philanthropy consultants have got you covered.
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.
How to Establish a Charitable 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.
What Are the Differences Between a PAF and a PUF?
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.
Private Ancillary Funds (PAF)
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.
Public Ancillary Fund (PUF)
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!
What Are the Financial Benefits of Establishing a Foundation?
There are a number of financial advantages of setting up a PAF or a sub-fund with the Be BlueRock Foundation, including:
- the initial start-up capital is tax deductible
- the income from the fund’s investments is generated in a tax-free environment
- further donations to the fund can be tax deductible
- the tax deduction from seed and subsequent donations can be spread across up to 5 years to maximise the tax benefit against taxable income.
How Much Do I Need to Establish a PAF or a Sub-Fund with the Be BlueRock Foundation?
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.
Does a PAF or a Sub-Fund with the Be BlueRock Foundation Have to Distribute a Specific Amount Each Year?
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
| Be BlueRock Foundation | Private Ancillary Fund | |
| Minimum Initial Donation | $50,000 | $500,000 upwards |
| Tax deductions for donations | Donations are tax deductible | Donations are tax deductible (once PAF is endorsed by the ATO) |
| Trustee | BeBlueRock Pty Ltd | You and the Directors you appoint |
| Grant-making | Through annual distributions to nominated charities with DGR1 status | Through donations or funding projects via a grant program - to charities with DGR1 status |
| Cost/Fees | ||
| Established Fee | $4,000 | $10,000 plus disbursements |
| Application for Income Tax Exempt Charity (ITEC) and Deductible Recipient (DGR) | Be BlueRock Foundation is already endorsed as an ITEC and DGR | Application to the ACNC and ATO required |
| Tax Return | Be BlueRock Foundation files all returns at no additional cost to the Charity Account | Annual Information Return must be filed with the ATO |
| Audit | Audit is undertaken at Be BlueRock Foundation level and no extra costs are charged to the sub-fund | Audit must be undertaken annually |
| Investment Management Fee | Total ongoing fee is 1.15-1.55%, including 0.275% investment management fee. | As per Investment Manager |
| Other Features | ||
| Investment Strategy | BlueRock Impact Portfolio | PAFs require an Investment Strategy |
| Distribution Requirements | Around 4% of market value* | 5% of market value |
| Succession Planning | Yes | Yes |
*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.
Discover BlueRock’s Philanthropy Consulting Services
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.
