New Ancillary Fund Guidelines Announced

The federal government has made long awaited amendments to the private and public ancillary fund guidelines, deciding not to introduce a controversial treasury recommendation to change the current distribution rates for ancillary funds.

The government decided not to reduce the minimum annual distribution across the board, as initially proposed, but has given the Commissioner of Taxation a discretion to vary it for individual funds in certain circumstances.

Philanthropy Australia welcomed the new amendments which adopt many of the recommendations the peak body made in response to the exposure draft which was consulted on earlier this year.

“In particular, we believe that retaining the current minimum annual distributions for ancillary funds is the right decision as it keeps things simple and helps ensure we have a relatively stable flow of philanthropic funds into the community,” Philanthropy Australia CEO Sarah Davies said.

“A new power has been given given to the ATO to vary these distributions for individual ancillary funds, which provides some additional flexibility where there are exceptional circumstances.

“There are many other positive changes which have been made, such as introducing portability for private ancillary funds, as well as providing more clarity regarding impact investments.”

However Davies said there was still scope for more improvement, including the introduction of a program related investments framework, as recommended in a report to the Prime Minister’s Community Business Partnership in 2015.

In March, non-government members of the Prime Minister’s Community Business Partnership made a submission to the Commonwealth’s Treasury amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011, and also recommended against reducing the minimum annual distribution rates for ancillary funds.

“The partnership does not believe there is a strong case for changing the currently accepted rate of 5 per cent for PAFs and 4 per cent for PuAFs,” the submission said.

“Data provided to the partnership by the Australian Taxation Office shows that 56 per cent of PuAFs and 46 per cent of PAFs distribute above the minimum distribution rate. Administration costs for PuAFs are 4.7 per cent of the fund’s net assets, with PAF administration costs at 1 per cent of the fund’s net assets.”

In February, the Community Council for Australia (CCA) wrote to Assistant Treasurer Kelly O’Dwyer, saying the government should back away from a proposal to the minimum annual distribution percentage for PAFs and PuAFS.

CCA CEO David Crosbie said at the time that the changes would mean that ancillary funds could distribute the average of the Reserve Bank of Australia’s target for the cash rate.

But the CCA said this could “weaken the need to focus on this primary charitable purpose and allow PAFs and PuAFs to be driven by their capacity to gain a return on their investments seems to be giving almost equal importance to the purpose of making a profit on investments”.

“Whether PAFs and PuAFs generate a substantial or minimal profit in any particular period should not be the driver of their purpose,” the CCA said.