How do I ensure I’m compliant?
Download the Trustee Handbook now.
Download the Private Ancillary Funds Trustee Handbook.
Being a trustee of a charitable foundation means that you have ultimate legal responsibility for its governance and must act to ensure it is well run, complaint with the law and the Trust Deed, and provides funds for the benefit of the community. Trust law can be complicated, and trustees are personally for any breach of trust, so it’s vital to ensure compliance. This is a guide to the absolute basics.
This is a guide only and is not intended as a substitute for professional advice. No person should act upon or in reliance upon it without first obtaining advice from an appropriate qualified professional adviser.
Click here for a list of questions to ask your professional advisor.
1. Administration Requirements
PAFs must:
- Prepare financial statements every year, which must be audited by a person registered, or taken to be registered, as an auditor under part 9.2 of the Corporations Act 2001.
- Lodge an annual income tax return (replacing the Prescribed Private Fund Annual Information Return) with the Australian Taxation Office each year.
- Maintain a Responsible Person on the board.
- Respond to any requests for further information by the ATO.
2. Investment and Donations Compliance
- PAFs must have an Investment Policy which includes the objectives of the fund.
- PAFs must carry out an objective assessment of the market value of the fund annually, and have any property assets valued by a Certified Valuer at least every 3 years.
- PAFs must invest money they receive as a gift only in a way that the state Trustee Acts allow trustees to invest trust money.
- PAF trustees must act according to the Prudent Person requirement as established in the Trustee Acts.
- PAFs cannot run a business.
- Collectibles cannot be purchased and any donated to the PAF must be sold within 12 months.
Go to the ATO website’s section on Tax and Legislation for more information.
3. Grantmaking Requirements: Eligible Grant Recipients
- PAFs can only grant to organisations which are Deductible Gift Recipients (DGRs)
- PAFs may not grant to other PAFs or to Public Ancillary Funds under anmy circumstances
- Charitable PAFs must make all grants to organisations which are endorsed both as DGRs and as TCCs (Tax Concession Charities)
- PAFs which are endorsed as Income Tax Exempt Funds (ITEFs) rather than as charities can distribute to a wider group of DGR, depending on state law. Those domiciled in NSW and Queensland can distribute to all non Item 2 DGRs, and those in Victoria to all non item 2 DGRs which would be charitable other than their connection to government. Legislation for other states has not been enacted.
In order to ensure you are making grants to the correct type of entity, you should therefore obtain both the following items from each potential recipient:
- A copy of the organisation’s Endorsement as a Deductible Gift Recipient as issued by the ATO
- If the organisation is specifically named in Subdivision 30-B of the Income Tax Assessment Act 1997 as a Deductible Gift Recipient, then it will not have also been endorsed as a Deductible Gift Recipient. In that case, you must satisfy yourself that the proposed recipient is the same entity as that named in Subdivision 30-B, by checking on the Australian Business Register.
- A copy of the organisation’s Endorsement for Charity Tax Concessions as issued by the ATO
In addition, you should check the “Provision for Gift Deductibility” on the Endorsement as a Deductible Gift Recipient. If the “Provision for Gift Deductibility” reads “item 2 of the table in section 30-15 of the Income Tax Assessment Act 1997” then the organisation is an ancillary fund or private ancillary fund, and is not eligible for grants from a PAF.
4. Other Grantmaking Requirements
- The sole purpose of a PAF must be to provide money, property or benefits to funds, authorities or institutions, gifts to which are deductible under item 1 of the table in section 30-15. Item 1 refers to recipients covered by any of the tables in Subdivision 30-B.
- A PAF must not carry on extrinsic purposes. This means that the PAF cannot carry out activities such as, for example, operating a business, collecting and exhibiting art or conducting medical research.
- A PAF may carry out activities such as assessing grant applications or potential grant recipients. However, all such activities must be related to the PAF’s grantmaking purpose.
- A PAF cannot make grants to another PAF.
5. Legal Compliance
It is important for all PAF staff and trustees to be familiar with the legislation and rulings affecting them. This includes:
- The State Trustee Act for the state in which the PAF is established - Trustee Act 1925 (NSW), Trustee Act 1936 (SA), Trustee Act 1958 (Vic), Trustees Act 1962 (WA), Trusts Act 1973 (Qld), Trustee Act 1898 (Tas).
- Income Tax Assessment Act 1997
- Guidelines for Private Ancillary Funds (available from ATO)
Staff and trustees must also be familiar with their own PAF’s trust deed.
Philanthropy Australia has produced a Trustee Handbook, created in consultation with its Members, which is an essential guide to both what trustees must do by law and what they should consider doing as good practice. The Trustee Handbook is an essential document for PPFs, Community Foundations, Family Foundations, Private Charitable Funds and Ancillary Funds, and is available for free download in PDF format from PhilanthropyWiki.
There is also a separate Trustee Handbook for PAFs which is available for download in PDF format from PhilanthropyWiki.
The Trustee handbook covers:
- Legislation governing Trustees
- Duties of Trustees in:
- Administration
- Investments
- Grantmaking
- Suggested content for a Trustee Dossier
- Governance failure
- Glossary and references
Workshops are also held for trustees. See the Trustee Workshop page on Philanthropy Australia’s website for more information.