The Australian Tax Office has sharpened its focus on private wealth structures, including private giving funds (formerly private ancillary funds or PAFs) and public giving funds, as part of a broader compliance push across trusts and family groups.
At the same time, the Federal Government has increased the minimum annual distribution rate for both private and public giving funds to 6% of net assets, as part of reforms aimed at doubling philanthropic giving in Australia by 2030.
For advisors and donors alike, the message is clear: governance and compliance readiness matter more than ever. Meanwhile, ATO assurance programs continue to intensify, placing pressure on family offices and private groups to ensure their philanthropic structures are fit for purpose.
ATO Focus on Giving Funds
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Key Takeaways
- Private and public ancillary funds are now called ‘giving funds’, reflecting their charitable purpose.
- Minimum annual distribution rates are increasing to 6% for both private and public giving funds. Existing funds will have a two‑year transition period, and the reforms introduce new three‑year smoothing provisions, providing more flexibility to make larger grants in certain years. For public giving funds, the minimum is measured across the whole fund, not each individual donor‑advised fund, meaning donors can usually recommend grants at their own pace, subject to trustee policy.
- Draft Determination TD 2025/D3 clarifies when a fund ‘provides a benefit’ under the Fund Guidelines. It offers practical examples and emphasises that benefits are not limited to cash. These include indirect advantages, disproportionate shared costs, and benefits arising by omission, which may result in prohibited related‑party benefits and tax consequences.
- ATO private wealth assurance programs continue to expand, with a focus on trust governance and related-party arrangements.
- As regulation evolves, donor-advised funds (DAFs) are an increasingly attractive option: DAFs shift compliance, audits, and minimum distribution obligations to the host foundation (public giving/ancillary fund), giving donors the same tax benefits as a PAF but with significantly reduced governance responsibilities.
PAF or DAF? The compliance trade-offs in 2026
Private giving funds (formerly private ancillary funds or PAFs)
PAFs remain a powerful vehicle for families who want maximum control, but trustees accept a heavier governance burden: independent oversight (‘responsible person’), an investment strategy, annual audit, minimum 6% distribution of prior-year net assets, and strict limits on benefits to related parties.
Donor-advised funds (DAFs)
DAFs within public ancillary funds (PuAFs) offer the same tax deductibility and the ability to recommend grants, while the PuAF trustee handles compliance, investment oversight and reporting. The PuAF must meet a 6% minimum distribution at the consolidated fund level, which means individual DAFs commonly grant at their own pace (subject to trustee policy) – a practical way to lower governance risk and admin for donors.
DAFs also offer increased speed and accessibility. At Australian Communities Foundation, Named Funds (DAFs) can be set up in 48 hours with as little as $10,000. By contrast, PAFs generally require a minimum establishment donation of $1 million and 6- to 12-week lead times. Contact us to discuss which option is right for you
Frequently Asked Questions
Q. How will the increases to minimum distribution rates affect giving funds?
The government has set a 6% minimum distribution for all giving funds. Private giving funds (or PAFs) must meet this rate individually, which may increase pressure on investment returns. By contrast, donors giving through a DAF often grant at their own pace as the 6% minimum is assessed at the publc giving fund (PuAF) level, not at the level of each sub-fund.
Q.What exactly did the ATO clarify about related-party benefits in TD 2025/D3?
Private and public giving (or ancillary) funds receive tax concessions on the understanding that the money is used for public benefit, not private advantage. Once funds are donated, they no longer belong to the donor. Because of this, transactions involving donors, founders, trustees, or their associates are closely regulated and treated as higher risk.
Some dealings with related parties are expected and allowed (for example, donations into the fund, or arm’s‑length administration services), provided they are properly documented and disclosed. Problems arise where a related party receives a private benefit from the fund, even unintentionally.
Draft Determination TD 2025/D3 builds on this background by explaining, in practical terms, what the ATO considers to be a ‘benefit’. It makes clear that a benefit is not limited to cash or property, and can include indirect advantages such as paying more than a fair share of costs, giving favourable terms, or failing to enforce obligations. In these situations, a fund may be taken to have provided a prohibited benefit to a related party, with potential compliance and tax consequences.
Q. Who counts as a related party for these rules?
Related entity means any of the following: a trustee, founder member, director, employee, agent or officer of the giving fund; a donor to the giving fund; a relative of an individual who is a donor or founder of the giving fund; or an associate of any of those entities (other than a charity with DGR status).
Q. Are ‘private benefits’ only about cash?
No, ACNC guidance is explicit that private benefit covers any advantage — services, goods, opportunities, or value transfers — and must be prevented or strictly managed if incidental.
Q. Can a PAF pay a related party for services?
Only on reasonable, arm’s length terms (e.g., market–rate professional fees) and with no net private benefit. TD 2025/D3 warns that benefits can be direct, indirect, or arise by omission – so document decisions carefully.
Q. How does a DAF reduce governance burden versus a PAF?
The PuAF trustee (host foundation) is responsible for compliance, investment oversight, distribution tests and reporting; donors focus on strategy and recommendations. This separation supports independence and reduces related–party risk.
Q. We already run a PAF – should we switch to a DAF?
The balance of a private giving fund (PAF) can be easily ported, or transferred, to a DAF. Many families choose to keep a PAF for bespoke control and add a DAF for speed or independence in sensitive grants. The right approach depends on governance appetite and risk profile. If you keep your PAF, run a quick health check now: related–party register, conflicts policy, minimum distributions, board minutes, audit readiness.
Q. Where can I read the underlying rules?
See When does a PAF/PuAF provide a benefit?’ (TD 2025/D3 Draft Determination), The Hon Dr Andrew Leigh MP’s announcement: Boosting support for Australian charities, PAF 2019 Guidelines, the PuAF 2022 Guidelines, and the ATO’s Gifts & Donations page.
Important: This webpage provides general information only and is not legal or tax advice. Please seek professional advice for your circumstances.