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Ancillary funds are special kinds of funds from donors that are received by organisations as Deductible Gift Recipients (DGRs), which are considered as tax deductible donations. Ancillary funds don’t need to be money; it can be property or any kind of benefit to DGRs.
The organisation or receiver of ancillary fund needs to report the fund while lodging tax returns. An ancillary fund must be endorsed as a registered charity; in order to exempt it from income tax and in that case, it won’t need to lodge an income tax return.
For 2016 and subsequent years, ancillary funds which are registered charities must lodge their annual information return by completing the online Australian Charities and Non-profit Commission's (ACNC's) Annual Information Statement. Ancillary funds that are not registered as charities with the ACNC must continue to lodge an ancillary fund return with ATO.
There are two types of ancillary funds and they are:
Private Ancillary Fund
Private Ancillary Fund (PAF) is a type of charitable trust that enjoys Deductible Gift Recipient (DGR) status. If any private ancillary fund wants to make all their income non-taxable, they have to apply for endorsement as a tax concession charity (TCC). Receiver may also apply for refunds of imputation credits on franked dividends. In order to get this fund, the organisation must have a corporate trustee, invest sensibly in accordance with a written investment policy and distribute at least 5% (or $11,000 whichever is greater) of the value of the trust each year to non-profit organisations who themselves have DGR and TCC status.
Public Ancillary Fund
A public ancillary fund is a charitable structure which allows a planned approach to charitable giving. When correctly structured, like private ancillary fund, a public ancillary fund also carries Deductible Gift Recipient (DGR) status. A tax deduction is available in the year of the donation, while the giving to charities can be spread over subsequent years as an ongoing process.