Grant making foundations are legal structures set up to hold funds and distribute those funds in line with the rules of the foundation. They may be charitable trusts, public funds or other legal entities. There are complex laws that apply to foundations and charitable trusts in Australia.

A trust is a legal structure where a trustee (who can be an individual or a company) holds money and property for the benefit of someone else (called a beneficiary). A charitable trust is a trust that promotes charitable purposes. It can directly provide services or distribute funds. To be endorsed as a charity for income tax concessions it must:

• be not-for-profit
• have purposes that are charitable, and
• be for the benefit of the public.

NOTE: What is a DGR?

Most foundations and charitable trusts are set up so that donations made by individuals can be tax deductible. To ensure this occurs, the foundation or charitable trust must be endorsed by the Australian Taxation Office as a Deductible Gift Recipient (DGR), which is an entity that is entitled to receive income tax deductible gifts.

A Public Ancillary Fund (PuAF) is a charitable trust that invests money and property from the public to distribute earnings to charities that are endorsed as DGRs. A PuAF only distributes funds. It does not directly provide services.

There are specific rules that apply to setting up and running a PuAF if it is to be endorsed as a DGR. These rules are set out in the Public Ancillary Fund Guidelines 2011. These include, among other requirements, that the PuAF:

• be a trust
• establish a public fund
• invite the public to contribute to the public
• set out the rules of the trust in a Deed of Trust
• only distribute funds to other DGRs
• have governing rules that require any remaining money or property on closure to go to a DGR
• distribute at least 4% of the market value of the fund’s net assets or $8,800 (whichever is greater) in each financial year, and
• ensure the majority of individuals involved in decision making are ‘individuals with a degree of responsibility’ to the Australian community.

A Private Ancillary Fund (PAF) is a private charitable trust for individuals or family groups that invest money and property then distribute earnings to charities that are endorsed as DGRs. A PAF does not operate a charity.

It only distributes funds. It does not directly provide services.

There are specific rules that apply to setting up and running a PAF if it is to be endorsed as a DGR. These rules are set out in the Private Ancillary Fund Guidelines 2009. These include, among other requirements, that the PAF:

• be a trust
• have a corporate trustee
• is a private fund (meaning it does not invite the public to contribute to the fund but it is accountable to the public)
• only distribute funds to other DGRs
• has governing rules that require any remaining money or property on closure to be provided to another DGR
• distribute at least 5% of the market value of the fund’s net assets or $11,000 (whichever is the greater) in each financial year, and
• ensure at least one of the Directors is an ‘individual with a degree of responsibility’ to the Australian community who cannot be the founder or a large donor (ie a donor of >$10,000), or an associate of either the founder or such a donor.

A necessitous circumstances fund is established to provide relief for one or more people in Australia who are in ‘necessitous’ circumstances. It is often established after a catastrophic event (ie bushfire) or for a single person who requires assistance for a fixed period (ie the family of a cancer sufferer who can no longer work).

A necessitous circumstances fund can be endorsed as a DGR as long as it has:

• A ‘public fund’ where members of the public are invited to contribute to the fund that is set up by a registered charity, and Australian Government Agency or what is called a non-Australian Charities and Not-for-profits commission (ACNC) entity.
• Governing rules that set out that the necessitous circumstances fund is for people in Australia who are in ‘necessitous circumstances’. This refers to financial necessity and includes people in Australian Charities and Not-for-Profits Commission (ACNC) entity.
• Governing rules that set out that the necessitous circumstances fund is exclusively or chiefly for the ‘relief’ of people in necessitous circumstances. This is normally by direct distribution of money and goods. It can also distribute to other funds and organisations that provide relief to people in necessitous circumstances.

Examples

• A fund set up by community members, to which the public are invited to donate to raise money for victims of a bushfire in Australia. The money will be distributed to victims to buy food, clothing and make accommodation arrangements at a local motel.
• A fund to raise money for a resident who is permanently incapacitated while playing soccer. The resident does not have any income protection insurance, or any other financial support, so the money raised will help to pay for medical bills.

If a necessitous circumstances fund goes beyond giving money or goods, then it is more likely to be an institution than a fund and will not be endorsed by the Australian Taxation Office as a necessitous circumstanced fund for DGR purposes.