Charitable giving plays a crucial role in supporting important causes. In addition, it can offer benefits to givers, including emotional benefits as well as more tangible advantages such as tax savings.
Whether through personal donations, structured giving, or bequests, selecting the right method for charitable giving that can maximise the impact of a contribution. Below are a few ways to give back to society while supporting worthwhile causes.
1. Personal donations
Personal donations are straightforward and can be made at any time to registered charities. Options include direct transfers, online platforms, and workplace giving schemes, which may offer employer matching. In Australia, donations over $2 to Deductible Gift Recipients (DGRs) are personally tax deductible.
2. Giving through your will
Bequests allow people to support causes after their lifetime, without affecting their current finances. People can leave a percentage of their estate, a specific amount, or the residual balance. It’s essential to ensure that any bequest is legally binding and that it aligns with the estate plan to avoid any complications for heirs. Including a letter of wishes helps strengthen the bequest in the that the estate is challenged.
3. Private Ancillary Funds (PAFs)
PAFs offer a long-term philanthropic vehicle for those with substantial assets wanting to create a legacy of giving that can be stewarded by future generations. They allow donors to establish a charitable fund, receive immediate tax deductions for contributions, and distribute to charities over time. They are governed by a trustee and board of directors who can retain the ability to direct how and when the donations are distributed.
Assets in the PAF are exempt from income tax but involve compliance obligations, including a 5 per cent annual distribution to DGRs. Due to the setup and running costs associated, PAFs are recommended for people able to give a minimum initial donation of between $500,000 to $1 million.
4. Private charitable trusts
These are similar to PAFs but come with a greater level of complexity. They provide a high level of control and flexibility for long-term giving, often established upon the donor’s death to create a legacy. They are ideal for those intending to gift to non-DGR charities, those not concerned about receiving a tax deduction for their donations, and/or making plans for the allocation of assets following end of life.
Donors can specify particular causes or organisations to support and set specific guidelines for how the trust’s assets should be managed over time. They are suitable for high-net-worth individuals and typically work well with an initial contribution of at least $500,000. Assets within the trust are income tax-exempt too, another advantage.
5. Public ancillary funds and sub-funds
Accessible and flexible ancillary funds (PuAFs) are managed by community foundations or intermediary organisations that pool donations from multiple donors and distribute them to DGR charities, offering a simpler, lower-cost alternative to PAFs. Sub-funds within PuAFs allow donors to create personal funds without the administrative burden of a PAF, attractive to donors that desire to be more focused on granting and are happy to have less control over the investment of funds.
Donations to PuAFs are tax-deductible, with assets exempt from income tax. While the recommended initial contribution is at least $20,000, they can also be used for donations as low as $2,000. A minimum annual distribution requirement is typically 4 per cent of the fund’s net value, though this applies to the PuAF as a whole, not individual sub-funds.
Regarding non-cash donations, such as donating shares or real estate can be tax-effective, avoiding capital gains tax while receiving a deduction for the asset’s market value.
How and when to make the biggest impact
The best giving method depends on people’s personal financial situation and philanthropic goals. It’s important to verify a charity’s status for tax benefits, and ensure legal documentation for PAFs, trusts, or bequests is correctly prepared.
This article was first published in the Summer 2024-25 issue of Financial Times.