How Does a PAF Work?

A Private Ancillary Fund, often called a PAF, is a structured way to support charities over the long term. Instead of making one-off donations, a PAF allows individuals, families, or businesses to set aside funds for giving, invest those funds responsibly, and then distribute money to eligible charities each year. This approach can make philanthropy more consistent, more strategic, and easier to manage over time.

What Is a Private Ancillary Fund?

A PAF is a charitable trust established in Australia to support deductible gift recipient (DGR) charities. It is regulated to ensure it operates for genuine charitable purposes, with clear governance, proper reporting, and annual distributions that flow to eligible organisations.

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The Core Structure of a PAF

A PAF operates as a trust, which means it has a governing document (the trust deed) and defined roles that guide how the fund is managed. The founder is the person or entity that establishes the fund and typically provides the initial contribution. Trustees are responsible for running the fund, including investments, grant-making decisions, and compliance tasks. A responsible person must also be involved to strengthen governance and provide oversight, helping ensure the fund is managed properly and in line with relevant requirements.

How a PAF Works Step by Step

A helpful way to understand how a private ancillary fund operates is to break the process into four stages that repeat year after year, with governance and reporting sitting alongside each stage.

Step 1 – Establishing the Fund

The process starts with setting up a trust deed that aligns with the relevant guidelines. Trustees are appointed to manage the fund, and a responsible person is included as part of the governance structure. The fund then applies for deductible gift recipient endorsement so donations into the fund can generally be claimed as tax deductions by donors.

Step 2 – Making Contributions

Once established, contributions can be made to the PAF. These may come from the founder and, in many cases, from other donors aligned to the fund’s purpose. Contributions are generally tax deductible, and there may be options to claim the deduction across multiple financial years, depending on the donor’s circumstances and strategy. Accurate documentation is important so gifts are recorded correctly.

Step 3 – Investing the Funds

PAFs typically invest their assets so the fund can grow and provide sustainable giving over time. Trustees develop an investment strategy that balances growth, risk, and liquidity, ensuring the fund can meet its annual distribution requirement while maintaining a stable capital base. The focus is usually on prudent, long-term investment management rather than short-term speculation.

Step 4 – Distributing to Charities

Each financial year, the PAF must distribute at least 5 percent of its net assets to eligible charities that have DGR status. Trustees decide which charities to support and how much to allocate, often guided by the fund’s mission and giving priorities. These grants are then documented properly to support reporting obligations and demonstrate compliance.

Governance and Compliance Obligations

Operating a PAF comes with ongoing responsibilities. Trustees must keep accurate records, maintain proper governance processes, and ensure decisions are documented. Reporting obligations typically include annual information statements and financial reporting, and funds are expected to meet audit and compliance standards. Strong governance protects the integrity of the fund and helps ensure ongoing eligibility for tax concessions.

Benefits of Using a PAF

A PAF can make giving more organised and intentional. It supports long-term philanthropy, allows donors to build a legacy, and can involve family members in decision-making across generations. It also provides flexibility, letting trustees support multiple causes and charities over time, while investing capital so charitable impact can continue well into the future.

When a PAF May or May Not Be Suitable

PAFs are usually best suited to donors who want to commit to ongoing giving and have sufficient capital to make the structure worthwhile. They also suit people who value governance, planning, and long-term impact. For those looking for a simpler approach, alternatives such as public ancillary funds or direct giving may be a better fit.

Parting Words

A PAF works by combining structured contributions, responsible investment, and annual distributions to eligible charities. With the right governance and ongoing compliance, it can become a powerful way to support causes you care about in a consistent, sustainable way, while building a lasting philanthropic legacy.