Philanthropic Trusts Lack Accountability - MCF
Thursday, 28th October 2004 at 1:10 pm
Australia’s philanthropic trusts lack accountability – having no public reporting requirements while being heavily subsidised by the public purse according to the Melbourne Community Foundation.
The criticism came from the Chair of the MCF, Adjunct Professor Hayden Raysmith during his address at the first Annual General Meeting of the organisation in Melbourne recently.
Prof Raysmith told MCF donors and recipients that the lack of transparency in the philanthropic sector has masked lazy practice, created inefficiency and held the sector back from making the progress it should have made, particularly in relation to “informed” giving.
He said fees charged against philanthropic trusts or netted out against earnings are often undeclared and unknown and very few have publicly available investment policies.
The AGM was told that Private Prescribed Funds legislated for in 2000 are about to make the situation worse.
Ninety two (92) new Private Prescribed Funds (PPF’s) have been established this year, making 242 in all since the 2000 legislation.
He said that for every million dollars donated to a PPF there is a tax expenditure of $480,000. In addition they are exempt from GST, from tax on earnings and from capital gains tax. Gifts of property can be amortised over five years and they can claim back franking credits.
Prof Raysmith emphasised that his criticism did not extend to all trusts and trustees saying Australia was blessed with some highly professional and collaborative foundations such as Myer, Reichstein and Pratt.
Established in 1997, the MCF has a corpus of $14 million and has distributed $3 million to numerous charitable organisations. The AGM was briefed on the MCF’s recently launched Youth at Risk Initiative to tackle the problem of young people not making the transition from school to work.
Investment Bank, Goldman Sachs JBWere when asked to respond to Professor Raysmith’s claims said that Prescribed Private Funds are no less accountable in terms of their reporting requirements to the Australian Tax Office and their investment management than other existing Philanthropic Trusts.
Rather it says the ATO approves where grants are made via the endorsement of DGR status of recipient organisations.
The head of Goldman Sachs JBWere Philanthropic Services, Christopher Thorn says the real debate should not be around the revenue foregone by giving a donation to an individual or company that establishes a PPF (there is no “taxation expenditure”) but whether as a community we want to encourage giving in the form of a one off donation or a longer term strategically planned gift.
He says if it is accepted that tax deductibility stimulates such activity then that should be the case for everyone. If one argues the cost of the revenue forgone is too high to the taxpayer then the logical extension is we should cease deductibility of all gifts which would result in a lower level of giving.
He says this will not achieve the outcome the community is looking for.
Thorn says there is no doubt there are expert and well-developed grant making skills in established Trusts and community foundations.
He says it would be short sighted not to encourage new participants to the sector who will not only bring their financial resources but their ideas, networks and enthusiasm to a sector that thrives on innovation.
He agrees that Philanthropic Trusts are a specialist area and that they have very specialised investment requirements. The Philanthropic Services unit was established to promote philanthropy, raise awareness and provide innovative solutions to all sector participants. Goldman Sachs JBWere has in excess of $1Billion under advice for endowments, foundations and Not for Profit clients.
Thorn says the Private Prescribed Funds have encouraged new participants to look at Philanthropy as part of their overall financial planning. Their research has shown that the use of this new structure has increased the overall level of giving in Australia as a direct result.
He says the average size of a PPF is $1.4million although the median size is estimated to be around $500 thousand (as a few larger funds skew the averages). It is expected that these will grow, based on the accumulation plans lodged with the ATO, to around $1Billion over the next 10 years.
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