ATO Finds Public Ancillary Fund Breaches
Thursday, 14th January 2010 at 10:31 am
An Australian Tax Office investigation has found that a number of Public Ancillary Funds endorsed as deductible gift recipients (DGRs) are in breach of their trust deed.
Following a review the ATO says it found a number of common errors including:
- distributions paid directly to entities located offshore
- benefits provided to non-DGRs located in Australia
- distributions to other ancillary funds.
The ATO says these disbursements are inconsistent with the trust obligations of a fund claiming to meet the character of a public ancillary fund and endorsed as a DGR.
Public ancillary funds are public funds established and maintained under a will or instrument of trust solely for the purpose of providing money, property or benefits to DGRs or the establishment of DGRs.
An ancillary fund must be exclusively for these purposes. It must not carry on any other activities. It is like a conduit or temporary repository for channelling gifts to other DGRs. An ancillary fund must not provide for or establish other ancillary funds.
The ATO says it found that a number of entities had remitted funds directly offshore to entities that were not DGRs. Other funds were found to be distributing to entities, located within Australia, that were not DGRs or they had made distributions to other ancillary funds.
The Tax office says these distributions were inconsistent with the purposes recorded in their trust deed.
It says while the actions of the trustees were well intended and the aim was to assist individuals and communities in need, the disbursements were not in keeping with their trust obligations.
Public ancillary fund trust deeds reflected purposes consistent with public ancillary fund endorsement, yet the ATO says trustees had failed to comply with the purposes outlined in the deed.
DGR endorsement is available to organisations and funds that meet the character and requirements of the DGR categories. Where an entity’s foundation documents record it as having a particular purpose and its actions are inconsistent with that purpose, it places its endorsement at risk.
The ATO says Public Ancillary Funds now have the opportunity to ensure that they are compliant and make any necessary changes.
There are 1600 Public Ancillary Funds currently endorsed in Australia. The Tax Office would not reveal the number of Funds that have breeched their trust deeds.