Australia: Shaking up public ancillary funds: managing philanthropic donations may get harder

By Jon Cheung and Arthur Koumoukelis of Gadens Lawyers, Sydney

On 19 November 2010, the Commonwealth Assistant Treasurer announced proposed changes to the regulatory framework for public ancillary funds, releasing a discussion paper and inviting submissions from interested parties for public consultation.

In May 2010 the Rudd Government foreshadowed changes to the regulatory framework to improve the integrity of public ancillary funds and boost confidence in the philanthropic sector.

Does this affect my organisation?

A public ancillary fund is established to:

• act as an intermediary between donors and organisations that can receive tax deductible donations (deductible gift recipients or DGRs) or;
• to create another deductible gift recipient.

Proposed Amendments

The proposed changes outlined in the discussion paper follow four key principles identified by the Government. The questions raised for public consultation under the four key principles are summarised below.

1. The funds are philanthropic

1. What is an appropriate minimum distribution rate for a public ancillary fund and why?
2. Are there any issues that the Government needs to consider in implementing the requirement to ensure public ancillary funds regularly value their assets at market rates?
3. Are the valuation rules that apply to private ancillary funds also appropriate for public ancillary funds? If not, why not?
4. Are there any issues with requiring public ancillary funds to lodge a return?
5. Are there any issues with imposing greater public disclosure requirements on public ancillary funds? What information should remain confidential and what information should be disclosed and why?

2. The funds are trusts that abide by all relevant laws and obligations, and are open, transparent and accountable

1. Is the administrative penalty regime (including magnitude of penalties) that applies to private ancillary funds suitable for public ancillary funds?
2. Are there any difficulties in requiring public ancillary funds to have a corporate trustee?
3. Are the rules for suspension or removal of trustees of private ancillary funds suitable for public ancillary funds?
4. What 'fit and proper' person requirements should be imposed on trustees of public ancillary funds?
5. What transitional arrangements are required for existing public ancillary funds to conform to the new arrangements?

3. The funds are public

(a) Should the term 'public fund' be codified in the guidelines in accordance with the principles set out in ATO Taxation Ruling TR 95/27 (Income tax: public funds)

4. The funds are ancillary funds

(a) Can the investment and risk minimisation rules that apply to private ancillary funds be suitably applied to public ancillary funds?

The discussion paper can be accessed here.

Impact

The proposed changes will have a particular impact on charitable and other not-for-profit organisations with an existing public fund, or that are seeking to establish a public fund.

The proposed changes are likely to provide donors and the public with greater confidence in the integrity of public funds. There is also likely to be a greater burden on not-for-profit and charitable organisations to understand and operate a public fund under the proposed regulatory framework.

The closing date for submissions is 17 December 2010. Gadens Lawyers can advise you on how the proposed changes may impact your organisation and assist you to prepare a submission to the Government.

We can also advise you on the establishment, restructure or governance of your public ancillary fund.