Private Ancillary Funds (PAFs) are one of the most effective ways for Australians to give to charity in a structured and long-term way. They are designed for individuals, families, and businesses who want to create lasting impact while also benefiting from tax advantages. But what exactly is a PAF, and how does it work?
Definition of a PAF
A PAF is a type of charitable trust established under Australian law. Its main purpose is to encourage structured philanthropy by allowing donors to make tax-deductible contributions, invest those assets, and provide ongoing financial support to registered charities.
PAFs are regulated by the Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC), ensuring they operate transparently and in line with the Private Ancillary Fund Guidelines 2019.
How a PAF Works
At its core, a private ancillary fund combines contributions, investments, and annual distributions to deliver long-term charitable benefits.
Contributions
A PAF is typically funded by its founder but can also receive contributions from family members, businesses, or external donors. All eligible contributions are generally tax deductible, offering donors immediate benefits while building a pool of funds for future giving.
Investment of Assets
The assets held by a PAF are invested according to an agreed strategy. The goal is to grow the fund sustainably, so it can continue to support charitable causes year after year. Trustees must balance investment returns with risk management to meet the fund’s obligations.
Annual Distributions
Each year, a PAF must distribute at least 5% of its net assets to organisations that are registered as deductible gift recipients (DGRs). This ensures that money is actively directed toward charitable work rather than sitting unused.
Who Can Set Up a PAF?
Individuals, families, and corporate entities can all establish a PAF. Every PAF must have at least one “responsible person”—someone with recognised standing in the community, such as an accountant, lawyer, or senior professional—who helps oversee governance and compliance.
While there is no legislated minimum starting amount, most specialists recommend beginning with at least $500,000 to ensure the fund is financially viable.
Benefits of Establishing a PAF
- Tax Effectiveness – Contributions are tax deductible, and earnings inside the fund are generally taxed at concessional rates.
- Structured Giving – Donations are planned and distributed strategically each year.
- Family Involvement – PAFs provide an opportunity to involve multiple generations in philanthropic decision-making.
- Long-Term Legacy – A well-managed PAF can operate indefinitely, creating impact well beyond the founder’s lifetime.
Compliance & Reporting Obligations
PAFs must meet strict compliance requirements under the Private Ancillary Fund Guidelines 2019. This includes:
- Submitting annual information statements to the ACNC
- Keeping accurate financial records
- Meeting the minimum 5% distribution rule
- Ensuring trustee decisions are transparent and documented
Is a PAF Right for You?
A PAF is ideal for those looking to make significant, long-term contributions to charity in a structured way. However, they may not be suitable for everyone. If you’re seeking a simpler or lower-cost option, alternatives such as public ancillary funds or direct giving may be more appropriate.
Final Word
A Private Ancillary Fund is a flexible and tax-effective way to give back to the community. By combining contributions, investment growth, and annual charitable distributions, PAFs allow donors to support causes they care about while building a lasting philanthropic legacy. With professional advice, a PAF can become one of the most rewarding ways to make a difference.