Expenses and Private Ancillary Funds
Disclaimer: The following statements do not constitute formal advice, however, you can use them to guide how you might fund membership and other AEGN activities applying due diligence according to the profile of your Private Ancillary Funds and general guidelines.
For the latest information, refer to the Australian Government Federal Register of Legislation Taxation Administration (Private Ancillary Fund) Guidelines 2019.
According to Section 23 the Taxation Administration (Private Ancillary Fund) Guidelines 2019, the trustee of a private ancillary fund may apply income or capital of the fund:
(a) to pay or reimburse the trustee for reasonable expenses incurred on behalf of the fund; and
(b) to pay fair and reasonable remuneration for the trustee’s services in administering the fund.
Some possible approaches
David Ward, Australian Philanthropic Services:
“Public Ancillary Funds (PAFs) cannot provide anything that might be construed as personal benefit to funders. It is clear that as long as the expense is ‘reasonable’, it can be reimbursed from a PAF. ‘Reasonable’ has two components – scope and size. Education of directors to enable the compliant, efficient and effective operation of a PAF and due diligence for grantmaking are within the scope of ‘reasonable’ PAF activity. This would include membership of an organisation or attending a conference that has grant making due diligence at its core. Site visits or field trips might qualify but extra care is needed to ensure the focus is very clearly on due diligence rather than any personal benefit to directors.“
“The second component is the size of the activity and expense relative to the project and the size of the overall PAF. This means attending our conference for a fee of $295 or paying for membership at a cost of $500 would be generally a reasonable expense for most PAFs giving away $25,000 a year with a strong environmental project focus.”
“A rule of thumb is that for most foundations the total PAF expenses (that is including administration and other expenses) should be no more than 10-15 per cent of grants made (give or take a bit depending on the size of the foundation). Producing a report for other directors on conferences, site visits and field trips, to record the knowledge gained and to share the learnings. The key point remains, of course, that there must be no material benefit to any director.”
John McKinnon, McKinnon Family Foundation:
“You can use a small percentage of your PAF funds to develop the capacity and effective giving of your foundation. If you have any doubts about this, check with your PAF’s independent director and your auditor. If you ask your auditor if you can go on a field trip or conference to help develop the effectiveness of your giving, an auditor may ask more questions, just to be safe. But if you frame your question in line with wanting to educate your PAF directors, ensure due diligence for your grantmaking your auditor should be fine with this approach. Furthermore, auditors typically only look at the total expenses, not each individual expense item.”
We all have a responsibility to make our giving as effective as possible and there is no better way than to join the AEGN conference or come on a field trip!
John Mckinnon, Mckinnon Family Foundation
Trevor Thomas, Ethinvest:
Trevor Thomas is the trustee on four foundations: John T Reid Charitable Trusts, McKinnon Family Foundation, Ross Knowles Foundation and the Community Impact Foundation.
“This issue has come up for all foundations. Exercise prudent use of PAF funds to be spent on professional development. Of course this must be in line with the aims and objectives of the fund and be a reasonable amount but $500 for AEGN membership or $300 to attend a conference is acceptable.”