On 2 March 2012, we reported that new laws had been introduced regarding the way public ancillary funds are structured, operated and wound up.
What is a Public Ancillary Fund?
A Public Ancillary Fund is a type of fund that is entitled to deductible gift recipient (DGR) status and provides a link between charitable organisations that are endorsed as DGRs and donors. A Public Ancillary Fund is different from a Private Ancillary Fund in that it must invite the public to contribute to the fund.
You can check whether an organisation operates a Public Ancillary Fund by searching the ABN lookup at www.abr.business.gov.au. Under the heading Deductible Gift Recipient Status for the entity’s ABN see the note “it is a public ancillary fund covered by Item 2 of the table in section 30-15 of the Income Tax Assessment Act 1997″.
The Public Ancillary Fund Guidelines
The Public Ancillary Fund Guidelines set out a number of requirements for the fund and its trustee to comply with. Compliance with the Guidelines is essential to remain endorsed as a DGR. The Guidelines include:
- rules for establishing and maintaining Public Ancillary Funds as DGRs;
- rules for minimum distribution;
- the requirement to have an investment plan for the funds held;
- a requirement regarding the keeping and auditing of accounts;
- providing certain documents to the ATO including an annual Public Ancillary Fund return; and
- transitional rules for Public Ancillary Funds that were endorsed on or before 31 December 2011.
The Transitional Rules
Transitional arrangements apply to Public Ancillary Funds that were endorsed as DGRs on or before 31 December 2011. The transitional rules will ensure that these funds:
- will be taken to be endorsed as Public Ancillary Funds from 1 January 2012;
- are taken to have agreed to comply with the Guidelines from that date;
- do not need to replace non-corporate trustees with corporate trustees; and
- are not subject to the ATO’s power to suspend or remove trustees if they continue to have non-corporate trustees.
Where a fund’s governing rules are not compliant with the Guidelines, the fund is exempt from those requirements until 1 July 2015.
The Guidelines will be enforced through a system of administrative penalties. These will allow the Commissioner to suspend or remove a corporate trustee of a Public Ancillary Fund and also allow the Commissioner to charge financial penalties for failures to comply. In addition to compliance with the Guidelines, all Public Ancillary Funds are also required to comply with obligations to the ACNC including submitting Annual Information Statements.
How to Comply
We recommend that all Public Ancillary Funds review their governing document and distribution process to check whether they are compliant with the Guidelines and ensure that all necessary changes are made prior to the 1 July 2015 transitional deadline. We note that this amendment process may take some time and for this reason we recommend that the trustees prioritise a compliance review to ensure that penalties are not imposed or the fund’s endorsement as a DGR is not revoked.
We would be pleased to provide advice and assistance to ensure that your Public Ancillary Fund is compliant with the Guidelines and eligible for endorsement as a DGR.