If you’re one of the majority of Australians who will be in a lower tax bracket after 1 July when Treasurer Jim Chalmers will introduce the changes, you can optimise the opportunity. You might simply make the donation before July 1 allowing a larger tax deduction than will be allowed next year.

Or you could go a step further: Why not bring forward future years of giving, and future tax deductions, by making a lump sum contribution to a subfund in a public ancillary fund?

A public ancillary fund is a charitable foundation that distributes money to charity. You get an immediate tax deduction for the amount you donate to a public ancillary fund. You can claim the tax deduction in full immediately or spread it over a period of up to five years. Although most Australians will be receiving lower tax bills after the Treasurer Jim Chalmers introduces the new rates from 1 July – deductions can be locked in now: There is real flexibility in carrying forward the tax deduction if your income ends up lower than you anticipated.

The money you donate is set aside into your personalised ‘subfund’, your charitable giving account that sits within the foundation. The trustee of the foundation takes care of all the operations and administration of the fund, leaving you to simply think about the causes and charities that you want to support.

You need to recommend charities to receive at least 4 per cent of the balance each year. While you think about which charities to support, the balance is invested. With the subfund’s investment returns tax free and eligible for full franking credit refunds, it’s a giving model that not only allows you to give money to charity, but to grow the balance you must give away.

There is a range of public ancillary fund providers in Australia, commercial and not for profit, so it’s sensible for donors to scrutinise fees and investment performance to ensure they can maximise their donation for the community.

Chris Cuffe, portfolio manager for the APS Foundation, says that a donor who established a subfund in their public ancillary fund with $50,000 ten years ago is the perfect example of the ‘give and grow’ benefits of structured giving. Cuffe says: “By giving the minimum 4% annually, the subfund has paid $24,348 to charities, while the investment returns have generated an additional $50,524 to give away. As of 31 December 23, the fund’s balance is $76,175. Despite generously giving away nearly half of the initial donation, the balance has grown significantly for the community”.

It’s a popular strategy that works for any generous Australian looking to maximise tax deductions now while their tax rates are higher than in future. This includes not only the majority of taxpayers anticipating lower tax rates in the upcoming financial years, but especially pre-retirees looking to continue their charitable giving beyond their income earning years, or those navigating a tax bill arising from a significant liquidity event like the sale of a business.

Judith Fiander, CEO of Australian Philanthropic Services, says the subfund’s “simplicity and flexibility” has seen them explode in popularity as a tax smart giving tool. It’s a strategy as accessible and beneficial to middle-class Australians as it is to the big end of town. Fiander says: “You can set up a subfund in one day with $40,000, so it’s not just billionaires who are enjoying the flexibility and tax advantages of a subfund”.

While a subfund is an excellent choice for donors who prefer the simplicity of focusing solely on giving, those willing to invest more time and money might instead opt for a private ancillary fund. A private ancillary fund gives donors all the same tax and flexibility benefits of a public ancillary fund, but control as trustee of the structure. It’s a good option for those who have the time and appetite for investment management, compliance, and administration.

PAF donors relish the gift of time. Say goodbye to frantic last-minute cheque-book charity ahead of 30 June. By donating to your subfund, you secure your tax deduction and can take the time to really consider your giving.

A giving fund provides the opportunity to explore different charities at your own pace. Start with smaller contributions to test the waters until you’re confident in finding a good fit and ready to make a larger commitment. Take the time to reflect on the impact you wish to make and the charities you want to support. As Fiander wisely suggests, “Take your time. Engage your kids and grandkids in the conversation and make your giving multigenerational.”

And if you happen to miss the 30 June deadline yet find yourself benefiting generously from the Stage 3 tax cuts, structured giving could be a smart choice for directing that extra cash in your hands.

This article was first published in The Australian on 17 March 2024.