Do you ever wonder what you would do if you won the lottery? Would you give some of the money away? If yes, to whom and how would you go about this?
Philanthropy provides the ideal mechanism. Philanthropy Australia defines it as:
“The planned and structured giving of time, information, goods and services, voice and influence, as well as money, to improve the wellbeing of humanity and the community”.
It is widely considered that philanthropy is reserved for the wealthy. Yet its practice is not just for the likes of Bill Gates and Dick Smith. Philanthropy may be practised by people at all wealth levels – at its core is planning, consideration and dedication to sustained giving according to means, rather than the bestowment of huge sums of money.
Why practice philanthropy?
Different people choose to practice philanthropy for different reasons – all stemming from their individual values. Some of the most common reasons are:
- A feeling of responsibility to those less fortunate
- Reaching a turning point in life
- ‘Having enough’ already
- To have significant influence in shaping the community
- To make a tangible statement or expression of one’s own values
Philanthropy in Australia
While Australians regularly drop money in the buckets of the local Surf Life Saving club, subject themselves to the gruelling challenge of the City to Surf and sponsor their colleagues to grow moustaches in the name of charity, fewer choose to give in a structured and sustained manner.
According to a recent study conducted by the Queensland University of Technology (QUT), Australia’s wealthy are, on average, giving at a lower level than their counterparts in comparable countries such as the UK, Canada and the US. This is in spite of comparable wealth levels.
The distinction between charitable giving and philanthropy is important. In a recent research paper, Giving Australia, the Federal Government found that people who plan their giving donate four times as much as more spontaneous or reactive givers.
The question arises, why are Australians embracing philanthropy less than our counterparts? The QUT suggests that the trend is reflective of Australian culture and the tall poppy syndrome. Simply put there’s “a strong wish not to be identified as a philanthropist or to speak widely about one’s own giving”.
For those that do wish to give, there is uncertainty about the process and scarce information about the options available.
Philanthropy need not be complicated, however. Once the right structure is set up, it can provide a long-term tax-effective strategy for donating to your nominated causes.
How is it done?
A common form of structured giving is the establishment of a Charitable Foundation such as a Prescribed Ancillary Fund (PAF). Introduced in 2001, a PAF is a flexible, tax-effective way for individuals, families, and corporations to establish a foundation and manage their long-term charitable giving.
There are many advantages to setting up a PAF including:
- The fund is exempt from income and capital gains tax
- All gifts to a PAF are tax deductable and deductions may be spread out over five years
- Donations can be made up of property, cash and shares. Although a gift of property may attract CGT, this is likely to be offset by the tax deduction into the PAF
- PAFs are flexible for tax purposes
- A PAF is completely controlled by the family or group
- The family or group may remain anonymous
There are a number of rules for establishing and maintaining PAFS as set out by the Tax Administration Act 1953.
One of the most important being, that the fund must distribute a minimum of at least five per cent of the market value of its net assets as at the end of the previous financial year. If the five per cent falls below $11,000 the fund must distribute at least $11,000.
PAFs are rapidly growing as an attractive giving structure – more than 900 funds have been set up in the last 11 years. The philanthropy sector in Australia is, however, still in its adolescence. Peter Winneke, head of philanthropic services at Myer Family Company is passionate about the issue. He argues that “there should not be 900 PAFs in Australia, but 9,000”.
Where to from here?
Determining the most suitable structure for your objectives (whether a PAF or another option) will depend on your unique circumstances. William Buck has a Not for Profit & Charitable group which assists clients in understanding the options available for giving, and facilitates the establishment of philanthropic vehicles for structured giving.