Private Ancillary Funds (PAFs) are Australia's primary tax-advantaged vehicle for structured private philanthropy. For high-net-worth individuals and families seeking a dedicated, tax-effective way to support charitable causes, PAFs offer the benefits of a private foundation — control, flexibility, legacy — with a regulatory framework that provides accountability.
A Private Ancillary Fund is a type of charitable trust endorsed by the Australian Taxation Office (ATO) as a Deductible Gift Recipient (DGR). PAFs allow donors to:
- Make tax-deductible contributions to the fund
- Invest the contributed capital to grow the philanthropic pool
- Distribute grants to other DGR-endorsed charities
- Build a lasting philanthropic legacy — including across generations
PAFs are private because they accept contributions primarily from their founders and their associates (family members, related entities). This distinguishes them from Public Ancillary Funds, which can accept donations from the general public.
Tax effectiveness
Contributions to a PAF are tax-deductible to the donor in the year contributed. This makes PAFs particularly useful for:
- Years of unusually high income (asset sale, business exit, large bonus)
- Spreading deductions across multiple years by contributing in a high-income year and distributing over many years
- Structuring family giving alongside estate planning
Control and flexibility
Unlike donating directly to charities, a PAF allows the donor (or a family committee) to:
- Decide which charities to support and when
- Build up funds in years when no suitable grants have been identified
- Invest funds professionally while the philanthropic strategy develops
- Involve family members in grantmaking decisions
Legacy and continuity
PAFs can be structured to last beyond the founder's lifetime — becoming a family foundation passed across generations. This is a significant advantage over direct charitable giving, which stops when the donor stops.
The ATO sets mandatory requirements for PAFs:
Distribution requirements
PAFs must distribute a minimum of 5% of the market value of net assets each year to eligible organisations. The minimum is calculated on the previous year's average net assets. This ensures funds are actively deployed for charitable purposes rather than accumulated indefinitely.
Eligible beneficiaries
PAFs can only make grants to organisations that are:
- DGR Item 1 entities (charities endorsed as Deductible Gift Recipients)
- Government bodies undertaking eligible purposes
- PAFs cannot grant to other PAFs (but can grant to Public Ancillary Funds)
Governance
A PAF must have at least one "responsible person" — an independent trustee or director who meets ATO criteria. This requirement ensures accountability and prevents PAFs from being used purely for tax avoidance.
Annual reporting
PAFs must lodge an annual return with the ATO disclosing:
- Total assets and net assets
- Contributions received
- Grants made (aggregated)
- Investment returns
ACNC registration
All PAFs must be registered with the Australian Charities and Not-for-profits Commission (ACNC) and comply with ACNC governance standards.
Establishing the trust
A PAF is established as a charitable trust — requiring a trust deed setting out the fund's purposes, governance, and rules. Legal assistance is typically required.
ATO endorsement
The PAF must apply to the ATO for DGR endorsement and income tax exemption. The ATO assesses whether the fund meets all regulatory requirements.
ACNC registration
Concurrent registration with ACNC is required. ACNC registration gives the fund public accountability — annual reports are publicly searchable through the ACNC charity register.
Initial contribution
There is no minimum contribution required to establish a PAF, but establishing and running a PAF involves ongoing costs (accounting, legal, investment management). Many advisors suggest a minimum initial contribution of $500,000–$1,000,000 to make the structure cost-effective.
Ongoing governance
The fund needs trustees or directors, investment governance, grant administration, and annual reporting. Some PAF operators use philanthropy advisors or family office services to manage these functions.
While distributions must meet the 5% minimum, PAFs can invest their assets to grow the philanthropic pool. Common approaches:
- Diversified investment portfolios (equities, fixed income, alternatives)
- Mission-aligned or responsible investment strategies
- Below-market-rate loans or Program Related Investments (PRIs) to social enterprises
- Cash held for near-term grant deployment
Investment returns in excess of distributions grow the fund's capacity for future grantmaking. A well-invested PAF can compound philanthropy over decades.
Family philanthropy and governance
Many PAFs are established as family foundations — with family members involved in grantmaking decisions. Clear governance (who decides, how, with what criteria) is important to avoid family conflict and ensure purposeful giving.
Philanthropic strategy development
PAFs work best when there is a clear philanthropic strategy — areas of focus, theory of change, what the fund is trying to achieve. Without strategy, grantmaking can become reactive and diffuse.
Relationship with grantees
PAFs can take a direct relationship approach to grantmaking — building deep relationships with a small number of organisations — or a portfolio approach across many grants. Many established PAFs combine both.
Multi-year funding
Unlike donors making one-off gifts, PAFs can make multi-year commitments to grantees — providing the sustained funding that allows organisations to plan and build capability.
| Feature | PAF | Public Ancillary Fund | Direct giving |
|---|---|---|---|
| Can accept public donations | No | Yes | N/A |
| Tax deductibility for donor | Yes | Yes | Yes (to DGR) |
| Minimum distribution | 5% pa | 4% pa | N/A |
| Control over grantmaking | High | Moderate | N/A |
| Legacy structure | Yes | Yes | No |
| Governance complexity | Moderate | Higher | None |
As of 2024, there are approximately 1,600–1,800 active PAFs in Australia, holding billions in assets. PAF philanthropy is a significant and growing part of Australia's philanthropic landscape — with many high-net-worth families using PAFs as the cornerstone of their family giving strategy.
Tahua's grants management platform supports Private Ancillary Funds managing their grantmaking portfolios — with grant application management, grantee tracking, distribution reporting, and the governance tools that help family foundations and PAFs deploy their philanthropic capital with purpose and impact.