A public fund provides money or property to support activities carried out by other entities or people, including its sponsoring organisation.
Public funds for DGR purposes fall under 2 types:
- Funds established and controlled by governmental or quasi-government authority.
- Funds to which the public is invited to contribute and in fact does contribute. These funds must be controlled or administered by persons or institutions having a degree of responsibility to the community as a whole. This could arise, for example, from a person's occupation or tenure of some public office, or a person's or institution's position in the community.
A public fund may be established as a separate entity, for example under an instrument of trust, or as part of a sponsoring organisation.
Various DGR categories require organisations to establish a public fund to receive tax deductible gifts and contributions to be applied for the purposes described in the DGR category.
- school building funds
- developing country relief funds
- necessitous circumstances funds
- scholarship funds
- war memorial repair funds
- fire and emergency services funds.
For more information see Types of DGRs.
- Public contributions
- Committee members
- Operate on a non-profit basis
- Gifts and deductible contributions
- Dissolution clause on winding-up
- Advise us of changes
For a fund to fall within one of the 'public fund' DGR categories, its objects must satisfy the requirements of the category. If there is no documentation providing evidence of your fund's existence, purpose and operations, you may have difficulty in demonstrating that your fund is maintained for a purpose required by the DGR category.
Sample clause: Objects (suggestion for a school building fund)
The name of the fund is (insert the name of school building fund – a public fund). The purpose of the fund is to solicit and receive gifts towards the carrying out of the objects, which is solely to provide money for the acquisition, construction or maintenance of a building used or to be used as a school.End of example
It must be the intention of the promoters or founders that the public will contribute to the fund. Public contributions must be invited, and the public must in fact contribute to the fund. If there are no contributions from the public despite invitations, the fund will not be considered a public fund.
Sample clause: Public contributions
The general public will be invited to make gifts to the fund, to be used for the purpose of carrying out the objects of the fund.End of example
For non-government public funds, the fund must be administered or controlled by people or institutions who, because of their tenure of some public office or their position in the community, have a degree of responsibility to the community as a whole. Examples are:
- church authorities and clergy
- school principals
- judges, solicitors, doctors and other professional people
- mayors, councillors, town clerks and members of parliament
- recipients of awards from government for services to the community such as an Order of Australia
- members of a professional body which has a professional code of ethics and rules of conduct.
A public fund must be managed by a committee made up of a majority of 'responsible people' and must be set up so that it is not possible for public control to lapse. We refer to this as the responsible person requirement. The daily operations however may be delegated to other persons.
Organisations such as Rotary, Lions and Apex Clubs often sponsor public funds. If an organisation does not have a public character due to, for example, selective membership, the committee controlling the fund may have a public character if it is controlled by people who meet the responsible person requirement.
Sample clause: Committee members
A committee of management of no fewer than 3 persons will administer the fund. The committee will be appointed by the organisation. A majority of the members of the committee must be persons having a degree of responsibility to the general community by reason of their occupation or standing in the community.End of example
The fund must operate on a non-profit basis. This means that money must not be distributed to members of the managing committee or trustees of the fund except as reimbursement for out-of-pocket expenses incurred on behalf of the fund or as proper remuneration for administrative services.
Sample clause: Non-profit basis
The assets and income of the fund shall be applied solely in furtherance of the objects of the fund and no portion shall be distributed directly or indirectly to any individual except as bona fide compensation for services rendered or expenses incurred on behalf of the fund.End of example
Gifts and deductible contributions made to the fund must be kept separate from any other funds of the sponsoring organisation (if there is one). A separate bank account and clear accounting procedures are required for a public fund.
Sample clause: Gifts and deductible contributions
A bank account will be established to receive all gifts and deductible contributions accepted by the fund. This account must only include any money or property which is a gift or deductible contribution to the fund, or which is received because of such gifts or deductible contributions, including, interest received on any monies in the account. Clear accounting procedures will be maintained.
If the public fund is also the gift fund, an additional clause is required to the effect that the fund only receives gifts or deductible contributions. Refer to Gift fund requirements.End of example
Sample clause: Public fund is a gift fund
The fund receives only gifts or deductible contributions and any money received because of those gifts or deductible contributions. The fund does not receive any other money or property.End of example
Including a clause covering receipts in your fund's governing rules is part of providing a framework to ensure that property and money donated to the fund is used for the purpose it was donated.
The tax law also requires that if an endorsed DGR issues receipts for tax deductible gifts or contributions, particular information must be provided on the receipts.
Sample clause: Receipts
All receipts for gifts or deductible contributions must be issued in the name of the fund.End of example
The fund must have an acceptable dissolution clause: that is, one which provides that on winding-up, any surplus money or other assets must be transferred to some other DGR.
Sample clause: Winding up
In the event of the fund being wound up or dissolved, any surplus assets remaining after the payment of the fund's liabilities shall be transferred to another fund, authority or institution, which has similar objects, and to which income tax deductible gifts can be made.End of example
For funds that are registered charities or operated by registered charities, the transfer must be to another DGR, with similar objects, which is charitable at law.
To be endorsed as a DGR, an organisation must also have acceptable clauses dealing with the transfer of surplus gifts and deductible contributions on winding up or revocation of endorsement.
You must notify us in writing of any changes to the fund's constitution or other founding documents.
Sample clause: Notify ATO
The Board must notify the Australian Taxation Office of any alterations made to the fund rules.End of example
Organisations that are endorsed or seeking to be endorsed as a DGR for the operation of a fund, authority or institution must maintain a gift fund. An exception is where the organisation as a whole is already endorsed as a DGR.
A public fund may itself satisfy the gift fund requirement if it only receives gifts or deductible contributions and has appropriate winding up rules. If it receives other money or property, it will need to maintain a gift fund.
Things to remember:
- If your organisation is endorsed for the operation of several public funds, then money or property belonging to one public fund must not be used to support the purposes of another fund.
- A single gift fund can be maintained for two or more of your public funds.
- Records must be kept evidencing the receipt and use of money and property belonging to each public fund.
Consider the following questions, together with the other information we have provided, when working out whether your fund is a public fund.
- Do the objects clearly set out the purpose of the fund?
- Do the rules clearly set out that the public will be invited to contribute to the fund?
- Does the public or a significant part of it, in fact, contribute to the fund?
- Is the fund set up such that it continues to be controlled by a majority of people who meet the responsible persons requirement?
- Is the fund operated on a non-profit basis, with suitable non-profit and dissolution clauses in its constituent or governing documents?
For more information see Taxation Ruling TR 95/27 Income tax: public fundsOpens in a new window.