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Published 03 July 2012 05:22, Updated 04 July 2012 06:57
Breaking of the nexus between the timing of giving and the timing of the tax deduction is one of the most important advantage of ancillary funds. Illustration: Karl Hilzinger
Australia has just celebrated the creation of its 1000th private ancillary fund, a vehicle legislated 11 years ago to make philanthropic giving as tax-effective and efficient as possible.
Well, “celebrated” may be too strong a word. Hardly anybody knows what private ancillary funds are, which is part of the reason Australia still lacks a philanthropic culture to rival that of the United States, according to one of our most famous funds managers, Chris Cuffe.
“Three times in the past 18 months I’ve written to the government requesting funding to market these things and have been met with a blank response,” says Cuffe, who made his fortune turning Colonial First State into Australia’s largest funds management house and has since devoted much of his time to the not-for-profit sector.
These days, he is chairman of Australian Philanthropic Services, a not-for-profit that administers private ancillary funds, as well as their less hands-on cousin in the charitable funds family, the public ancillary fund.
Cuffe speaks like a man who has given the elevator pitch on both of them to plenty of wealthy individuals or their financial planners. “The key thing with both private and public ancillary funds is that you can time your tax deduction,” he says. “You get a tax deduction at the time you put your money in the trust, all up-front, and the trust itself must give away at least a minimum amount each year – 5 per cent for the private and 4 per cent for the public funds.”
The breaking of the nexus between the timing of giving and the timing of the tax deduction is the most important advantage of the vehicles, Cuffe believes.
“It adds up over time,” he says. “You’ve got over $2.5 billion in private ancillary funds today, that’s effectively a balance sheet earning investment returns and every year giving away almost $200 million.”
Private ancillary funds require a minimum $500,000 to set up and the donor acts as a trustee or appoints one, allowing direct control over the fund’s investment strategy.
An account with a public ancillary fund such as the JBWere Charitable Endowment Fund or the Perpetual Foundation, can be opened with as little as $20,000. A professional manager handles the trustee and investment chores. Donors write to the manager before the end of each financial year specifying the charities they’d like to support with the minimum 4 per cent of their account that must be distributed.
The structure of both private and public ancillary funds encourages “more thoughtful” giving, Cuffe says, because the donor knows in advance the minimum amount they must give away that financial year, allowing them to plan and become more involved in their chosen charities.
Creating a private ancillary fund tends to lead philanthropists to support fewer organisations but with an overall larger amount of money. It’s often as much as five times as they gave previously, the head of philanthropy at Perpetual, which administers about 65 of the vehicles, Andrew Thomas, says.
From his own experience, Cuffe says perhaps the best thing about “structured giving” through a private or public ancillary fund is the chance to include your children in decision-making.
“Getting the kids involved helps make them more society-aware,” he says. And if the government won’t help, Cuffe is on a mission to get the word out about these tax-advantaged vehicles.
He has convinced perhaps Australia’s best-known professional director, David Gonski, to join the board of Australian Philanthropic Services within the next few months. “It’s symbolic because back in 2001, David was the member of the business community most responsible for convincing the government to create [public and private ancillary funds],” Cuffe says. “It’s a measure of how passionate he is about encouraging philanthropy that I was able to get him on our board when he’s reportedly left a lot of other boards, owing to his Future Fund chairmanship commitments.”