A Private Ancillary Fund is the main structure for family and individual philanthropy in Australia. Donors make tax-deductible contributions, the fund invests them free of tax, and it distributes to registered charities over time. The government announced an increase to the minimum annual distribution rate in February 2026; the rate remains 5% until the guidelines are amended.
A private ancillary fund is a trust established for private philanthropy. Individuals, families and businesses contribute assets to it and make grants to eligible organisations over time. A PAF does not raise money from the general public, which is what separates it from a public ancillary fund.
PAFs operate under specific tax and governance requirements covering the trustee, investment management, distributions, and record-keeping. This guide covers how they work, the tax treatment, the ongoing obligations, and who they suit.
What is the Legal Foundation of a Private Ancillary Fund?
A PAF is established as a valid trust under a will or other trust instrument and must operate on a not-for-profit basis. Its governing document must set out the fund’s charitable purpose and require its assets to be transferred to eligible recipients if the fund winds up. The essential requirements:
| Requirement | Legal Foundation |
| Structure | Must be established and maintained under a will or instrument of trust as a valid trust |
| Purpose | Must operate solely to provide money, property or benefits to eligible DGRs, or to establish eligible DGRs |
| Not-for-profit status | Must be established and operated as a not-for-profit entity |
| Trustee | Each trustee must generally be a constitutional corporation and must agree to comply with the PAF Guidelines |
| Tax status | Must meet the requirements for deductible gift recipient (DGR) endorsement |
| Governance | Must comply with the Taxation Administration (Private Ancillary Fund) Guidelines 2019, including the investment, distribution and record-keeping requirements |
| Winding up | The governing rules must provide for the fund’s net assets to be transferred to an eligible recipient if the fund winds up or ceases to qualify as a PAF |
The ATO administers the PAF requirements. To receive DGR endorsement, the fund must operate solely to provide money, property or benefits to eligible DGRs. A PAF may also carry obligations under the Australian Charities and Not-for-profits Commission framework where it is registered as a charity, though ACNC registration is not a defining requirement for every PAF.
The Announced Change to Minimum Distributions
On 26 February 2026, the government announced an increase to the minimum annual distribution rate for ancillary funds. For PAFs, the rate rises from 5% to 6% of net assets. For public ancillary funds, it rises from 4% to 6%, a larger increase.
As at September 2026, the change has not commenced. It takes effect from the first financial year following amendments to the giving fund guidelines, and those amendments have not been made. Existing funds then receive a two-year transition period. The current minimum for a PAF remains 5% of net assets, or $11,000, whichever is greater.
Two further changes accompany the announcement. Funds will be able to smooth distributions across three years, with notice to the Commissioner in or before the first year. Ancillary funds are also being renamed as giving funds, so a PAF becomes a private giving fund. The Productivity Commission recommended a rate between 5% and 8% in its 2024 report, Future Foundations for Giving, and the changes sit within the government’s stated goal of doubling philanthropic giving by 2030.
PAFs already distribute well above the minimum. ATO taxation statistics for 2022-23 show 2,196 PAFs holding $10.66 billion in net assets and distributing $799 million, an average of 8.06% of net assets.
How Does a Private Ancillary Fund Work?
Step 1: Establish the Fund
Establishing a PAF involves defining the philanthropic goals, executing a trust deed, registering with the ACNC, applying for tax concessions, and setting an investment strategy. The trust deed is the governing document and must comply with the ATO guidelines. Legal and accounting advice at establishment is standard practice.
Step 2: Make Contributions
Donors receive a tax deduction for contributions in the year the gift is made, and can elect to spread the deduction over that year and up to four following income years under section 30-248 of the ITAA 1997. Contributions can be cash or transferred assets such as shares or property, with the deduction equal to market value. Donating appreciated shares directly avoids the CGT event while still producing the full deduction.
Step 3: Invest the Capital
The fund’s investments are exempt from income tax and capital gains tax. Franking credits on Australian dividends are refundable to the fund. Over a long holding period, tax-free compounding allows a PAF to distribute considerably more than the original contribution.
PAFs typically hold diversified portfolios of Australian and international listed equities, fixed income and cash. Unlisted assets can be held in certain circumstances under the PAF guidelines. Many founders apply ESG or responsible investment screens.
Step 4: Distribute to Charities
Distributions must go to charities with DGR item 1 status, which the ATO endorses as eligible grant recipients. That covers most well-known Australian charities. The trustee selects the recipients and the amounts, subject to the minimum annual distribution.
Benefits of a Private Ancillary Fund
Immediate Tax Deduction
Donors deduct contributions in the financial year the gift is made. The top marginal rate for 2026-27 is 47%, including the Medicare levy, applying above $190,000 of taxable income. A $1 million contribution therefore produces up to $470,000 in tax savings, though only where the donor’s income sits above that threshold across the years the deduction is claimed. A gift deduction cannot create or increase a tax loss.
Tax-Free Investment Growth
Dividends, interest and capital gains inside the PAF are exempt from tax, and franking credits are refundable. Compounding at the gross rate raises the fund’s distribution capacity over time.
Donor Control and Privacy
The identity of the donor is not publicly disclosed, and the trustee retains control over which charities receive distributions and when.
Legacy and Intergenerational Giving
A PAF runs indefinitely. Successive family members can serve as trustees, which carries the fund’s philanthropic purpose across generations.
Structured and Strategic Philanthropy
A PAF lets a family align giving with specific causes, build relationships with recipient charities, and track outcomes over time, in place of one-off gifts.
Rivkin Private Wealth designs investment strategies within PAFs for high-net-worth clients. Contact our team for details.
Who Is a PAF Suitable For?
A PAF suits donors with substantial assets and a long-term philanthropic commitment. Australian Philanthropic Services recommends an initial donation of $1.5 million or more. Below that level, governance and compliance costs consume a larger share of the fund’s capital, and a public ancillary fund, which pools contributions and handles administration centrally, is the more common alternative.
A PAF applies most directly to:
- Individuals or families with large unrealised capital gains on shares or property who want to give without triggering a CGT event.
- Business owners or executives with a large income or capital event who want to claim the deduction in that year and distribute over several.
- Families building a giving program that reflects shared values and continues across generations.
- Donors with established giving who want to formalise it and invest the capital rather than making direct one-off donations
PAF vs Direct Donations: What Is the Difference?
Direct donations to charities also attract a tax deduction. The full amount goes to the charity immediately, with no investment period, no retained control over timing, and no continuing structure. A PAF operates as a family philanthropic foundation with an investment portfolio behind it.
For donors giving more than $10,000 to $20,000 a year on a sustained basis, the investment growth and governance advantages typically cover the administrative costs within a few years.
Frequently Asked Questions
What is the minimum distribution a PAF must make each year?
5% of net assets, or $11,000, whichever is greater, calculated on the fund’s 30 June balance from the prior financial year. The government announced an increase to 6% in February 2026. It commences from the first financial year after the guidelines are amended, which had not occurred as at September 2026, and existing funds then have a two-year transition.
Can a PAF invest in commercial property or shares?
PAFs typically hold diversified portfolios of listed equities, fixed income and cash. Investment decisions must be made on a prudent, arm’s length basis and cannot be speculative in a way that jeopardises the fund’s charitable purpose. Unlisted assets can be held in certain circumstances under the PAF guidelines.
Can a PAF distribute to overseas charities?
Not directly. Distributions must go to organisations with DGR item 1 status registered in Australia. A PAF can fund overseas work by distributing to an Australian item 1 DGR that operates internationally, including funds approved under the Overseas Aid Gift Deduction Scheme.
Are PAF distributions private?
The identity of the donor is not publicly disclosed, and the distributions themselves are not published. PAFs are registered with the ACNC, and some basic fund information is publicly available.
What governance obligations does a PAF trustee carry?
Trustees must manage the fund in line with its trust deed and the ATO’s PAF guidelines. That covers meeting the annual minimum distribution, investing prudently, maintaining records, lodging annual returns, and distributing only to eligible DGR item 1 charities.
Conclusion
A PAF combines an upfront deduction, tax-free investment growth, and a permanent giving structure. It suits donors who treat philanthropy as a long-term allocation rather than an annual expense.
The distribution rate is the setting to watch. The announced increase to 6% will raise the annual payout obligation once the guidelines are amended, and funds distributing close to the current minimum should model the effect before it applies.
Rivkin Private Wealth provides wealth management services for high-net-worth clients, including advice on integrating philanthropic structures into a broader plan. Contact our team for details.
