The trustee is expected to have sufficient liquidity in the fund to allow appropriate distributions in every financial year. Private AF guidelines 2019 section 20(3) requires that the investment strategy of the fund reflect the purpose and circumstances and have particular regard to (but not limited to) the liquidity of the fund's investments.
Minimum annual distribution requirements
Private AF guidelines 2019 section 15 states during each financial year, a private AF must distribute at least 5% of the market value of the fund's net assets as at the end of the previous financial year.
Private AF guidelines 2019 section 15(2) states the fund must distribute at least $11,000, or the remainder of the fund if that is worth less than $11,000, during that financial year if both of the following applies:
- the 5% is less than $11,000
- any of the expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income.
Market value of fund's assets
Private AF guidelines 2019 section 16 requires that the market value of the fund's assets (other than land) be estimated at least annually and section 16(3) allows the trustee to estimate the market value itself or to arrange for a qualified valuer or another appropriate entity to make the estimation.
Any estimation must be based on reasonably objective and supportable data, and the methodology and data used for the estimate should be documented in the fund's records.
If the Commissioner considers an estimation to be unreasonable, we may request the trustee to arrange for another valuation to be undertaken.
If during the current financial year, the value of the fund's assets has fallen and the return is lower than expected, the fund still has to distribute 5% of the market value of the fund's net assets as of 30 June of the previous financial year. In determining net assets, the expenses, returns or losses for the current financial year cannot be used to determine an applicable new value.
Distributing less than 5%
The fund is established to provide to DGRs. The guidelines require distribution of at least 5% of the market value of the fund's net assets as at 30 June of the previous financial year. However, funds may apply under Private AF guidelines 2019 section 15(7) to lower the minimum distribution rate for a financial year (but not to zero).
Prescribed private funds
A former PPF with individual trustees doesn't need to replace individual trustees with corporate trustees unless one of those individual trustees has revoked their agreement to comply with the Guidelines.
If you were a trustee of a PPF as of 30 September 2009, you are now required to comply with the private AF guidelines. Each trustee was taken to have agreed to comply with the rules in the private AF guidelines as of 1 October 2009.
Winding up
A private AF, including one that was a former PPF, doesn't have to continue to operate. Where a trustee does not wish to continue to be a private AF, it may wind-up and distribute to DGRs.
The trustee must undertake all of the following steps to wind up and stop being a private AF DGR:
- take steps as necessary under state or territory trust or charity laws, including having written evidence of the trustee's decision
- pay all liabilities and distribute all of the remaining assets
- ensure there are completed accounts, financial statements, an audit report, the annual return for a private AF for the current year, and an investment strategy
- provide the ATO with
- advice of the trust being wound up and the date of that occurrence
- any outstanding ancillary fund return
- the revocation of agreement to comply with the private ancillary fund guidelines
- cancel the ABN of the trust.
Any private AF must, on revocation of endorsement and after settlement of debts, transfer any surplus gifts of money or property, deductible contributions, and money received because of such gifts or contributions (that is, gift-related assets) to eligible entities.
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