New Regulatory Framework for Public Ancillary Funds

A commonly used financial structure for philanthropic organisations – Public Ancillary Funds – will be reformed to improve their governance and accountability, according to the Gillard Government.

Assistant Treasurer Bill Shorten has released an exposure draft of legislation and draft guidelines for a new regulatory framework for public ancillary funds for public consultation.

Approximately 1,600 Public Ancillary Funds in Australia solicit tax deductible donations from the public to distribute to deductible gift recipients (DGRs) and are a commonly used structure for community philanthropy.

Bill Shorten says these reforms have been much anticipated by the sector and hopes the changes that will bring the standards of accountability and governance of Public Ancillary Funds in line with Private Ancillary Funds.

Under the reforms the Treasurer will have the power to make legislative guidelines to establish and maintain Public Ancillary Funds.

The changes also give the Commissioner of Taxation the power to impose administrative penalties on trustees who fail to comply with the guidelines and to remove or suspend trustees of non-complying funds.

This function may later move to the new Australian Charities and Not for Profit Commission once it is up and running.

The legislation also defers the previously announced start date of 1 July 2011 until 1 January 2012. Trustees of existing funds will be given a choice whether apply the minimum distribution requirements in the new guidelines immediately or wait until 1 July 2012.

Shorten says the Government has taken on board stakeholders' views as part of the initial consultation process and they have made some changes to the guidelines to take account of the differences with Private Ancillary Funds.

The guidelines will require funds to distribute four per cent of their net assets each year and will also allow new funds four years to build an appropriate level of funding before they are legally required to make a distribution.

Shorten says a minimum distribution rate of four per cent was set after looking closely at the average costs and returns of both Private Ancillary Funds and public ancillary funds and the changes recognise the higher costs faced by many Funds.

The Deputy Prime Minister's Special Adviser on Corporate Philanthropy and the Not for Profit Sector, Michael Danby, says philanthropy is an important part of Australia's culture so it is important for these reforms to improve accountability and trust in the sector.

Consultation on the exposure draft closes on Monday 1 August 2011 and closes on Wednesday 31 August 2011 for the draft guidelines.

• For a copy of the Draft and details on how to make a submission go to: http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=2048