A public ancillary fund allows donations from the general public to be donated to charities that have deductible gift recipient (DGR) status. Accordingly, public ancillary funds can apply for DGR endorsement from the Australian Tax Office (ATO). They are generally set up for the purpose of providing money, property or benefits to organisations with DGR status.
This article provides a general overview of the Public Ancillary Fund Guidelines 2011, as well as some of the steps for setting up and registering public ancillary funds.
Setting Up the Trust
Usually, public ancillary funds are set up as trusts with a trust deed that sets out:
- the purpose of the fund;
- governing rules that require, upon winding up the trust, that any surplus assets will be sent to another organisation with DGR endorsement;
- that the fund is a not-for-profit entity; and
- that the fund is established and operated only in Australia.
Furthermore, there may be some specific requirements for who the trustee of the fund is, including that:
- a majority of individuals involved in decision making (either as individual trustees or directors of a corporate trustee) are individuals with a degree of responsibility in the community (such as school principals, judges or doctors);
- the governing rules prohibit the fund from indemnifying the trustee or employees, officers or agents of the trustee for dishonest or negligent acts.
General Requirements
The guidelines detail a number of additional requirements for the trust to be a public ancillary fund. The requirements are outlined in the table below.
| Guideline Requirement | Explanation |
| The fund must be public in nature | You must invite and allow donations from members of the public. |
| Issuing tax-deductible receipts | There are specific requirements for how tax-deductible receipts are to be issued to people that have donated to the fund. |
| A minimum annual distribution rate for the fund to distribute the market value of the fund’s net assets in each financial year | Each financial year your fund is required to distribute a certain amount of assets to one or more DGR endorsed organisations (charities). |
| A minimum annual distribution amount if the expenses of the fund are paid directly from the fund’s assets | This is the same requirement as above but the distribution is an amount, not a rate. |
| Valuation of the fund’s assets | The guidelines have specific requirements for how the assets of the fund are to be valued. |
| Keeping the fund’s financial records | There are also specific requirements for how the financial records of the fund are kept. |
| Requirements for auditing and producing yearly financial statements | In addition to keeping financial records, there are specific requirements for your yearly financial statements as well. Even if you are a registered charity you will need to produce an annual statement to the ATO. |
| Investment requirements, including the development and implementation of an appropriate investment strategy and investment limits |
Funds can invest assets rather than just distribute all donations. However, there are a number of requirements and guidelines on investing. There are also limits on the fund investing, including limitations on borrowing money and providing security over the fund’s assets. An important requirement for funds is that all investment transactions are conducted at arm’s length from the stakeholders. This includes directors and staff. |
| Limits on entering into uncommercial transactions | There are some limitations on the fund entering into transactions where there is no commercial value or no commercial terms. This is particularly with organisations that do not have DGR endorsement as the purpose of the fund is to distribute funds to DGR endorsed organisations. |
| Restrictions on providing any material benefits to trustees, donors, founders and associates of these entities (including directors of a corporate trustee) | This requirement is about making sure that all transactions are at arm’s length and that those involved in running or donating to the fund are doing so for the public’s benefit and not for their own. |
Registration as a Charity
A public ancillary fund may apply to be registered as a charity with the Australian Charities and Not-for-Profits Commission (ACNC) as long as it meets the requirements under the Charities Act 2013 (Cth), including:
- being not-for-profit;
- being established for only charitable purposes for the public benefit;
- complying with the ACNC governance standards;
- not having any disqualifying purposes;
- not being an individual, political party or government entity; and
- having an Australian Business Number (ABN).
DGR Endorsement Requirements
Once you have set up your fund with a trust deed and governing rules, you can apply to the ATO for endorsement as a deductible gift recipient. The ATO will require that your fund meets their requirements, including:
| Requirement | Steps to Take |
| Being a fund and being established under a will or instrument of trust (like a trust deed) | A fund is a pool of money or property that is managed to make distributions to other entities. A fund does not deliver services. You will have to set up a trust from a will or draft a trust deed and establish a trust. |
| Being established and operated on a not-for-profit basis | It must be included in your trust deed and governing rules that your fund is run on a not-for-profit basis. Not-for-profit means that no distributions can be made to members, trustees or directors of the fund. |
| The trust deed allows for the investment of money under Australian trustee laws | Your trust deed must allow investment under trust laws. This is a technical requirement and should be drafted by a charitable trusts lawyer. |
| It is established and maintained solely for the purpose of providing money, property or benefits to DGR organisations | Your governing documents and trust deed must include a statement about the purpose of the fund. The purpose can only be for providing benefits to DGR endorsed organisations. |
| The fund’s trustee is either a constitutional corporation, a public trustee or trustees prescribed by regulation | A company limited by guarantee is generally considered to be a constitutional corporation. If you plan on having a different trustee than a company limited by guarantee you should seek advice from a trusts lawyer. |
| The fund has an ABN | Apply for an ABN here. |
| The fund is in Australia | You trust cannot be established in another country. |
| The fund and its trustee complies with the Public Ancillary Guidelines 2011 | For more information see the previous table. |
| The fund has rules for the transfer of surplus gifts and contributions on winding-up of the fund | This is a specific rule that should be included in the rules of the fund. Generally, you must transfer surplus gifts and contributions to DGR endorsed organisations. |
Key Takeaways
Charities often receive money to public ancillary funds, usually set up as a trust. However, there are a number of specific requirements for funds to meet, including the rules in the Public Ancillary Fund Guidelines 2011. The ATO will also require that you meet DGR endorsement requirements.
If you need help with setting up a public ancillary fund, our experienced charity lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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