For high-income earners and business owners, the end of a financial year often prompts the same question: is there a smarter way to manage tax? The answer, for those with a genuine desire to give back, may lie in one of Australia’s most underutilised yet powerful philanthropic structures — the Private Ancillary Fund (PAF).
A PAF is a private charitable trust established under the Income Tax Assessment Act 1997 (Cth) and governed by the Private Ancillary Fund Guidelines 2009 (Cth), issued by the Treasurer. It allows individuals, families, and businesses to make tax-deductible contributions to a dedicated charitable fund, invest those funds over time, and distribute grants to eligible charities of their choosing — on their own timeline, and in accordance with their own values.
The Tax Benefit Is Immediate and Substantial
The headline benefit is straightforward: every dollar you contribute to a PAF is immediately deductible in full against your assessable income in the year of contribution. Contribute $1,000,000 and you receive a $1,000,000 tax deduction. For a taxpayer on the top marginal rate of 47% (including the Medicare Levy), that translates to a tax saving of up to $470,000 in a single year.
Importantly, the deduction arises at the point of contribution — not when grants are ultimately distributed to charities. This means a contributor can make a large deductible gift in a high-income year, allow the funds to accumulate and grow within the tax-exempt fund, and distribute grants to charities progressively over many years.
Structure, Control, and Legacy
A PAF is structured as a trust, with a corporate trustee — typically a proprietary limited company — holding the fund’s assets. The trustee board must include at least one Responsible Person: an independent individual who brings accountability to the governance of the fund. Family members, advisers, and community representatives may also serve as directors, making a PAF an ideal vehicle for embedding philanthropy into a family’s long-term estate plan.
Unlike a bequest, a PAF can operate across generations. Contributions can be made during a founder’s lifetime or through their estate, and the fund can continue distributing to charitable causes long after the founder has passed. It is, in the truest sense, a living legacy.
Annual Distributions and Investment
The law requires a PAF to distribute a minimum of 5% of the fund’s net assets each year (or $11,000, whichever is greater) to eligible Deductible Gift Recipient (DGR) charities. The fund’s remaining assets must be invested in accordance with a formal investment strategy, with the overriding obligation to maintain and enhance the fund’s capital for the long-term benefit of charitable purposes.
Is a PAF Right for You?
A PAF is most suitable for individuals or families who wish to contribute at least $20,000 to $50,000 to establish the fund and are committed to ongoing charitable giving. It is not a short-term tax strategy — it is a permanent, structured commitment to philanthropy.
At Hayton Kosky Lawyers, we advise clients on the establishment, governance, and ongoing compliance of Private Ancillary Funds. From drafting the trust deed and establishing the corporate trustee, to obtaining ATO endorsement as a Deductible Gift Recipient, we guide you through every step of the process.
To learn more about how a PAF works, explore our comprehensive guide — or call us directly on 03 9557 3355 to arrange a confidential consultation.
This article is intended as general legal information only and does not constitute legal advice. You should seek independent legal and financial advice tailored to your circumstances before establishing a Private Ancillary Fund.
By Hayton Kosky Lawyers | Property, Commercial & Estate Planning | Bentleigh, Victoria
Level 1, 300 Centre Road, Bentleigh VIC 3204
07052026