Australia is a generous country, known for its willingness to help those in need. However, our generosity is often limited to non-monetary contributions.
In times of need, Australians are quick to donate their time, household items, and other resources. However, when it comes to donating money, we tend to fall behind other countries.
According to Philanthropy Australia, our total financial giving as a percentage of Gross Domestic Product is just 0.81%, compared with 0.96% for the UK, 1% for Canada, 1.84% for New Zealand and 2.1% for the US.
Currently, the number of Australians making tax-deductible contributions is at its lowest levels since the 1970s. Despite this, the Australian Tax Office reports that deductible donations claimed by individuals rose from $0.74 billion in 1999-2000 to $3.85 billion in 2019-20.
Considering an estimated $2.6 trillion will pass between generations over the next 20 years, the opportunities for increasing our financial giving abound. Philanthropy Australia wants to double structured giving from $2.5 billion in 2020 to $5 billion by 2030.
The many ways to give
There are many ways of giving – such as small one-off donations, regular small amounts like sponsoring a child, donating to a crowdfunding platform or joining a giving circle.
For those with much larger sums to distribute, a structured giving plan can be one approach.
Structured giving
You can choose a number of different ways to establish a structured giving plan including through a public or private ancillary fund (PAF), a private testamentary charitable trust or giving circles.
Whichever way you choose, there are attractive tax incentives to encourage the practice.
The type of vehicle will depend on:
- The timeframe of your giving;
- The level of engagement you want;
- Whether you want to raise donations from the public;
- Whether you want to give in your lifetime or as a bequest; and
- Whether you want to involve your family to create a family legacy.
Private ancillary fund (PAF)
A PAF fund is a standalone charitable trust for businesses, families and individuals. To establish a PAF fund, a corporate trustee and a specific investment strategy are required. Once you make a donation, it cannot be returned, and the contributions are final. For your donations to be tax-deductible, the cause you are supporting must be a body identified as a Deductible Gift Recipient by the Australian Tax Office.
The benefits of a PAF are that contributions are fully deductible, and the deductions can be spread over 5 years. The assets of the fund are exempt from income tax.
The minimum initial contribution to a PAF is at least $20,000. The costs of setting up a PAF are minimal and ongoing costs are usually about 1%-2% of the value of the fund.
Each year you must distribute 5% of the net value of the fund to the designated charity.
Testamentary charitable trust
An alternative to a PAF is a testamentary charitable trust, which usually comes into being after the death of the founder. The governing document is either a trust deed or the Will.
With a testamentary charitable trust, trustees control all the governance, compliance, investment and giving strategies of the trust. The assets of the trust are income tax exempt. The minimum initial contribution for such a fund is usually $500,000 to $2 million.
Philanthropy through structured giving still has a long way to go in Australia. The latest figures for total giving in Australia is $13.1 billion, of which $2.4 billion is structured giving. Currently the number of structured giving entities stands at just over 5400.
As the baby boomers pass on their wealth to their families, there is a wide opening for some of this money to find their way into charities and causes through structured giving.
To learn more about structured giving and what is the right option for you to help the Australian community, speak with your local Nexia Adviser today.
