In the continuing rush of reform to the not-for-profit sector,
on 14 July 2011, the Treasurer announced the release of another
exposure draft for amendments in relation to changes to public
ancillary funds. Draft public ancillary fund guidelines were
also released for public consultation. Charities and
not-for-profits controlling or establishing foundations will
need to be aware of the new requirements and are invited to provide
submissions on the draft changes. The amendments and
guidelines follow the initial announcement and consultation in
November 2010 (see our update here).
Including the announcements made in the recent Federal budget,
this brings the total number of announcements, rulings, draft
reform papers and exposure drafts affecting the not for profit
sector since December 2010 to about 10.
The key requirements to be imposed upon public ancillary
funds in the drafts include:
the trustee must be a corporate trustee
minimum annual distribution of 4% of net assets
no distribution required during the first four years of
The guidelines are similar in content and scope to the
private ancillary fund guidelines, but take into account the higher
costs faced by public ancillary funds.
Trustees and directors of corporate trustees will need to be
aware of the administrative penalties for breaching the guidelines
that will be widened to include public ancillary funds. The
administrative penalties previously only applied to private
How do these changes affect charities and not-for-profit
Some charities establish public ancillary funds to act as their
The changes have the potential to facilitate long term,
sustainable giving to charities and other NFPs by raising
prudential standards. The changes will have the effect of
requiring charities and NFPs to operate far more strategically
because of the minimum distribution and investment requirements on
public ancillary funds.
Applying a degree of caution, there is also the likelihood that
the 'cost' of managing the public ancillary funds may
negatively affect the net donations made to charities and other
NFPs in the shorter term.
Charities and NFPs may need to consider their activities and
present their strategic objectives to public ancillary
funds in a manner that takes into consideration the investment
strategies of the public ancillary fund. This may in fact
lead to a greater degree of collaboration and cooperation between
Burden versus public confidence
The proposed changes require a greater degree of accountability
from trustees of public ancillary funds both in how the funds are
managed financially and in the governance and operation of the
fund. However, it is hoped that donors and the public will be
able to have greater confidence in the integrity of public
ancillary funds, which will protect public confidence in the
not-for-profit sector as a whole.
The closing date for submissions on the exposure draft of
the legislation amendments is 1 August 2011
and for the draft guidelines is 31 August
Gadens Lawyers can advise you on how the
proposed changes impact your charity or foundation, and on the
establishment, restructure or governance of your public ancillary
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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