Public Ancillary Funds for Private Schools
Through careful structuring, schools can utilise a Public Ancillary Fund to provide much needed supplementary recurrent income to support operational expenses through fundraising.
1. What is a Public Ancillary Fund?
Ancillary funds are funds which are entitled to deductible gift recipient (‘DGR’) endorsement, and are therefore entitled to receive donations which are tax deductible. These funds essentially operate as a tax deductible fundraising mechanism to distribute to other DGRs, and cannot engage in any other activities. In other words, ancillary funds collect donations and may distribute those donations to other suitability endorsed entities to do the charitable work.
Notably, ancillary funds fall within two categories:
- Private ancillary funds – these allow private entities to establish and donate to a charitable trust of their own, without the seeking contributions from the public, for the purpose of disbursing funds to other DGRs.
- Public ancillary funds (PAFs) – these funds are distinct from private ancillary funds in that they invite the public to contribute to the fund, and it is these funds which are generally utilised by schools to conduct their philanthropic fundraising.
There are strict rules regarding the administration of PAFs, including minimum annual distributions.
2. Why would a School have a Public Ancillary Fund?
There are 2 key benefits for a School establishing a PAF. These being:
1. Streamlined Donations
Schools will often have a number of key DGR Funds set up to support its operations, including:
- Building Funds;
- Scholarship Funds;
- Libraries (often incorrectly referred to as ‘Library Funds”); and
- Necessitous Circumstances Funds.
Each of these funds qualify for the receipt of distributions from PAFs. If structured effectively, the PAF can make donations to the relevant funds in the proportion determined by its trustees/governors from time to time, depending on the needs of the School. Accordingly, a PAF can become the single-point of advertised DGR donations from the public to a School, which can also reduce confusion from potential donors.
2. Self-Perpetuating Funding
The trustee of a PAF is required to implement an investment strategy for accumulated funds, and is only required to distribute a small percentage of funds in any given year (the minimum annual distribution requirement). As such, if a PAF attracts a significant amount of annual donations, and it is well administered, the PAF can grow into a self-perpetuating source of funding for a School.
3. Establishing a Fund and Ongoing Compliance
PAFs must be established via trust deed, with a corporate trustee. There are also rules concerning who qualifies as a ‘responsible person’ to operate the PAF (ie. directors of the corporate trustee).
Once the PAF has been established via trust deed, it will need to obtain relevant fundraising licences and be registered as a charity with the Australian Charities and Not-for-Profits Commission.
Responsible persons will also need to ensure ongoing compliance with the Taxation Administration (Public Ancillary Fund) Guidelines 2022. This includes, amongst other things, ongoing public fundraising and meeting certain minimum annual distribution requirements.
The team at Corney & Lind are specialist Schools and Not-for-Profit solicitors. Please do not hesitate to contact us on (07) 3252 0011 if you need assistance with establishment or compliance matters concerning a Public Ancillary Fund.
The information in this article is general information only and does not constitute legal advice.