The Australian Government has announced reforms aimed at addressing its broader objective of doubling philanthropic giving in Australia by 2030.
The reforms focus on two key areas:
These reforms come as a response to recommendations made in the Future Foundations for Giving inquiry conducted by the Productivity Commission, as well as proposals contained in the sector-led Not-for-profit Sector Development Blueprint.
To better reflect the role of public and private ancillary funds in facilitating charitable giving, the reforms propose to rename public ancillary funds and private ancillary funds to ‘public giving funds’ and ‘private giving funds’ respectively.
Under the proposed reforms, the Government will set a minimum annual distribution rate of 6% of net assets for both public and private ‘giving funds’ (the current rate is 4% for public ancillary funds and 5% for private ancillary funds).
Giving funds must distribute a minimum share of their assets each year to qualify for tax concessions. Raising the distribution rate aims to direct more philanthropic capital to operating charities in the short term while still allowing funds to maintain capital and earn investment returns.
Treasury analysis indicates that a fund earning market returns and distributing 6% of net assets annually could operate for decades even without new contributions. In practice, many funds already exceed this level, with about two-thirds of public funds and half of private funds distributing more than 6% in recent years. The average distribution rate for private ancillary funds in the period from 2000 to 2021 was 8% and for public ancillary funds in the period from 2011 to 2021 was 15.3%.
The reforms will also allow giving funds to smooth distributions over a three-year period. This change is intended to provide greater flexibility for funds supporting larger or multi-year charitable initiatives. This will enable giving funds to make large distributions in a single year and then distribute less than the minimum distribution rate in the subsequent two years. This may be particularly beneficial where funds are supporting major projects or responding to short term needs.
The new minimum distribution rate will apply from the first financial year following amendments to the giving fund guidelines. Existing giving funds will also benefit from a two-year transition period before the new distribution rate must be met.
This initiative is similar in concept to changes made to the ancillary fund guidelines in 2020 that permitted ancillary funds that exceeded the minimum distribution rate in the 2019-2020 and 2020-2021 financial years to distribute lower amounts in subsequent years. Those changes were intended to promote philanthropic giving during the COVID-19 economic downturn.
The Government has recently endorsed 34 new community charities as deductible gift recipients.
Community charities are locally focused charitable trusts or incorporated bodies that support community initiatives by distributing funds, property or benefits to organisations endorsed as DGRs. For instance, they may support a wide range of initiatives, including:
Importantly, previously DGR endorsement was only available for discrete categories (e.g. only environment, or only cultural activities), requiring organisations pursuing broad purposes to establish and operate more than one DGR endorsed entity. Community charities are more flexible, as they can incur expenditure in support of all DGR purposes and are not confined to one category, allowing them to direct tax-deductible donations to a wide range of charitable causes.
The measures aim to strengthen the philanthropic ecosystem by encouraging more timely distributions from giving funds while expanding the number of organisations able to access DGR status and attract tax-deductible donations. For charities, foundations and philanthropic donors, the reforms may have implications for fund governance, distribution strategies and eligibility for tax-deductible giving structures.
Our Charity and Not-for-profit team advises charities, philanthropic foundations and donors on the legal and regulatory framework governing tax-deductible giving in Australia.
We can assist with:
If your organisation operates, or is considering establishing, a giving fund or seeking DGR endorsement, our team can help you understand the implications of these reforms and ensure your structure remains compliant.
Please contact us for more detailed and tailored help.
Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.