A private ancillary fund (PAF) lets a family or business put money aside for charity, claim a deduction when they give it, and then decide over many years which charities receive grants. It is a serious structure with fixed rules, and the ATO watches it closely.
This guide explains what a PAF is, the minimum annual distribution, who can receive grants, the responsible person rule, audit and investment strategy duties, donor deductions and the set-up steps. Every rule comes from the ATO PAF pages and the Private Ancillary Fund Guidelines 2019 on legislation.gov.au, checked on 7 October 2026.
It is written for families, business owners and advisers weighing up structured giving. If you want to run programs or fundraise from the public instead, a charity is usually the better fit: see our guide to registering a charity.
Key takeaways
- A PAF must distribute at least 5% of the market value of its net assets at the end of the previous year, every year.
- If expenses are paid from the fund, the minimum is at least $11,000 (or the whole fund if less).
- No distribution is required in the year the fund is established.
- At least one responsible person must be involved in decisions, and cannot be a founder or a donor of more than $10,000.
- The fund needs a corporate trustee, a written investment strategy and an annual audit by a registered company auditor.
- PAFs cannot fundraise from the public.
PAF rules at a glance
| Rule | Requirement |
|---|---|
| Trustee | Each trustee must be a constitutional corporation (a company) |
| Minimum annual distribution | 5% of net assets at the previous 30 June; at least $11,000 if expenses paid from the fund |
| First year | No distribution required in the year of establishment |
| Eligible recipients | Item 1 deductible gift recipients only |
| Responsible person | At least one, not a founder or donor of more than $10,000 |
| Audit | Annual audit of financial report and compliance by a registered company auditor |
| Fundraising | Must not solicit donations from the public |
| Borrowing | Must not borrow, with narrow exceptions |
Source: ATO – private ancillary funds, ATO – PAF distribution, Private Ancillary Fund Guidelines 2019, checked 7 October 2026.
What is a private ancillary fund?
The ATO describes an ancillary fund as a pool of money or property held to make distributions to other entities. A PAF is a trust, set up by deed or will, run on a not-for-profit basis, solely to provide money, property or benefits to deductible gift recipients (DGRs). It is a DGR itself, so gifts to it are deductible.
The founders usually sit on the board of the corporate trustee and decide investments and grants. Unlike a family trust, nothing can flow back to the family: the money is permanently committed to charity.
How much must a PAF distribute each year?
Section 15 of the guidelines and the ATO distribution guidance set three rules:
- 5% minimum: each financial year, distribute at least 5% of the market value of the fund’s net assets as at the end of the previous financial year.
- $11,000 floor: if any of the fund’s expenses for the year are paid from its assets or income, distribute at least $11,000, or the remainder of the fund if it is worth less.
- First year: no distribution is required in the financial year the fund is established.
Falls in value during the current year do not reduce the obligation. A fund can apply to the ATO to lower the rate for a year, but not to zero.
How the 5% rule and the $11,000 floor interact:
| Net assets at previous 30 June | 5% of net assets | Minimum if expenses paid from the fund |
|---|---|---|
| $100,000 | $5,000 | $11,000 |
| $220,000 | $11,000 | $11,000 |
| $500,000 | $25,000 | $25,000 |
| $2,000,000 | $100,000 | $100,000 |
Who can a PAF give money to?
Grants can only go to DGRs described in item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997. Other ancillary funds and individuals are not eligible. Check every recipient on ABN Lookup’s DGR listing before paying, and keep a copy of the result with the grant file.
What are the trustee and governance rules?
Corporate trustee and responsible person
Each trustee must be a constitutional corporation, in practice a company. Its directors need a director ID from the Australian Business Registry Services (see our director ID guide). At least one person involved in decisions must be a responsible person with a degree of responsibility to the Australian community. They cannot be a founder, a donor of more than $10,000, or a relative or associate of either, and the ATO expects them to be an active director.
Investment, borrowing and related parties
- The trustee must prepare and maintain a current investment strategy.
- The trustee must not borrow or keep an existing borrowing, apart from narrow short-term exceptions.
- The fund cannot buy assets from, or give financial help to, founders, donors, trustees or their associates except on arm’s length terms.
- The trustee must not solicit donations from the public.
Audit and reporting
A registered company auditor must audit the fund’s financial report and its compliance with the guidelines each year. The fund lodges an ancillary fund return with the ATO. PAFs registered with the ACNC lodge that return with their Annual Information Statement, covered in our AIS guide.
Does a PAF need to be a registered charity?
No. The ATO confirms that the rule requiring DGRs to be registered charities does not apply to ancillary funds. Many PAFs register anyway, and the ATO establishment guide accepts an ACNC registration application as one route to DGR endorsement. Registration also matters for income tax exemption, because the ATO charity concession rules require ACNC registration. Our older charity registration article links to the current guide.
How do you set up a private ancillary fund?
- Set up a company to act as trustee and get director IDs for each director.
- Create the trust using the ATO model deed, adapted for your circumstances, so it meets section 30-15 and the guidelines.
- Settle the trust and record the establishment date.
- Apply for an ABN as a “Discretionary trust – investment (includes charitable trusts)”.
- Apply for DGR endorsement through an ACNC registration application or the ATO DGR endorsement form.
- Adopt an investment strategy and engage a registered company auditor.
How do donors claim a deduction?
Gifts to a PAF follow the usual gift rules: the PAF must hold DGR status when you give, and you must receive no material benefit. For a gift of money, or property valued by the ATO at more than $5,000, you can elect to spread the deduction over up to five income years, using the approved form before you lodge the return for the year of the gift. Our donation deductions guide covers receipts and records.
Worked example: first and second year distributions
The Singh family establishes a PAF on 15 March 2026 and the founders give $1,000,000. Because the fund was established in 2025-26, no distribution is required for that year.
At 30 June 2026 the fund’s net assets are worth $1,030,000. Minimum for 2026-27: $1,030,000 x 5% = $51,500, paid to item 1 DGRs by 30 June 2027.
Compare a smaller fund with net assets of $180,000 that pays its accounting fees from the fund: $180,000 x 5% = $9,000, which is below the floor, so it must distribute $11,000.
Rule of thumb: Work out next year’s minimum distribution as soon as the 30 June valuation is done, and plan grants by March. Check every recipient’s DGR status on ABN Lookup on the day you pay.
Common mistakes with private ancillary funds
- Paying a non-eligible recipient: grants to non-DGRs, other ancillary funds or individuals do not count.
- Forgetting the $11,000 floor: small funds that pay expenses from the fund often fall short.
- No real responsible person: a family friend who never attends meetings will not satisfy the ATO.
- Stale investment strategy: the guidelines require a current strategy, not one written at set-up and forgotten.
- Assuming ACNC registration is compulsory or irrelevant: it is optional for PAFs but affects how you report and access income tax exemption.
FAQ about private ancillary funds
How much does a private ancillary fund have to give away each year?
At least 5% of the market value of the fund’s net assets at the end of the previous financial year. If any of the fund’s expenses are paid from its assets or income, the fund must distribute at least $11,000, or the rest of the fund if it is worth less. No distribution is needed in the year the fund is established.
Who can a private ancillary fund donate to?
A PAF can only distribute to deductible gift recipients of the kind described in item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997. In practice that means checking each recipient’s DGR status on ABN Lookup before every grant. A PAF cannot give to individuals, and other ancillary funds are not eligible recipients.
Can I spread my deduction for a large gift to a PAF?
Yes, where the gift qualifies. The ATO lets you spread the deduction for a gift of money, or property valued by the ATO at more than $5,000, over up to five income years. You must make the election on the approved form before lodging your tax return for the year you made the gift.
Does a private ancillary fund have to register with the ACNC?
Not necessarily. The ATO says the requirement for DGRs to be registered charities does not apply to ancillary funds. Many PAFs still register, and those that do lodge their ancillary fund return with the ACNC Annual Information Statement. Registration can also be the route to ATO endorsement.
Who is the responsible person in a PAF?
At least one person involved in the fund’s decision making must have a degree of responsibility to the Australian community as a whole. They cannot be a founder, a donor of more than $10,000, or a relative or associate of those people. The ATO expects them to be an active director who takes part in investment and distribution decisions.
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Nanak Accountants can help with the PAF trust and trustee set-up, ABN and DGR applications, annual accounts, distribution calculations and the ancillary fund return. Call 1300 626 258, book a free 15 minute consultation or visit Nanak Accountants.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO private ancillary fund pages, the Private Ancillary Fund Guidelines 2019 on legislation.gov.au and the ATO gift spreading form instructions on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
