Jack Heath, chief executive of the peak body for the philanthropic and not-for-profit sector, Philanthropy Australia, adds that a culture of tall-poppy syndrome has had the unfortunate side effect of stifling conversations around giving.
Philanthropy Australia wants to double annual structured giving to $5 billion per annum by 2030.
Cuffe believes that increasing the uptake of public and private ancillary funds is the biggest opportunity to encourage more structured giving. It’s already a popular method of philanthropy among some of Australia’s richest people – but it’s not limited to billionaires, or even millionaires.
Here’s what you should know about structured giving.
What are public and private ancillary funds?
Private ancillary funds are standalone charitable trusts, and public ancillary funds are funds that may be run by a trustee company, wealth adviser or not-for-profit. Donors can set up accounts, or sub-funds, with public ancillary funds.
But Cuffe says the best way to think about public and private ancillary funds is in their similarities to superannuation funds.
“In the superannuation industry, there are private superannuation funds, known as self-managed super funds, and then there are public offer funds, which anybody can hook up to an existing fund,” he says.
“Normally people with $1 million or more may set up an SMSF, but people with less than that would be well advised to be in a public super fund.”
In some ways, ancillary funds operate in an identical way. Members, or donors, can either set up their own fund or engage with an existing fund.
They deposit their desired sum, which is then invested. Once the money is in, it’s not coming back out, unless it is going to a charity.
How do Australia’s richest people donate money?
John McLeod, co-founder of the JBWere Philanthropic Services Division, who works with The Australian Financial Review to compile the annual Financial Review Philanthropy 50 list, says private ancillary funds are the most popular means of structured giving among Australia’s wealthiest.
In fact, 30 of the list’s 50 use or include a public or private ancillary fund in their giving.
Among the biggest givers to use private ancillary fund structures are foundations like the Judith Neilson Foundation, the Susan McKinnon Foundation and Graham and Louise Tuckwell’s foundation. The Fairfax Family Foundation, the Cannon-Brookes Foundation and several others also use these structures.
Former Westpac boss Gail Kelly has also been known to use a private ancillary fund to facilitate her giving, telling the Financial Review that her family meets twice a year to discuss where their fund will direct its distributions.
“For the majority [of wealthy givers], the private ancillary fund has been the vehicle of choice,” says McLeod.
He says there are about 2100 private ancillary funds distributing over $500 million per annum. However, based on his analysis of Australian Tax Office data on the number of Australians earning more than $500,000 annually, or with a wealth of $10 million and beyond, McLeod believes many more private ancillary funds should be established – closer to 30,000.
How do public and private ancillary funds affect my tax?
Tax deductions for donations to private ancillary funds can be claimed in full immediately or spread over a period of up to five years, and are generally deductible up to the limit of an individual’s taxable income.
The funds within the private ancillary fund are also tax-exempt, while franking credits are refunded.
The same goes for public ancillary sub-funds: contributions are fully tax-deductible while the funds are exempt from income tax, and deductions can be spread over five years.
How do the charities receive my donations?
Under both structures, a certain amount of money is required to be released from the fund every financial year and directed to registered charities of the member’s choice.
Private funds must distribute at least 5 per cent of the market value of the fund’s net assets, as at the end of the previous financial year. However, no distribution is required in the year the fund is established.
Public ancillary funds must distribute at least 4 per cent.
Those distributions are then directed to charitable organisations endorsed as Deductible Gift Recipients by the ATO.
How easy is it to start a private ancillary fund?
As with an SMSF, there are no hard and fast rules. It comes down to the amount of knowledge you have, time you are willing to put in and the investments you’d like to make.
“There’s no particular limit in terms of how low [an investment in a private ancillary fund] will be, but my rough rule of thumb is that if you’ve got less than $1 million, maybe don’t consider going via a private ancillary fund,” says Heath, from Philanthropy Australia.
“Of course, if you want to that’s fine, but I think in the initial stage … if you’re starting off on that philanthropic journey, it’s a bit easier if you’re not having to manage all of the investments at the same time.”
Those who choose to go down the private fund path can expect a four- to 12-month establishment process, depending on the complexity of the structure.
Private ancillary funds require a corporate trustee, while the trust fund is controlled by a company, usually with family members acting as directors.
They also need to feature at least one “Responsible Person” director, which could be someone like a lawyer, councillor or school principal.
Professional support is generally advised when setting up a private ancillary fund.
How easy is it to start a public ancillary fund?
Opting for a public fund means donors at the earlier stages of philanthropy can spend more time focusing on where they choose to direct their giving, rather than administering the fund, Heath says.
Philanthropy Australia recommends an initial contribution of at least $20,000. However, it notes that some providers allow lower entry levels beginning from $2000.
Public ancillary funds have the same Responsible Person and investment requirements as a private ancillary fund; however, these are satisfied by the not-for-profit entity, rather than the donors themselves.
And while it’ll generally take months to set up a private fund, hooking up to a public fund usually takes only a couple of days.
Ongoing costs tend to be between 1 per cent to 2.5 per cent of the account.
How is my money invested in a private and public fund?
If it’s a private fund, the directors will choose where and how to invest that money.
Funds can invest in shares, cash, fixed interest and property, but must adhere to a written investment policy and assets need to be reviewed every year.
Trustees must consider the benefits of diversification, the liquidity of their investments, the tax consequences of their investments and the purpose of their fund, among other considerations.
If it’s a public ancillary fund, members won’t have as much of a say, similar to a public offer superannuation fund.
What is the benefit of structured giving?
The upside of private and public ancillary funds lies largely in the ability to receive a tax deduction and spread it out over a few years.
Those who choose to use a private rather than public ancillary fund structure are usually also beguiled by the ability to conduct their own investments and, as such, grow their giving sum over time.
And finally, each expert we spoke to said that establishing a structured giving vehicle often facilitates discussions within families around where they’d like the foundation’s distributions to be directed every year.
“You can have a great debate around the table with your kids around who to give to, and why,” says Cuffe.
“You really do get to understand your kids more that way too, and different generations stay more in touch with each other.”
But at the end of the day, emphasises Heath, if setting up or joining an ancillary fund is too time-intensive or difficult, it’s more important that givers just start giving – in whichever way they can.
“It doesn’t matter whether or not you’re doing donations online or whatever; get into the practice of giving,” he says.
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