Private Prescribed Funds renamed under new reforms
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Private Ancillary Funds (PAFs) are a type of fund designed to encourage private philanthropy by providing businesses, families or individuals with greater flexibility to start and run their own trust funds for philanthropic purposes.
The Assistant Treasurer has also released for consultation the detailed draft Guidelines on how the new PAF framework will apply and announced a series of bilateral listening meetings with key participants and representatives of the philanthropic sector to discuss the reforms.
“Starting on Monday, I will personally be holding a range of bilateral listening meetings with key participants and representatives of the philanthropic sector to discuss the draft Guidelines,” said Minister Sherry.
The draft Guidelines released today contain the following key reforms:
• replaces the existing complex rules based on accumulation targets with a minimum annual distribution rate for funds, proposed to be set at 5 per cent, being a rate the Government considers to strike the right balance between ensuring resources flow to the charitable sector now, whilst also allowing PAFs to grow for the benefit of the sector in the future;
• a requirement that funds develop and maintain an investment strategy, which requires consideration of investment objectives and risk;
• the introduction of valuation rules that seek to minimise the compliance costs associated with making regular valuations; and
• a requirement, in lieu of setting a minimum fund size, that trusts distribute at least $11,000 per year unless the expenses of the fund are met from outside the fund, to ensure philanthropists have the freedom to establish smaller trusts whilst protecting funds from being eroded by expenses.
The Bill introduced yesterday also moves the full administration of PAFs under the authority of the Commissioner of Taxation, gives the Treasurer the power to make legislative guidelines about the establishment and maintenance of PAFs, and gives the Commissioner of Taxation the power to impose administrative penalties on trustees that fail to comply with the guidelines, and power to remove or suspend trustees of non-complying funds.
For ease of transition into the new regime, applicants seeking to newly establish a prescribed private fund prior to the commencement of the regime on 1 October 2009 should seek to comply with the proposed arrangements, including having only corporate trustees.
View the new draft Guidelines here: http://www.treasury.gov.au/documents/1568/PDF/private_ancillary_fund_guidelines.pdf
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