Build a Lasting
Charitable Legacy
with Tax Benefits
A Private Ancillary Fund (PAF) allows you to contribute to a charitable foundation, receive an immediate tax deduction equal to your contribution, and distribute funds to the causes you care about — for generations to come.
The Key Tax Benefit
$1,000,000 Contribution
= $1,000,000 Tax Deduction
Understanding PAFs
What is a Private Ancillary Fund?
A Private Ancillary Fund (PAF) is a type of charitable trust established under Australian law that allows individuals, families, and businesses to create their own private charitable foundation. It is regulated by the Australian Taxation Office (ATO) and the Australian Charities and Not-for-profits Commission (ACNC).
Unlike making a direct donation to a charity, a PAF allows you to contribute funds at a time that suits you — receiving the tax deduction immediately — and then distribute those funds to eligible charities over time, at your own pace and according to your philanthropic priorities.
Think of it as your own family charitable foundation: governed by your family, reflecting your values, and creating a legacy that can continue for generations.
Irrevocable Commitment
Assets are committed permanently to charitable purposes
Permanent Legacy
Establish a structured charitable fund that continues beyond your lifetime, embedding philanthropic values across generations.
Family Governance
Involve your children and future generations in charitable decision-making, building a culture of giving within the family.
Sustainable Impact
Preserve investment capital while distributing annually to charities, ensuring long-term and consistent community support.
The Core Advantage
Significant Tax Benefits
The primary attraction of a PAF is the ability to obtain an immediate and full tax deduction for contributions made to the fund, under Division 30 of the Income Tax Assessment Act 1997 (Cth).
The Key Principle
This means the full contribution amount is deducted from your assessable income in the year it is made. At the top marginal rate of 47%, a $1M contribution could reduce your tax liability by approximately $470,000.
Immediate Deduction
Receive a full tax deduction in the year of contribution — no waiting, no spreading required (though spreading over 5 years is available).
Spread Over 5 Years
Elect to spread the deduction over up to five income years under Subdivision 30-DB of the ITAA 1997, maximising the benefit.
Tax-Free Growth
The PAF itself is exempt from income tax. Investment returns — income and capital gains — grow tax-free within the fund.
Franking Credits
PAFs registered as charities may be entitled to a refund of franking credits on Australian share investments.
Illustrative Tax Saving Example
Based on 2025–26 individual tax rates including Medicare Levy
| Item | Amount |
|---|---|
| Taxable income before contribution | $2,000,000 |
| Contribution to PAF | $1,000,000 |
| Taxable income after deduction | $1,000,000 |
| Estimated tax saving (at 47% top rate) | ~$470,000 |
* This is an illustrative example only. Actual tax outcomes depend on individual circumstances. Seek independent tax advice.
Legal Architecture
How a PAF is Structured
Founder / Donor
The individual, family, or business that contributes capital to the PAF. Contributions are irrevocable — once made, assets are committed permanently to charitable purposes.
Corporate Trustee
A proprietary limited company that manages the PAF. Must include at least one independent 'Responsible Person' on its board to ensure governance integrity.
The Trust Fund
The pool of money and property held by the trustee. Grows tax-free through investment. Must distribute at least 5% of net assets each year to eligible charities.
Eligible Charities (DGR)
Distributions must be made exclusively to DGR Item 1 charities — organisations endorsed by the ATO as Deductible Gift Recipients. Individuals cannot receive distributions.
The "Responsible Person" Requirement
Every PAF must have at least one Responsible Person on the trustee board — an individual who is independent of the founder and major donors. This is a critical governance safeguard required under the PAF Guidelines.
A Responsible Person is typically someone who:
Step by Step
How to Establish a PAF
Incorporate a Corporate Trustee
Establish a proprietary limited company (Pty Ltd) to act as the trustee of the PAF. The board must include at least one Responsible Person who is independent of the founder.
Draft and Execute the Trust Deed
Prepare a trust deed compliant with the PAF Guidelines and the Trustee Act 1958 (Vic). Hayton Kosky Lawyers (03 9557 3355) can advise on and supply compliant trust deeds.
Settle the Trust
The founder provides an initial settled sum (typically $100) to formally establish the trust and bring it into existence.
Apply for an ABN
Register the PAF for an Australian Business Number (ABN) via the Australian Business Register.
Register with the ACNC
Apply to register the PAF as a charity with the Australian Charities and Not-for-profits Commission (ACNC) under the Australian Charities and Not-for-profits Commission Act 2012 (Cth).
Apply to the ATO for DGR Endorsement
Apply to the ATO for endorsement as a Deductible Gift Recipient (DGR) under Subdivision 30-BA of the ITAA 1997, and for income tax exemption under Division 50 of the ITAA 1997.
Prepare an Investment Strategy
The trustee must prepare and maintain a written investment strategy before commencing investment activities, addressing risk, return, diversification, and liquidity.
Eligible Purposes
DGR Categories Available
A PAF is one of many Deductible Gift Recipient (DGR) categories available under Division 30 of the Income Tax Assessment Act 1997 (Cth). The following categories are available for organisations seeking endorsement.
Health Promotion
Preventing or controlling disease in humans
Australian Disaster Relief
Relief for victims of Australian disasters
Charitable Services
Direct services to those in need
Public Benevolent Institution
Direct relief to people in need
Private Ancillary Fund
Structured family philanthropy — this guide
FeaturedScholarship Fund
Education and academic advancement
Health Promotion
Preventing or controlling disease in humans
Australian Disaster Relief
Relief for victims of Australian disasters
Charitable Services
Direct services to those in need
Public Benevolent Institution
Direct relief to people in need
Private Ancillary Fund
Structured family philanthropy — this guide
FeaturedScholarship Fund
Education and academic advancement
Health Promotion
Preventing or controlling disease in humans
Australian Disaster Relief
Relief for victims of Australian disasters
Charitable Services
Direct services to those in need
Public Benevolent Institution
Direct relief to people in need
Private Ancillary Fund
Structured family philanthropy — this guide
FeaturedScholarship Fund
Education and academic advancement
Animal Welfare
Prevention of cruelty to animals
Overseas Aid
Aid and development to developing countries
Environmental Organisation
Protecting the natural environment
Cultural Organisation
Australian culture and heritage
Necessitous Circumstances
Relief for people in poverty
Public Ancillary Fund
Community-based charitable giving vehicle
Animal Welfare
Prevention of cruelty to animals
Overseas Aid
Aid and development to developing countries
Environmental Organisation
Protecting the natural environment
Cultural Organisation
Australian culture and heritage
Necessitous Circumstances
Relief for people in poverty
Public Ancillary Fund
Community-based charitable giving vehicle
Animal Welfare
Prevention of cruelty to animals
Overseas Aid
Aid and development to developing countries
Environmental Organisation
Protecting the natural environment
Cultural Organisation
Australian culture and heritage
Necessitous Circumstances
Relief for people in poverty
Public Ancillary Fund
Community-based charitable giving vehicle
Need a Trust Deed? Hayton Kosky Can Help.
Hayton Kosky Lawyers specialises in advising on and establishing compliant charitable trust structures across all DGR categories, including Private Ancillary Funds. We can assist with the trust deed, corporate trustee structure, and DGR endorsement application.
Hayton Kosky Lawyers
Mandatory Giving
Annual Distribution Requirements
A PAF cannot simply accumulate capital indefinitely. The PAF Guidelines impose a mandatory minimum annual distribution requirement to ensure that the tax benefits provided to donors result in a steady stream of funding to the charitable sector.
Minimum annual distribution of net assets
✦ Calculated on market value of net assets at 30 June of the prior year
✦ Minimum $11,000 if 5% calculates to less than that amount
✦ Distributions must be to eligible DGR Item 1 charities only
✦ Trustee has full discretion on which charities receive distributions
Example: A PAF with $2,000,000 in net assets must distribute at least $100,000 to eligible charities in that financial year.
Growing the Fund
Investment of Trust Assets
The trustee must prepare, maintain, and implement a written investment strategy. The fund's investment returns — including income and capital gains — are entirely tax-free, allowing the capital to grow and generate more funds for charitable distribution.
Listed Securities
Australian and international shares
Managed Funds
Diversified investment funds
Fixed Interest
Government and corporate bonds
Cash
Term deposits, cash management accounts
Property
Direct property (subject to restrictions)
* The trustee must invest in accordance with the prudent person rule under the Trustee Act 1958 (Vic) and the PAF Guidelines.
Regulatory Obligations
Tax Compliance and Reporting
PAFs are heavily regulated and subject to strict compliance obligations to maintain their DGR status and tax concessions.
Annual Information Statement
Lodged with the ACNC each year, reporting on activities, financials, and governance.
Ancillary Fund Return
Lodged with the ATO each year, reporting distributions, assets, and compliance.
Annual Audit or Review
Financial statements must be audited or reviewed annually by a registered company auditor.
Asset Valuation
Market value of all assets must be estimated annually to calculate the minimum distribution.
Record Keeping
Proper accounts must be maintained for all receipts, payments, and financial dealings.
Change Notification
ACNC and ATO must be notified of changes to governing rules within 21 days.
Consequences of Non-Compliance
Failure to comply with PAF obligations can result in serious consequences, including:
Intergenerational Giving
Estate Planning Applications
PAFs are increasingly utilised in sophisticated estate planning in Victoria. They provide a mechanism to centralise testamentary charitable gifts into a single, governed structure and allow the deceased's family to continue managing the philanthropic legacy.
"A PAF is not a family benefit trust and cannot be used to pass assets to family members. All activity must remain consistent with the charitable purposes and the PAF Guidelines."
Important Limitations to Understand
A PAF is best viewed as a long-term regulated charitable structure — not a tax shelter or family investment vehicle.
Expert Legal Advice
Ready to Establish Your Foundation?
Establishing a Private Ancillary Fund requires careful legal and tax advice tailored to your specific circumstances. Hayton Kosky Lawyers has extensive experience in property, commercial, and estate planning law in Victoria.
Office Address
Level 1, 300 Centre Road, Bentleigh, Victoria 3204
Telephone
03 9557 3355Website
haytonkosky.com.auTrust Deed & Establishment: Hayton Kosky
For the supply of compliant charitable trust deeds and corporate trustee structures across all DGR categories.
📞 03 9557 3355Your Practical Pathway
Engage a Specialist Lawyer
Contact Hayton Kosky Lawyers (03 9557 3355) to discuss structure and suitability for your circumstances.
Contact Hayton Kosky
Hayton Kosky Lawyers (03 9557 3355) can advise on and supply a compliant trust deed and corporate trustee structure.
Determine Your DGR Category
Select the charitable purpose that aligns with your philanthropic objectives from the available DGR categories.
Engage a Tax Adviser
Model the tax benefits in the context of your specific income and asset position, including timing of contributions.
Prepare an Investment Strategy
Work with a licensed investment adviser to establish a strategy that meets the PAF Guidelines requirements.