PRIVATE ANCILLARY FUND (PAF‪)‬ Family Office with Lance Meikle

PRIVATE ANCILLARY FUND (PAF)
A Private Ancillary Fund (PAF) is a trust fund for businesses, families and individuals and set up under the Taxation Administration (Private Ancillary Fund) Guidelines 2019. The trust fund is controlled by a company usually with family members as directors and at least one independent “Responsible Person” director (someone with a degree of responsibility in the community). A private ancillary fund (PAF) is a type of charitable trust that offers an effective and strategic way to manage your philanthropy. You donate money into the PAF, receive an immediate tax deduction and use the money put aside to give to the charities of your choice each year. You or your investment adviser invest the capital. To establish a private ancillary fund (AF) with deductible gift recipient status, you need to:
• Create a trust that is a private ancillary fund (private AF)
• Obtain an Australian business number (ABN)
• Get endorsement as a deductible gift recipient (DGR). Why use a Private Ancillary Fund?
 
A PAF may be suitable for someone where:
• they wish to keep on giving after their death
• they want a structured way to involve their children or family in giving
• they have recently disposed of an asset and wish to obtain a tax deduction in the year of sale (note: keep in mind that once a gift is made to the trust it cannot be revoked), or
• they wish to devote a considerable amount of time to philanthropy into the future.
Some PAFs are also exempt from tax on income earned. To be exempt the PAF must be registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity and endorsed by the ATO to receive charity tax concessions. Endorsement from the ATO can be obtained at the same time as registering the fund with the ACNC. This exemption may make using a PAF an attractive vehicle for accumulating assets for philanthropic purposes All PAFs are regulated by the ACNC and must adhere to the Private Ancillary Fund Guidelines 2019 (Guidelines). In addition, PAFs need to apply for endorsement as a tax concession charity from the ATO and are subject to the relevant income tax laws and requirements of the relevant State trustee legislation. The Guidelines cover a broad range of matters ranging from the purpose of the trust to the administration requirements and include:
• a PAF must be set up and run from Australia solely to benefit other deductible gift recipients (e.g. charities)
• a PAF must be a not-for-profit entity. Any surplus made by a PAF must be directed towards carrying out the entity’s purposes
• the trustee has an obligation to exercise appropriate care and skill in managing the PAF
• a PAF must generally distribute a minimum of five per cent of the PAF’s assets (as valued at the previous 30 June) to deductible gift recipients each year. If the PAF’s expenses are met from PAF assets, the distribution must be the greater of $11,000 (or the remainder of the fund) and five per cent of assets. In limited circumstances a PAF may apply to the ATO to have the minimum amount reduced for a financial year
• the trustee must prepare an investment strategy in relation to the fund’s assets
• investment restrictions apply. For example, PAFs are generally prohibited from borrowing and investing in collectibles, investments must be at arm’s length and the trustee cannot give a security over an asset of the fund. In addition, a PAF cannot run a business
• a PAF cannot seek donations from the public and cannot accept donations totalling more than 20 per cent of the value of the fund at the previous 30 June from people other than the founder, relatives, associates or employees of the founder, as well as their estates.
The responsible person The corporate trustee of each PAF must have at least one independent director who is a responsible person. This person must be actively involved in the decision-making of the fund. They cannot be:
• a founder 
• a d