• Establishment

    Question number

    Frequently asked question

    1.1

    What steps do you have to take to establish a private ancillary fund with deductible gift recipient status?

    1.2

    How can you show that the entity is a trust?

    1.3

    How can you show that the trust is a private ancillary fund (private AF)?

    1.4

    How can you show that each trustee is a constitutional corporation?

    1.5

    How can you obtain an Australian business number (ABN)?

    1.6

    How does a private AF become endorsed as a deductible gift recipient (DGR)?

    1.7

    What are the private ancillary fund guidelines?

    1.8

    Does a former PPF with individual trustees need to replace individual trustees with corporate trustees? Can an individual trustee be suspended and removed?

    1.9

    Can information about the trust or trustee be given to the Attorney-General in a state or territory?

    1.10

    If you were a trustee of a PPF as of 30 September 2009, are you now required to comply with the private AF guidelines?

    1.11

    Is your PPF now a private AF?

    1.12

    Does a private AF, including one that was a former PPF, have to continue to operate?

    1.13

    What are the steps you have to take to wind-up and stop being a private AF deductible gift recipient (DGR)?

    1.14

    When does the private AF have to transfer the trust fund in total?

    1.15

    Private AF guideline 51 allows a private AF to amend its governing rules to convert the fund into a public ancillary fund with the agreement of the Commissioner. Do other rules apply?

    1.16

    If a fund is established by, for example, the chairperson or chief executive officer of a corporate entity, will employees of the corporate entity be taken to be employees of the founder for the purpose of the private AF guidelines?

    1.17

    In what circumstances can the transfer of the property of a private AF to another private AF occur?

    1.18

    What does 'responsible person' mean?

    1.19

    You are establishing a company to be the trustee. Regarding the composition of the board of the trustee company, you need a responsible person. Does the ATO have any special requirements for the other members of the board?

    1.20

    What is meant by 'active director' in private AF guideline 14.1?

    1.21

    Your private AF has a constitutional corporation as the trustee but the TAA says that each trustee must be a constitutional corporation. Does the private AF need another trustee?

    1.22

    Private AF guideline 17 requires the trustee to notify the Commissioner in the approved form of any change to the fund's governing rules. Where can the approved form be found?

    1.23

    A former PPF has an individual as the only trustee, and another former PPF has an individual and a company acting jointly as trustees. If the individual in either situation is to be replaced, does the replacement have to be a constitutional corporation?

    1.24

    If a private AF has two or more corporate trustees, does private AF guideline 14 require each trustee to have at least one responsible person on its board?

    1.25

    Is there a public website for accessing the names of trustees and/or founders of private AFs, including those that were formerly PPFs?

    1.26

    You are the person who put in the original capital to set up a private AF. Can you prescribe in your will that your estate be given to your private AF? If so, is it a settling of capital through the vesting of the estate or is it a donation?

    1.27

    What is the demarcation between what is public information and what is private information of the fund?

    1.1 What steps do you have to take to establish a private ancillary fund with deductible gift recipient status?

    1. Create a trust that is a private ancillary fund (private AF).
    2. Obtain an Australian business number (ABN).
    3. Get endorsement as a deductible gift recipient (DGR).

    1.2 How can you show that the entity is a trust?

    A model deed that can be used to establish an acceptable form of trust for private AFs is available. It must be edited according to your individual circumstances.

    We may update the model deed from time to time. Therefore, you must ensure you are using the current version available on our website at the time your trust is created.

    1.3 How can you show that the trust is a private ancillary fund (private AF)?

    A trust is a private AF if all of the following applies:

    • its deed complies with the requirements of item 2 of the table in section 30-15 of the Income Tax Assessment Act 1997
    • each trustee of the trust is a constitutional corporation
    • each trustee has agreed to comply with the rules in the private ancillary fund guidelines, and none of them have revoked that agreement.

    1.4 How can you show that each trustee is a constitutional corporation?

    A constitutional corporation is a corporation to which paragraph 51 (xx) of the Australian Constitution applies, or a body corporate that is incorporated in a territory.

    A body corporate that is incorporated in a territory would have an Association or Incorporation Number.

    1.5 How can you obtain an Australian business number (ABN)?

    You can apply for an ABN:

    When completing the application for ABN registration:

    • for Question 1 – Type of entity: place X in the box for 'Discretionary trust - investment (includes charitable trusts)'
    • for Question 16 – From what date does the entity require its ABN? The date should be the date of establishment of the trust.

    1.6 How does a private AF become endorsed as a deductible gift recipient (DGR)?

    You must apply for endorsement of the trust using the application for endorsement as a deductible gift recipient. You must also provide all of the following:

    See also:

    1.7 What are the private ancillary fund guidelines?

    The private AF guidelinesExternal Link are available on the ComLaw website. An explanatory statement is also available.

    See also:

    1.8 Does a former PPF with individual trustees need to replace individual trustees with corporate trustees? Can an individual trustee be suspended and removed?

    The answer is no to both questions.

    1.9 Can information about the trust or trustee be given to the Attorney-General in a state or territory?

    Yes, if the information relates to non-compliance by the trust or a trustee with a law for that jurisdiction.

    1.10 If you were a trustee of a PPF as of 30 September 2009, are you now required to comply with the private AF guidelines?

    Yes. Each trustee was taken to have agreed to comply with the rules in the private AF guidelines as of 1 October 2009.

    1.11 Is your PPF now a private AF?

    Yes. If your fund was approved for prescription, declaration or was prescribed as a PPF in the Income Tax Assessment Regulations 1997 before 1 October 2009, it was taken to be endorsed as a private AF as of 1 October 2009.

    1.12 Does a private AF, including one that was a former PPF, have to continue to operate?

    No. Where the trustee of a former PPF does not wish to continue to be a private AF, it may wind-up and distribute to DGRs.

    1.13 What are the steps you have to take to wind-up and stop being a private AF deductible gift recipient (DGR)?

    The trustee must undertake all of the following:

    • 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    
    • cancel the ABN of the trust.

    See also:

    1.14 When does the private AF have to transfer the trust fund in total?

    Any private AF, whether or not it was a PPF, 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.

    1.15 Private AF guideline 51 allows a private AF to amend its governing rules to convert the fund into a public ancillary fund with the agreement of the Commissioner. Do other rules apply?

    Yes. The trustee must have received agreement from the Commissioner to the amendments to the governing rules of the fund.

    In accordance with private AF guideline 48 that a trust must comply with a legally binding direction given to it by the Commissioner, the conversion can only be carried out in accordance with any legally binding direction given to the trust by the Commissioner.

    The trust must be entitled to endorsement as a public ancillary fund.

    1.16 If a fund is established by, for example, the chairperson or chief executive officer of a corporate entity, will employees of the corporate entity be taken to be employees of the founder for the purpose of the private AF guidelines?

    Yes. The employees of the corporate entity will be taken to be employees of the founder for the fund that the founder established in their role as chairperson or chief executive officer of that corporate entity.

    1.17 In what circumstances can the transfer of all the property of a private AF to another private AF occur?

    A private AF must comply with both tax and trust law requirements to make the transfer.

    1.18 What does 'responsible person' mean?

    Individuals with a degree of responsibility to the community as a whole are generally known as 'responsible persons'.

    Individuals with a degree of responsibility to the Australian community as a whole' would generally include:

    • school principals
    • judges
    • religious practitioners
    • solicitors
    • doctors and other professional persons
    • mayors
    • councillors
    • town clerks
    • members of parliament.

    Private AF guideline 14 requires that at all times at least one of the individuals involved in the decision making of a private AF be an individual with a degree of responsibility to the Australian community as a whole. The individual cannot be a founder, a donor to the fund who has contributed more than $10,000, or an associate of a founder or such a donor.

    1.19 You are establishing a company to be the trustee. Regarding the composition of the board of the trustee company, you need a responsible person. Does the ATO have any special requirements for the other members of the board?

    The only requirements for other directors are those under Corporations law. The Corporations Act 2001 details the circumstances under which an individual will be automatically disqualified from managing corporations.

    These include where the person has:

    • a conviction on indictment of an offence in relation to decisions that affect the business of a corporation or its financial standing
    • an offence involving a contravention of the Corporations Act 2001 punishable by imprisonment for 12 months or more
    • an offence involving dishonesty punishable by more than three months imprisonment
    • conviction for an offence against the law of a foreign country punishable by more than 12 months imprisonment
    • has been declared an undischarged bankrupt.

    1.20 What is meant by 'active director' in private AF guideline 14.1?

    Private AF guideline 14.1 requires the responsible person to be 'an active director of the trustee'. This wording is used to emphasise the expectation that a responsible person will actively fulfil their role as a director recognising, for example the fiduciary duties involved with doing so, and the potential personal liability on the director. The responsible person should be able to provide evidence they have actively fulfilled their role as a director of the board.

    The directors must, as a board, make decisions on matters of fundamental importance. This includes, but is not limited to, investments, distributions, and significant decisions concerning the market value of the fund's assets. The responsible person is expected to actively participate in those decisions. They are not expected to agree with each decision of the board.

    The directors need not make every investment or distribution decision. The board may decide that investment strategies or distribution policies are to be implemented by a person who is not a member of the board, such as an appropriate third party or employee. The investment strategy or distribution policy should be sufficiently detailed to provide clear guidance to the third party or employee.

    The directors may seek advice from, and may delegate administrative functions to, a person who is not a member of the board. For example, directors may seek advice from investment advisers on investment decisions and may delegate administrative matters or functions to an employee. The responsible person is expected to participate in almost all meetings of the directors and attend meetings at which decisions on matters of fundamental importance will be made. This includes, but is not limited to, investment strategy and distribution policy and significant decisions concerning the market value of the fund's assets.

    1.21 Your private AF has a constitutional corporation as the trustee but the TAA says that each trustee must be a constitutional corporation. Does the private AF need another trustee?

    No. If the fund has only one trustee which is a constitutional corporation, the requirement that each trustee of the trust is a constitutional corporation has been met.

    1.22 Private AF guideline 17 requires the trustee to notify the Commissioner in the approved form of any change to the fund's governing rules. Where can the approved form be found?

    Next steps:

    1.23 A former PPF has an individual as the only trustee. If the individual is to be replaced, does the replacement have to be a constitutional corporation?

    No. It is accepted that the replacement of the individual may be another individual.

    1.24 If a private AF has two or more corporate trustees, does private AF guideline 14 require each trustee to have at least one responsible person on its board?

    No. If there is more than one corporate trustee, and they are required by the deed to make all decisions jointly, only one responsible person is needed.

    1.25 Is there a public website for accessing the names of trustees and/or founders of private AFs , including private AF those that were formerly PPFs?

    No. The Australian Business Register (ABR) displays an entity's name, trading name and Australian business number (ABN).

    1.26 You are the person who put in the original capital to set up a private AF. Can you prescribe in your will that your estate be given to your private AF? If so, is it a settling of capital through the vesting of the estate or is it a donation?

    You can make a gift in your will to a private AF. Gifts made under a will are not deductible, but gifts of property are exempt from capital gains tax if the DGR endorsement is effective before the death of the giver.

    1.27 What is the demarcation between what is public information and what is private information of the fund?

    The information that you give the ATO in the annual return would include the name and ABN of the recipient DGR. The ATO does not make this information public.

      Last modified: 06 Dec 2016QC 24109