Labor proposes changes to ancillary funds

Labor is proposing several reforms to giving or ancillary funds that include increasing the annual distribution rate and smoothing out minimal distributions over three years.

In the consultation paper Giving fund reforms: Distribution rate and smoothing, the government also wants to rename ancillary funds to "giving funds" and increase the annual distribution rate.

"The increased distribution rate will not apply for five years after amendments are made to the ministerial guidelines. This allows funds to adjust their investment strategy, if necessary, in response to the new rate," the paper read.

A giving fund is also known as an ancillary fund under tax law and is a trust set up and maintained solely for the purpose of providing money, property or benefits to deductible gift recipients (DGRs).

Two types exist: private giving funds (PGFs) and public giving funds (PuGFs).

PuGFs make a minimum distribution of $8800 or 4% of the fund's net asset value at the end of the previous year, whichever is greater. The minimum distribution for PGFs is the greater of $11,000 or 5% of the fund's net asset value.

The proposed reforms are off the back of Productivity Commission's recommendations in the Future foundations for giving final report and the Blueprint Expert Reference Group in its Not-for-profit Sector Development Blueprint.

In its review, the Productivity Commission did not give a preferred minimum annual distribution rate. Instead, it suggested a rate between 5-8% is appropriate. It recommended aligning the distribution rate for PGFs and PuGFS and providing five years' notice before any new distribution rate applies.

Labor said it broadly agrees with the Productivity Commission's principles and suggested range of rates.

Treasury is holding roundtables and wants participation from giving funds, charities that receive support from giving funds, advisers to funds and charities and peak bodies. They have until June 20 to express their interest.

Other interested parties can make submissions until August 1.