FocusOn - Public Ancillary Funds - New Rules
In December 2011 the parliament passed legislation and made Guidelines for public ancillary funds that aim to improve governance and accountability in the not-for-profit sector.
These changes commenced on 1 January 2012 and the Government contends they will give donors more confidence that their donations are being distributed properly. We recommend that existing public ancillary funds review their documentation and operations as soon as possible to ensure full compliance with the Guidelines by 30 June 2012.
Public Ancillary Funds
A public ancillary fund is a type of ancillary trust that can qualify for deductible gift recipient status ("DGR") and income tax exempt status under the ITAA 1997. A public ancillary fund collects tax deductible donations from the public which they distribute onto other DGR's that they consider to be worthwhile causes. Public ancillary funds are established and maintained for the purpose of providing money or benefits to DGR's, or the establishment of DGR's and must be exclusively used for these purposes.
Key changes and observations
The changes are intended to bring the reporting requirements in line with those for Private Ancillary Funds.
These new changes will be enforced through a system of administrative fines and penalties which will apply to trustees and in some circumstances individual directors.
The Commissioner of Taxation will have the power to suspend or remove the trustees of public ancillary funds that breach the guidelines.The Australian Business Registrar (ABR) will show public ancillary fund status.
Requirements
Under the new Guidelines there are a number of requirements for a public ancillary fund (herein referred to as "fund") and their trustees. Trustees have the option of waiting until 1 July 2012 to comply or adopting these new requirements immediately: |
Valuation - The market value of the fund's assets other than land must be estimated at least annually. Land must be valued at least once every 3 years. |
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Distribution - Funds will be required to distribute at least four percent of their net assets each year. However, if 4 per cent of the fund is less than $8,800, the fund must distribute at least $8,800 per year. If the fund's net assets are less than $8,800, it must distribute all assets during that year. As a concession, new funds will be given 4-5 years to build an appropriate level of funding before they are legally required to make a distribution and meet minimum distribution levels. |
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Accounts - The trustee must keep proper accounts in respect of all receipts, payments and financial dealings. |
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Income tax return - Commencing from the 2011-2012 income year, public ancillary funds will be required to lodge an annual income tax return, regardless of whether the fund is exempt from income tax. |
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Financial Statements - Preparation of Financial Statements in accordance with the Australian Accounting Standards at the end of each financial year will be required. |
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Audit - An audit of the financial statements of the fund and compliance with these new guidelines by the fund and the trustee will be required. Smaller funds with revenue and assets of less than $1 million will only require a review by an auditor. Deadlines apply for audits and reviews. |
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Investment Strategy - The trustee will be required to prepare, maintain and implement a current investment strategy for the fund which will set out the objectives and detail the methods the trustee will adopt to achieve these objectives. |
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Investment Limitations - The trustee must not borrow or maintain an existing borrowing of money, except in rare circumstances set out in the Guidelines. |
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Uncommercial Transactions - Trustees can only enter into uncommercial transactions if the transaction is either with a DGR and is made to carry out the purposes of the fund or is more favourable to the fund than an arms' length transaction. Trustees cannot provide material benefits to themselves unless it is reasonable remuneration for administration of the fund or a reasonable reimbursement of fund operating costs. |
Transitional Rules
To help funds transition to the new Guidelines, there are some transition rules available: |
Guideline Commencement –Trustees have the option of complying with the Guidelines from 1 July 2012 rather than 1 January 2012. |
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Distribution - Funds which have net assets of less than $220,000 from 31 December 2011 will not be required to make a minimum annual distribution until 30 June 2015 unless their net assets begin to exceed $220,000. |
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Conflicts with Guidelines – Where a fund's trust deed or governing rules prevents compliance with the Guidelines, the fund will be exempt from the conflicting requirement until 1 July 2015. Trustees should act as soon as possible to have governing rules amended so they can comply with the Guidelines. In the interim, the fund must comply with the requirement as far as possible without breaching the governing rules. |
How we can help
At Saward Dawson we have a long history of delivering specialist services to clients across a diversity of industry sectors including manufacturing, distribution, retail, service and not-for-profits.
Our audit, compliance, and advisory services can help you to assess your financial reporting requirements, provide technical analysis of the application of the new legislation and perform the audit, prepare statutory financial statements and prepare income tax returns for public ancillary funds.Published : March 2012