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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012992396906

Date of advice: 4 April 2016

Ruling

Subject: Private Ancillary Fund grants

Question 1

Is the total amount of a grant in year 1, payable over 3 years, a distribution that meets the 5% distribution rule in year 1?

Answer

Yes

This ruling applies for the following periods:

1 July 2013 to 30 June 2014

1 July 2014 to 30 June 2015

1 July 2015 to 30 June 2016

The scheme commences on:

1 July 2013

Relevant facts and circumstances

Relevant legislative provisions

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Reasons for decision

Issue 1

Private Ancillary Fund grants committed over several financial years

Question 1

Is the total amount of a grant in year 1, payable over 3 years, a distribution that meets the 5% distribution rule in year 1?

Answer

Yes

Summary

The annual distribution made by a private ancillary fund accounts for its minimum distribution in accordance with the accounting standards as required by the Guidelines made under section 426-110 in Schedule 1 to the TAA. Distributions must be made in accordance with the accounting standards.

Detailed reasoning

A Private Ancillary Fund (PAF) is a private charitable trust for individuals or family groups that invest money and property then distribute earnings to charities that are endorsed as Deductible Gift Recipients (DGR). A PAF does not operate as a charity. It only distributes funds. It does not directly provide services.

Section 426-110 in Schedule 1 to the Taxation Administration Act 1953 (TAA) gives the Minister the power to set out rules in relation to PFs and their Trustees. These rules are contained in guidelines made by legislative instrument.

The Private Ancillary Fund Guidelines 2009 (the Guidelines) commenced on 1 October 2009. The purpose of the Guidelines is to set minimum standards for the governance and conduct of a private ancillary fund and its trustee. These include, amongst other requirements, that the PAF:

Compliance with the guidelines is a requirement for a private ancillary fund's continued endorsement as a DGR under s30-125(1) Income Tax Assessment Act 1997 (ITAA 1997).

Guideline 19 of the Guidelines states that a PAF must make a minimum distribution each financial year:

PAF financial statements must be prepared in accordance to Guideline 26 of the Guidelines, which state;

Therefore, in preparing financial reports during the relevant year, the entity must comply with Australian Accounting standards issued by the Australian Accounting Standards Board (AASB).

The Explanatory Statement to the Guidelines states:

You agreed to fund the project progressively based on expected outlays. You committed funds for payment over three financial years;

The commitment year is therefore the 2014 financial year.

Payments were made over the 20XX financial year;

The annual distribution made by a private ancillary fund accounts for its minimum distribution in accordance with the accounting standards as required by the Guidelines made under section 426-110 in Schedule 1 to the TAA. You must, therefore, account for the distributions in accordance with the accounting standards. For our purposes distribution occurs when payments are made therefore the distribution year is the 20XX financial year.

It is important to note that committed funds paid earlier than anticipated may mean that the 5% distribution rule may not be met in subsequent years. Care must be taken to ensure committed grants are only counted once.


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