Public ancillary funds

This information explains deductible gift recipient (DGR) for public ancillary funds (public AFs).

Requirements for endorsement

For a public AF to be endorsed as a DGR it must meet the following requirements:

• have an Australian business number (ABN)
• be in Australia
• comply with the rules in the Public Ancillary Fund Guidelines 2022External Link and all of the trustees of the fund must comply with these rules
• have acceptable rules for the transfer of surplus gifts and deductible contributions on winding-up or revocation of endorsement
• fall within the DGR category for public AFs.

It must also have following characteristics:

• It is a 'fund'.
• It is established and maintained under a will or an instrument of trust. The model trust deed relevant to your state or territory, can be used to establish an acceptable form of trust for public ancillary funds.
• It is established and operated on a not-for-profit basis.
• It is allowed, by the terms of the will or instrument of trust, to invest money in ways that an Australian law allows trustees to invest trust money.
• It is established and maintained solely for the purpose of providing money, property or benefits to DGRs (except other private ancillary funds or public AFs) or the establishment of such DGRs.
• At least one of the following applies         
  • each of its trustees is a constitutional corporation
  • the only trustee is a Public Trustee of a state or territory
  • the trustees are prescribed by regulation.
• Each trustee has agreed, in the approved form, to comply with the rules in the Public Ancillary Fund Guidelines 2022 and none of the trustees has revoked that agreement.

Further information can be found by accessing Is my organisation eligible for DGR endorsement?

If eligible then you can Apply for DGR endorsement.

Public ancillary funds

What is a 'fund'?

A fund is a pool of money or property that is managed or held to make distributions to other entities. A fund does not deliver services.

What must be in the fund's governing rules?

Objects of the fund

The rules must clearly set out and reflect the objects of your fund.

Receipts

The rules must reflect that receipts need to be issued in the name of your fund.

Invitation to the general public to contribute

The rules must reflect that the public must be invited to contribute.

Non-profit basis

The rules must clearly set out and reflect your fund's non-profit status.

Prohibit from indemnity

The rules must prohibit your fund from indemnifying the trustee, or an employee, officer or agent of the trustee, for a loss attributable to their:

• dishonesty
• gross negligence
• recklessness
• deliberate act
• omission.

Responsible person

The rules must reflect that the majority of individuals, who are one of the following, must have a degree of responsibility to the community:

• a trustee
• a member of any committee or other controlling body of the fund
• a director of a trustee.

This is generally called a 'responsible person'.

On winding-up, ceasing to be a public AF or revocation of DGR endorsement

The rules must require the trustee to transfer the following surplus to an eligible DGR, on whichever is the earliest of the winding-up of the trust, it ceasing to be a public AF, or revocation of its DGR endorsement:

• gifts and deductible contributions made to the fund for its principal purpose
• any money received by the fund because of such gifts and contributions.

What is a constitutional corporation?

A constitutional corporation is either:

• a corporation to which paragraph 51(xx) of the Australian Constitution applies
• a body corporate that is incorporated in a territory.

A constitutional corporation would usually be registered with the Australian Securities & Investments Commission and have an Australian company number.

Less frequently, it may be incorporated under associations' incorporation legislation in a state or territory and have an association or incorporation number.

What are the consequences of DGR endorsement?

Gift deductibility

Your fund will be entitled to receive income tax deductible gifts from the date its DGR endorsement starts and while it is endorsed. Deductions for gifts to a DGR are claimed by the person or organisation that makes the gift (the donor).

Australian Business Register

The Australian Business Register (ABR) website will record that your organisation is a DGR.

Receipts

When your fund issues a receipt for a tax-deductible gift, it must include certain information on the receipt. If your fund does not include this information on its receipts, your endorsement may be revoked.

Self-review

You must notify us in writing if your fund's circumstances change and it stops being entitled to DGR endorsement. This obligation means you will need to carry out regular reviews of your fund's status. The law does not require any particular intervals between reviews, but we recommend a yearly review.

Trustees and directors of trustees of public AFs may be liable for administrative penalties if they represent a public AF as being entitled to remain endorsed as a DGR and the fund is not entitled.

Record keeping

As a DGR, your fund must keep adequate accounting and other records that detail and explain all transactions that are relevant to its status as a DGR. You must maintain these records for at least five years after the completion of the transactions or acts they relate to. The penalty for not keeping proper records is 10 penalty units.

Find out more at Penalties.

Annual returns

The trustee may be asked to provide us with a return form for each financial year.

Notifications, timing and outcomes

We will send you written notification of the outcome of your application.

If you believe we are too slow in notifying you, you can have your application treated as if it had been refused. The deemed refusal will trigger formal review rights.

To have your application treated as if it had been refused, you must give us written notice that you want it treated in that way.

The earliest you can notify us that you want your application to be treated as if it had been refused is the later of the following:

• 60 days after you made the application
• 28 days after the last day on which you gave us information or documentation that we requested.

Refusal of application

If your application is refused, you can have the decision reviewed by lodging an objection.

If endorsement is refused after the review, you will be advised of further appeal rights.

Revoking endorsement

We can revoke a DGR's endorsement if any of the following apply:

• it is not entitled to be endorsed
• it has not provided information or documents within the specified time after a request from us
• it has not included the specified information on its receipts.

We will provide written notice of the revocation of endorsement.

The revocation has effect from a date specified by us and the date may be retrospective.

If you are dissatisfied with a revocation of endorsement, you can lodge an objection against the revocation. You do this in writing to us, giving the grounds for the objection.

Removal of trustees

We can suspend or remove a trustee (other than a Public Trustee) that breaches the guidelines or any other Australian law.

We will give the trustee written notice advising them of our decision, explaining the reasons why the decision was taken and, in the case of suspension, setting out the period of suspension.

When a trustee is suspended or removed, we will appoint an acting trustee to undertake the duties of trustee until the suspension period has ended or a replacement trustee is appointed. We may give directions to the acting trustee. Any conduct by an acting trustee that contravenes a notice from us is an offence.

When we appoint an acting trustee, we must make a written order vesting the property of the public AF with the acting trustee. Non-compliance with a written order from us, or the acting trustee, is an offence.

The decision to suspend or remove a trustee is reviewable by the Administrative Review Tribunal and the Federal Court of Australia.

Impact on income tax

DGR endorsement is separate from income tax exemption. Endorsement as a DGR does not allow an organisation to be income tax exempt.

Only certain types of not-for-profit organisations are exempt from income tax under the income tax law. If a not-for-profit organisation does not fall within one of the types of exempt entity, it cannot be exempt.

More information can be found by accessing Income tax exempt organisations.

Complying with the guidelines

What happens if you fail to comply with the guidelines?

Failure to comply with the Public Ancillary Fund Guidelines 2022External Link means:

• the trustee and directors of trustees may incur administrative penalties
• the public AF will no longer be entitled to endorsement.

The guidelines also set out the amount of an administrative penalty, or how to work out the amount of an administrative penalty.

Trustees and directors of trustees of public AFs are jointly and severally liable to any administrative penalty associated with the guidelines, and the penalty cannot be paid or reimbursed from the trust fund.

Directors of trustees that are licensed trustee companies and directors, and statutory office holders of Public Trustees are not personally liable for these penalties.

How do you revoke an agreement to comply with the guidelines?

A trustee may revoke an agreement to comply with the rules in the guidelines by giving the revocation to us in the approved form.

This is further set out by accessing Revocation of agreement to comply with the public ancillary fund guidelines (NAT 74033)

Minimum annual distribution requirements

Each financial year, public ancillary funds must distribute at least 4% of the market value of their net assets (as at the end of the previous financial year). A newly established fund is not required to make a distribution in its first four years of operation.

The fund must distribute at least $8,800 (or the remainder of the fund if that is worth less than $8,800) during that financial year, if both of the following applies:

• the 4% is less than $8,800
• any of the expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income.

A distribution includes the provision of money, property or benefits.

Penalties may apply for not meeting the minimum annual distribution requirements, but funds can apply to reduce the minimum annual distribution rate.

Further information can be found by accessing Application to reduce the minimum ancillary fund distribution rate.

How to confirm endorsement details

Public AFs endorsed as DGRs should receive a notice of Endorsement as a deductible gift recipient stating:

Endorsement as a deductible gift recipient under Subdivision 30-BA of the Income Tax Assessment Act 1997 is provided as detailed below.

You can also confirm your endorsement details by visiting the ABR look for the term 'Item 2' in the 'Deductible gift recipient status' section of the 'Current details' screen.

You should phone us on 1300 130 248 if any of the following apply:

• you need to change your fund's contact details
• the name of the fund on the notice or the ABR is incorrect
• your fund is no longer entitled to endorsement
• you cannot confirm your fund's DGR endorsement as explained above and you believe that your fund should be endorsed, including where          
  • your fund's notice of endorsement states 'Endorsement as a deductible gift recipient under Subdivision 30-BA of the Income Tax Assessment Act 1997 is provided for the operation of a fund, authority or institution'
• the ABR indicates that your fund is covered by 'item 2', but your fund is listed as a fund, authority or institution operated by another entity.

When you phone us, you will need to meet proof of identity requirements, including quoting your organisation's ABN.

Once we confirm your fund's details, we will send you a replacement notice of endorsement if required. The 'Endorsement date of effect' on the replacement notice will show the date from which your fund was entitled to endorsement. The date will not be changed to 1 January 2012 as a result of the changes to public AF DGR category.

Amended guidelines for COVID-19 response

The guidelines have been amended to encourage increased distributions to deductible gift recipients (DGRs) as a result of the COVID-19 pandemic.

Public ancillary funds that exceed their minimum annual distribution rate for the 2019–20 and 2020–21 financial years, by a total of five percentage points or more, will have a lower minimum annual distribution rate of 3% in future years.

To determine if a public ancillary fund is eligible, they will need to work through the following steps:

Step 1	Add together the ancillary fund's annual distribution rate for the 2019–20 and 2020–21 financial years (rounding each year's rate to the nearest whole number).
Step 2	Reduce the combined rate from step 1 by 8% which is the minimum required annual distribution rate for the two years. The balance is the fund's credit amount.
Step 3	If the credit amount at step 2 is 5% or more, the fund is eligible for the reduced distribution rate at step 4.
Step 4	For every 2% of the fund's credit, their minimum annual distribution rate will reduce to 3% for one financial year. This applies from the 2021–22 financial year until the fund's credit is less than 2%. The fund can still choose to exceed the minimum annual distribution rate in those financial years.

This means that eligible public ancillary funds will have a 3% minimum annual distribution rate for at least the 2021–22 and 2022–23 financial years.

 

Closing your fund

If you choose to wind up your fund, you will need to provide us with a final audit report which includes financial statements indicating a zero balance in the fund.

Information for public ancillary funds (PuAFs) about deductible gift recipient endorsement and minimum distribution requirements.