Australia: The public philanthropic funds game changes
Not for profits update

In the continuing rush of reform to the not-for-profit sector, on 14 July 2011, the Treasurer announced the release of another exposure draft for amendments in relation to changes to public ancillary funds.  Draft public ancillary fund guidelines were also released for public consultation.  Charities and not-for-profits controlling or establishing foundations will need to be aware of the new requirements and are invited to provide submissions on the draft changes. The amendments and guidelines follow the initial announcement and consultation in November 2010 (see our update here).

Including the announcements made in the recent Federal budget, this brings the total number of announcements, rulings, draft reform papers and exposure drafts affecting the not for profit sector since December 2010 to about 10.

Key changes

The key requirements to be imposed upon public ancillary funds in the drafts include:

• the trustee must be a corporate trustee
• minimum annual distribution of 4% of net assets
• no distribution required during the first four years of their establishment.

The guidelines are similar in content and scope to the private ancillary fund guidelines, but take into account the higher costs faced by public ancillary funds.

Trustees and directors of corporate trustees will need to be aware of the administrative penalties for breaching the guidelines that will be widened to include public ancillary funds.  The administrative penalties previously only applied to private ancillary funds.

The exposure drafts can be accessed here.

How do these changes affect charities and not-for-profit institutions?

Some charities establish public ancillary funds to act as their fundraising foundation.

The changes have the potential to facilitate long term, sustainable giving to charities and other NFPs by raising prudential standards.  The changes will have the effect of requiring charities and NFPs to operate far more strategically because of the minimum distribution and investment requirements on public ancillary funds. 

Applying a degree of caution, there is also the likelihood that the 'cost' of managing the public ancillary funds may negatively affect the net donations made to charities and other NFPs in the shorter term.

Charities and NFPs may need to consider their activities and present their strategic objectives to public ancillary funds in a manner that takes into consideration the investment strategies of the public ancillary fund.  This may in fact lead to a greater degree of collaboration and cooperation between them.   

Burden versus public confidence

The proposed changes require a greater degree of accountability from trustees of public ancillary funds both in how the funds are managed financially and in the governance and operation of the fund.  However, it is hoped that donors and the public will be able to have greater confidence in the integrity of public ancillary funds, which will protect public confidence in the not-for-profit sector as a whole.

The closing date for submissions on the exposure draft of the legislation amendments is  1 August 2011 and for the draft guidelines is 31 August 2011.

Gadens Lawyers can advise you on how the proposed changes impact your charity or foundation, and on the establishment, restructure or governance of your public ancillary fund.

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.