A Private Ancillary Fund (PAF) is a powerful tool for structured philanthropy in Australia, offering flexibility and tax benefits for individuals, families, and businesses looking to support charitable causes. But while a PAF provides control over grant-making, it doesn’t give total freedom to donate to any organisation.
So, can a PAF make grants to any charity? Let’s explore the answer.
Can a PAF Make Grants to Any Charity?
The short answer is no. A PAF cannot make grants to just any charity or organisation. Under Australian law, PAFs are only permitted to distribute funds to charities that are endorsed as Deductible Gift Recipient (DGR) Item 1 organisations.
This means a PAF’s donations are limited to a specific category of charities that have been approved by the Australian Taxation Office (ATO) to receive tax-deductible gifts. Supporting charities outside this scope would breach the rules governing PAFs.
What Is a Deductible Gift Recipient (DGR) Item 1?
A Deductible Gift Recipient (DGR) is an organisation that can receive tax-deductible donations. DGR Item 1 refers to organisations that operate solely for charitable purposes—such as health, education, welfare, and research—and have been endorsed by the ATO.
Not every registered charity holds DGR Item 1 status. Some may be registered with the Australian Charities and Not-for-profits Commission (ACNC) but are ineligible for tax-deductible donations.
Before making a grant, trustees must verify that the recipient organisation holds this endorsement. You can check a charity’s DGR status using the Australian Business Register or the ACNC Charity Register.
Types of Charities a PAF Can Support
A PAF can support a wide range of causes, as long as the recipient organisation is endorsed as a DGR Item 1. Eligible examples include:
- Public universities and schools with DGR Item 1 status
- Medical research institutes
- Homelessness and welfare charities
- Environmental organisations endorsed under DGR Item 1
However, a PAF cannot make grants to:
- Political parties or lobby groups
- Charities without DGR Item 1 endorsement
- Overseas charities that lack DGR Item 1 status in Australia
- Individuals
It’s important to understand these restrictions when managing pafs, as compliance plays a critical role in maintaining the fund’s tax concessions and legal standing. You can read more about the rules and obligations for pafs to ensure your fund stays on track.
What Happens if a PAF Gives to an Ineligible Charity?
If a PAF distributes funds to an ineligible organisation, it risks penalties and non-compliance with its governing rules. This could result in:
- Loss of tax concessions
- Legal action or investigation by regulators
- Reputational damage for trustees
Trustees are responsible for exercising due diligence and verifying eligibility before approving any grants.
How to Find Eligible Charities
Finding eligible charities doesn’t have to be difficult. You can:
- Search the Australian Business Register for DGR status
- Use the ACNC Charity Register to confirm an organisation’s status
- Consult with legal or tax advisers who specialise in philanthropic structures
Keeping documented records of eligibility checks is also good practice for ongoing compliance.
Can a PAF Support Overseas Charities?
Generally, a PAF cannot directly make grants to overseas charities unless they hold DGR Item 1 status in Australia. However, a PAF can support international causes by donating to Australian DGR Item 1 charities that operate internationally or have overseas aid programs.
This provides an indirect pathway for supporting global issues while staying compliant with Australian regulations.
Next Steps
While a Private Ancillary Fund gives flexibility and control over charitable giving, it doesn’t allow unrestricted donations. A PAF can only make grants to organisations endorsed as DGR Item 1 charities in Australia.
Understanding these restrictions is essential to maintain compliance, tax benefits, and the integrity of the fund. For anyone managing or considering establishing a PAF, professional advice can help navigate grant-making obligations confidently.
