Amended Guidelines for Ancillary Funds during COVID-19

The Federal Government recently announced amendments to ancillary fund guidelines that will change the way they are administered during the COVID-19 pandemic.

Ancillary funds are trusts that act as an intermediary between donors and Deductible Gift Recipients ( DGRs ).   Donations and transfers to these ancillary funds are tax deductible, subject to the funds distributing a minimum amount each year to DGRs, which is normally 4% of the market value of net assets for public ancillary funds ( PuAFs ) and 5% for private ancillary funds ( PAFs ).

The objective of the amendments is to encourage ancillary funds to maintain or increase distributions to help meet the increased demand on the services of many DGRs during the COVID-19 pandemic.

Announced Amendments

The announced amendments will provide a credit for ancillary funds that make a distribution to DGRs of at least 4% points above the minimum distribution requirements for the financial years ending 30 June 2020 and 30 June 2021.

Ancillary funds will receive a credit of half of the total percentage points that exceed their minimum distribution requirements for both financial years.

Ancillary funds may use this credit to reduce their minimum annual distribution requirements:

• by up to 1% for the financial year ending 30 June 2022; and
• by up to 1% for each subsequent financial year until the credit is exhausted.

How does the amendment work in an Example?

A private ancillary fund ( the Fund ) makes an annual distributions of:

• 9% for the financial year ending 30 June 2020; and
• 7% for the financial year ending 30 June 2021.

This is 4% (in 2020) and 2% (in 2021) above the 5% minimum distribution requirements.   This is a total of 6% above the minimum requirements over the two financial years.

Therefore, the fund will be entitled to a 3% credit, which is half of the total 6% above the minimum distribution requirements.

The Fund is now able to reduce their minimum annual distributions requirements (normally 5% per year) for future financial years as follows:

• reduce by 1% (down to 4%) for the financial year ending 30 June 2022;
• reduce by 1% (down to 4%) for the financial year ending 30 June 2023; and
• reduce by 1% (down to 4%) for the financial year ending 30 June 2024.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.