15Minimum annual distribution

15 Minimum annual distribution

(1) During each *financial year, a *private ancillary fund must make distributions of amounts that are in total equal to at least 5 per cent (minimum annual distribution rate) of the *market value of the fund’s net assets (as at the end of the previous *financial year) in accordance with this section.

Note 1: While net assets are used to determine the fund’s minimum distribution, the total distribution that must be made is not net of any amount (for example, expenses of the fund).

Note 2: The minimum annual distribution rate, for a financial year, may be lowered under subsections (3) and (7).

Penalty: 30 penalty units if the shortfall is greater than $1,000.

(2) Further to subsection (1), a *private ancillary fund must distribute at least $11,000 (or the remainder of the fund if that is worth less than $11,000) during a *financial year if any expenses of the fund in relation to that financial year are paid directly or indirectly from the fund’s assets or income.

Note: This means that if a fund’s expenses are met from outside the fund, its minimum annual distribution is the amount calculated under subsection (1). If any of a fund’s expenses are paid out of the fund’s assets or income, its minimum distribution is $11,000 or the amount calculated under subsection (1), whichever is greater.

(3) However, no distribution is required during the *financial year in which a *private ancillary fund is established. (4) A distribution is the provision of money, property or benefits. Where a fund distributes property or benefits, the *market value of the property or benefit provided is to be used in determining whether the fund has complied with subsection (1).

Note: Example 1: Where a private ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed.

Note: Example 2: Where a private ancillary fund grants a lease of office space to an eligible deductible gift recipient at a discount to the market price, the fund is providing a benefit the market value of which is used in calculating how much it has distributed. The fund may determine the market value as an amount equal to the discount.

Note: Example 3: Where a private ancillary fund invests in a social impact bond that is issued by an eligible deductible gift recipient and has a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit the market value of which is used in calculating how much it has distributed. The fund may determine the market value as an amount equal to the interest saved in the financial year by the deductible gift recipient from issuing the bond at a discounted rate of return.