Changes To Private Ancillary Fund And Public Ancillary Fund Guidelines
The Australian Government has recently made amendments to both the Private Ancillary Fund Guidelines 2009 and Public Ancillary Fund Guidelines 2011. These amendments took effect from 5 May 2016 and set minimum standards for the governance and conduct of ancillary funds and their trustees.
Private and Public Ancillary Funds are Deductible Gift Recipient (DGR) funds designed to facilitate public and private philanthropy. They are entitled to receive donations that are tax deductible, invest these donations and earnings on them for the purpose of distributing to other Deductible Gift Recipients. They cannot engage in any other activities.
The key changes to the existing Guidelines are outlined below.
With the agreement of the Commissioner, a private ancillary fund now has the ability to transfer all of its net assets to another fund if it has complied with its minimum annual distribution requirements and has not received from the other ancillary fund during the 2 previous financial years.
LOAN GUARANTEES OVER BORROWINGS OF DEDUCTIBLE GIFT RECIPIENTS
The amendments allow ancillary funds to provide loan guarantees over borrowings of Deductible Gift Recipients (“DGR”) if it was for the sole benefit of one or more DGRs.
This not only fits within the purpose of ancillary funds but also extends investment options for ancillary funds so that they can utilise the assets for the benefit of DGR’s without having to divest or transfer their assets.
ACCESSING A LOWER MINIMUM DISTRIBUTION RATE
The Commissioner of Taxation has been given the power to lower the annual minimum distribution rate of a fund in appropriate circumstances upon application by the ancillary fund. This helps ensure ancillary funds have a relatively stable flow of philanthropic funds into the community but at the same time allows for some flexibility when exceptional circumstances occur.
Some of the factors that the Commissioner will take into consideration when assessing an application to lower the distribution rate include: the general market conditions, the past, current and expected levels of returns from the fund’s investments, the investment strategy, and the level of distributions made by the fund in previous financial years.
The above amendments will help to reduce compliance costs and governance obligations related to the ongoing operation of ancillary funds. Existing DGR entities may need to review their processes and operations in light of the changes.
Should you have any questions regarding how the above considerations may be applicable to you, please contact your relevant ESV engagement partner on 9283 1666.