Taxation Administration (Public Ancillary Fund) Guidelines 2022

This instrument, the Taxation Administration (Public Ancillary Fund) Guidelines 2022, replaces the Public Ancillary Fund Guidelines 2011 (Schedule 1 item 1) and sets out the minimum legal and administrative standards a public ancillary fund (a type of deductible gift recipient) and its trustee must meet to be endorsed and to remain endorsed under Schedule 1 to the Taxation Administration Act 1953 (the Act) (see s3 and the note to Part 2). The whole instrument commenced the day after registration (s2).

Mechanically, the Guidelines prescribe:

the required legal form and purposes of a public ancillary fund and its governing rules, including winding‑up destination of net assets (ss9(1)-(3), 26);
trustee composition and conduct rules, including a majority of decision‑makers who are “responsible persons”, a prudential trustee standard and disqualifications (s12);
minimum annual distribution mechanics: a baseline 4 per cent of the fund’s net assets (s15(1)), an $8,800 floor where the fund’s expenses are paid from the fund (s15(2)), a temporary exclusion period for new funds (s15(3)), and an administrative pathway for the Commissioner to reduce the minimum rate subject to factors listed in s15(10) (ss15(7)-(10));
valuation, record‑keeping, financial reporting and audit/review obligations, with timing and method requirements (ss16-19);
an investment strategy requirement and constraints on borrowing, security, related‑party acquisitions, collectables, and carrying on a business (ss20-21);
prohibitions on uncommercial transactions and on benefits to trustees, donors, founders and related parties, save for limited exceptions (s22);
rules on fees and expenses payable from the fund (s23), donor‑facing obligations including issuing receipts with the fund’s ABN and inviting the public to contribute (s24), and a general duty to comply with all Australian laws and legally binding Commissioner directions (s25);

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Commonwealth Code of Arms

Taxation Administration (Public Ancillary Fund) Guidelines 2022

I, Michael Sukkar, Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, make the following guidelines.

Dated 17 February 2022

Michael Sukkar

Assistant Treasurer Minister for Housing Minister for Homelessness, Social and Community Housing

Contents

Part 1—Preliminary

1 Name

2 Commencement

3 Authority

4 Schedules

5 Interpretation

6 Penalties

Part 2—Rules for establishing and maintaining public ancillary funds as deductible gift recipients

Division 1—General

7 Object of this Part

8 General principles

Division 2—Establishing a public ancillary fund

9 Purpose and objects of the fund

10 Not‑for‑profit

11 Operated only in Australia

12 Trustees

13 Change to governing rules

14 Trustee liability

Division 3—Operation of a public ancillary fund

15 Minimum annual distribution

16 Valuations

17 Keeping accounts

18 Financial statements

19 Audits

20 Investment strategy

21 Investment limitations

22 Uncommercial transactions and benefits to founders and donors

23 Fees and expenses

24 Donors

25 Compliance with all relevant laws

Division 4—Winding up, or ceasing to be, a public ancillary fund

26 Winding up, or ceasing to be, a public ancillary fund

27 Portability

Part 3—Application and transitional provisions

Division 1—Transitional rules for pre‑2012 public ancillary funds

28 Governing rules inconsistent with these guidelines

Division 2—Things done under the Public Ancillary Fund Guidelines 2011

29 Things done under the Public Ancillary Fund Guidelines 2011

Division 3—Transitional rule: coronavirus economic response

30 Carry forward credit for distributions in excess of minimum

Schedule 1—Amendments

Public Ancillary Fund Guidelines 2011

Taxation Administration (Private Ancillary Fund) Guidelines 2019

Part 1—Preliminary

1 Name

This instrument is the Taxation Administration (Public Ancillary Fund) Guidelines 2022.

2 Commencement

(1) Each provision of this instrument specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

Commencement information
Column 1 Column 2 Column 3
Provisions Commencement Date/Details
1. The whole of this instrument The day after this instrument is registered.

Note: This table relates only to the provisions of this instrument as originally made. It will not be amended to deal with any later amendments of this instrument.

(2) Any information in column 3 of the table is not part of this instrument. Information may be inserted in this column, or information in it may be edited, in any published version of this instrument.

3 Authority

This instrument is made under the Taxation Administration Act 1953.

4 Schedules

Each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.

5 Interpretation

(1) In this instrument:

distribution has the meaning given by subsection 15(4).

governing rules has the same meaning as in the Australian Charities and Not‑for‑profits Commission Act 2012.

responsible person has the meaning given by subsections 12(7) and (8).

the Act means the Taxation Administration Act 1953.

trustee, if a fund has 2 or more trustees, means all of those trustees jointly, or any of them severally, as the case requires.

(2) Paragraph 13(1)(b) of the Legislation Act 2003 has effect in relation to this instrument as if the reference in that paragraph to the enabling legislation was a reference to Schedule 1 to the Act.

Note 1: The effect of modifying paragraph 13(1)(b) of the Legislation Act 2003 is that expressions have the same meaning in this instrument as in Schedule 1 to the Act as in force from time to time.

Note 2: Under section 3AA of the Act, an expression has the same meaning in Schedule 1 as in the Income Tax Assessment Act 1997.

(3) The interpretation rules in Division 950 of Income Tax Assessment Act 1997 also apply to this instrument.

Note 1: To find definitions of asterisked terms: see section 995‑1 of the Income Tax Assessment Act 1997. However, some defined terms may not be asterisked: see section 2‑15 of the Income Tax Assessment Act 1997.

Note 2: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

6 Penalties

If a person is liable to an administrative penalty under section 426‑120 in Schedule 1 to the Act because of a contravention of a provision of this instrument, the amount of the administrative penalty is the penalty that this instrument sets out, or the penalty worked out in accordance with this instrument, in relation to that provision of this instrument.

Note 1: The Commissioner may remit all or part of an administrative penalty: see section 298‑20 in Schedule 1 to the Act.

Note 2: An administrative penalty under section 426‑120 in Schedule 1 to the Act cannot be reimbursed from the fund: see subsection 426‑120(4) in Schedule 1 to the Act.

Part 2—Rules for establishing and maintaining public ancillary funds as deductible gift recipients

Note: This Part sets out the rules, made under section 426‑103 in Schedule 1 to the Act, a public ancillary fund and its trustee must comply with in order for the fund to be endorsed, and remain endorsed, as a deductible gift recipient.

Division 1—General

7 Object of this Part

The object of this Part is to set minimum standards for the governance and conduct of a *public ancillary fund and its trustee.

8 General principles

A *public ancillary fund must be established, maintained and wound up in accordance with the following principles:

(a) it is an *ancillary fund; and

(b) it is philanthropic in character; and

(d) it is a trust that meets all of the following:

(i) it seeks to comply with all relevant laws and obligations; and

(ii) it is open, transparent and accountable to the public (through the Commissioner of Taxation, and if it is a *registered charity, the Commissioner of the Australian Charities and Not‑for‑profits Commission).

Note: This section is not intended to affect either Commissioner’s obligations to protect the confidentiality of a public ancillary fund’s information under privacy, and secrecy and disclosure laws.

Division 2—Establishing a public ancillary fund

9 Purpose and objects of the fund

(1) A *public ancillary fund must be established and maintained, under a will or an instrument of trust, as a valid trust.

(2) A *public ancillary fund must be established and maintained solely as described in item 2 of the table in section 30‑15 of the Income Tax Assessment Act 1997.

(3) A *public ancillary fund’s governing rules must:

(a) include objects that clearly set out the purposes of the fund; and

(b) require that, on the fund winding up or ceasing to be a public ancillary fund, its net assets must be provided to a recipient described in paragraph (a) of item 2 of the table in section 30‑15 of the Income Tax Assessment Act 1997.

Note: Paragraph (a) of item 2 of the table in section 30‑15 provides that the sole purpose of an ancillary fund must be to provide money, property or benefits to a fund, authority or institution, gifts to which are deductible under item 1 of that table.

10 Not‑for‑profit

(1) A *public ancillary fund must be established and operated as a not‑for‑profit entity.

(2) A *public ancillary fund’s governing rules must clearly set out that it is established and operated as a not‑for‑profit entity.

11 Operated only in Australia

(1) A *public ancillary fund must be established and operated only in Australia.

(2) However, subsection (1) does not prevent a *public ancillary fund from making a distribution to an eligible *deductible gift recipient that operates outside Australia.

12 Trustees

(1) The trustee of a *public ancillary fund must exercise the same degree of care, diligence and skill that a prudent individual would exercise in managing the affairs of others.

(2) At all times, a majority of the individuals involved in the decision‑making of a *public ancillary fund must be responsible persons.

Note: This requirement is similar to (but stricter than) the requirement applying to private ancillary funds (see Taxation Administration (Private Ancillary Fund) Guidelines 2019).

(3) A responsible person must be an active director of the trustee or an active member of any other controlling body of the fund.

(4) The trustee, or any other controlling body of the fund, must not exercise any discretion or power while subsections (2) and (3) are not being complied with, except:

(a) to appoint a new trustee; or

(b) to protect the property of the fund; or

(5) Subsections (2), (3) and (4) do not apply to a *public ancillary fund that has the public trustee of a State or Territory as its trustee.

(6) An individual must not be a director of a trustee, or a member of any other controlling body of the fund, if the individual has been convicted of a taxation offence (within the meaning of Part III of the Act) that is an indictable offence. If an existing director or member is convicted of such an offence, the individual must cease to be a director within 1 month after the conviction.

(7) A responsible person is an individual with a degree of responsibility to the Australian community as a whole, and includes an individual before whom a statutory declaration may be made.

Note: Generally, individuals who are accepted as having a degree of responsibility to the community as a whole are known to a broad section of the community because they perform a public function or they belong to a professional body which has a professional code of ethics and rules of conduct. Individuals who have received formal recognition from the Government for their services to the community (for example, an Order of Australia award) will also usually have the requisite degree of responsibility. For further information see Taxation Ruling TR 95/27 which can be viewed on the Australian Taxation Office’s website (http://www.ato.gov.au).

Example: An individual before whom a statutory declaration may be made includes those who are licensed or registered to practise in a range of occupations such as a dentist, legal or medical practitioner; a nurse, a pharmacist, a bailiff, a bank officer or officer of a building society or credit union with 5 or more continuous years of service; a clerk of the court; a justice of the peace, a judge, a magistrate; a member of various professional associations including a member of Engineers Australia, a member of Chartered Secretaries Australia; a member of the various professional accounting associations in Australia; a marriage celebrant, mayors, town clerks and members of Parliament; a government employee with 5 or more years of continuous service; a teacher employed on a full‑time basis at a school or tertiary education institution.

13 Change to governing rules

(1) The trustee must notify the Commissioner, in the *approved form, of any change to *public ancillary fund governing rules within 21 days of the change being made.

Note: Significant changes to a fund’s governing rules may affect the fund’s entitlement to remain endorsed as a deductible gift recipient.

Penalty: 5 penalty units.

(2) However, the trustee does not need to notify the Commissioner under subsection (1) if the trustee is required to notify the Commissioner of the Australian Charities and Not‑for‑profits Commission of the same information under Division 65 of the Australian Charities and Not‑for‑profits Commission Act 2012.

14 Trustee liability

The governing rules of a *public ancillary fund must prohibit the fund from indemnifying the trustee, or an employee, officer or *agent of the trustee, for a loss or liability attributable to:

(a) a deliberate act or omission known by the trustee, employee, officer or agent to be a breach of trust; or

(b) dishonesty of the trustee, employee, officer or agent; or

Note: An administrative penalty under section 426‑120 in Schedule 1 to the Act cannot be reimbursed from the fund, see subsection 426‑120(4) in Schedule 1 to the Act.

Division 3—Operation of a public ancillary fund

15 Minimum annual distribution

(1) During each *financial year, a *public ancillary fund must make distributions of amounts that are in total equal to at least 4 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 *public ancillary fund must distribute at least $8,800 (or the remainder of the fund if that is worth less than $8,800) 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 $8,800 or the amount calculated under subsection (1), whichever is greater.

(3) However, no distribution is required during the *financial year in which a *public ancillary fund is established or during the 4 financial years following the financial year in which the fund is established.

Note: While this instrument does not require a minimum annual distribution for newly established public ancillary funds, the trustee should still have regard to the purpose of the fund when deciding on an appropriate annual distribution during those early years.

(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).

Example 1: Where a public 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.

Example 2: Where a public 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.

Example 3: Where a public 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.

Example 4: Where a public ancillary fund lends money to an eligible deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm’s length, the fund is providing the borrower with a benefit equal to the market value of the interest forgone in the financial year by the lender because the borrower was not charged an arm’s length rate of interest.

Example 5: Where a public ancillary fund guarantees a loan provided by a financial institution to an eligible deductible gift recipient, the fund is providing a benefit the market value of which is used in calculating how much it has distributed. The fund may determine market value as an amount equal to the discount to the interest rate which would otherwise be charged on a comparable arm’s length unsecured loan sourced from that financial institution.

Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is also a distribution (being the provision of money, property or benefits).

Note: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient—see Subdivision 960‑M of the Income Tax Assessment Act 1997.

(5) If the Commissioner requests the trustee to rectify a shortfall in the distribution for a *financial year, the trustee must comply with the request within 60 days.

Penalty: 10 per cent of the shortfall as at the end of the 60 days reduced, but not below nil, by any penalty under subsection (1).

(6) A distribution made to rectify a contravention of subsection (1) does not count towards compliance with that subsection for a later year in which the rectification occurs.

Accessing a lower minimum distribution rate for a financial year

(7) Upon application, in the *approved form, the Commissioner may reduce (but not to zero) the minimum annual distribution rate for a fund for a *financial year. The reduction may be subject to any conditions the Commissioner thinks fit.

(8) The Commissioner may reduce the minimum annual distribution rate only if the Commissioner is satisfied that there are circumstances that warrant the Commissioner reducing the rate, having regard to the matters listed in subsection (10).

(9) The Commissioner may reduce the minimum annual distribution rate at any time, including after the relevant financial year has ended.

(10) In determining whether, and by how much to reduce the rate, the Commissioner must have regard to:

(a) the purpose and object of the fund; and

(b) the general market conditions in Australia; and

(d) the long‑term impact on the assets of the fund from not reducing the rate for a *financial year; and

(e) the level of distributions made by the fund in previous financial years; and

(f) the investment strategy and distribution strategy of the fund; and

(g) the size of the fund; and

(h) the compliance history of the fund and the trustee; and

(i) the fees and expenses of the fund; and

(j) the terms and other circumstances relating to any gift to the fund under a will; and

(k) any other matter the Commissioner considers relevant.

Note: Having regard to general market conditions in Australia could include reviewing the Reserve Bank of Australia’s target for the cash rate (which is the overnight money market interest rate), the base interest rate, current returns of other ancillary funds (year on year), and the performance of approved stock exchanges. It could also include examining changes in conditions over time.

(11) A *public ancillary fund that is dissatisfied with a decision of the Commissioner covered by subsection (12) may object against the decision in the manner set out in Part IVC of the Act.

(12) This subsection covers the following decisions of the Commissioner:

(a) a decision not to reduce the annual distribution rate under subsection (7) (after receiving an application as described in that subsection);

(b) a decision not to reduce the annual distribution rate under subsection (7) to the extent requested in an application (as described in that subsection);

16 Valuations

(1) The *market value of a *public ancillary fund’s assets (other than land) must be estimated at least annually.

Note: See section 2B of the Acts Interpretation Act 1901 for the meaning of ‘land’.

(2) The *market value of land must be estimated at intervals of no more than 3 *financial years. Except as otherwise provided by this section, each estimate of the market value of land is to be used until a new estimate is obtained.

(3) Subject to subsections (4) and (7), the trustee may itself estimate the *market value or arrange for a qualified valuer or another appropriate entity to make an estimate.

Note 1: It is not intended that making or arranging for an estimate of market value be onerous or expensive. However, it may be prudent for a trustee to consider using a qualified valuer if the value of an asset represents a significant proportion of the fund’s value or if the nature of the asset means that a valuation is likely to be difficult or complex.

Note 2: The trustee may ask the Commissioner to undertake a valuation. The Commissioner may charge the trustee for undertaking a valuation, see section 359‑40 in Schedule 1 to the Act.

(4) However, the *market value of land must be estimated by a qualified valuer or by the Commissioner.

(5) An estimate must be of the *market value as at the end of the relevant *financial year.

(6) An estimate must be conducted within 2 months before or after the end of the relevant *financial year for each asset unless to do so would be unnecessarily onerous and expensive. All estimates must be completed no later than before the fund is required to give to the Commissioner the funds *income tax return for the relevant *financial year.

Note: A public ancillary fund is required to lodge an income tax return even if it is exempt from income tax. The Commissioner will approve an appropriate income tax return form for public ancillary funds.

(7) If the Commissioner considers an estimate of the *market value of any asset to be unreasonable, the Commissioner may request the trustee to arrange for another estimate to be obtained in the manner the Commissioner stipulates. The trustee must comply with the request.

Note: The Commissioner may seek the trustee’s agreement to undertake the valuation or the trustee may ask the Commissioner to undertake the valuation. Where the Commissioner undertakes a valuation, the Commissioner may charge the trustee for undertaking that valuation, see section 359‑40 in Schedule 1 to the Act.

(8) Whoever makes the estimate must base it on reasonably objective and supportable data. The methodology and data used for an estimate must be documented in the fund’s records. Where an estimate is obtained from a qualified valuer, the trustee must also obtain from the valuer a written estimate which also sets out the valuation methodology and refers to any supporting materials used in making the estimate.

17 Keeping accounts

(1) The trustee of a *public ancillary fund must keep, or cause to be kept, proper accounts in respect of all of the fund’s receipts and payments and all financial dealings connected with the fund, and must retain those accounts for at least 5 years after the completion of the transactions or acts to which they relate.

Note: See also Subdivision 382‑B in Schedule 1 to the Act for rules about record‑keeping obligations of deductible gift recipients.

Penalty: 10 penalty units.

(2) The trustee must make the accounts available to the Commissioner on request.

Penalty: 10 penalty units.

18 Financial statements

(1) The trustee of a *public ancillary fund must prepare, or cause to be prepared, a financial report showing the fund’s financial position for each *financial year. The financial report must be prepared in accordance with this section.

Penalty: 10 penalty units.

(2) The financial report must be prepared in accordance with the *accounting standards.

Note: If a fund is required to prepare, and does prepare, a financial report in accordance with Subdivision 60‑C of the Australian Charities and Not‑for‑profits Commission Act 2012, it will have satisfied this section.

(3) All transactions (other than gifts of money) between a *public ancillary fund and a founder of the fund, a *relative of the founder, a donor to the fund, a *relative of the donor, the trustee, a director, officer, *agent, *member or employee of the trustee, or an *associate of any of these entities must be disclosed in the financial report.

(4) The financial statements must be prepared before the trustee is required to give to the Commissioner the fund’s *income tax return for the relevant *financial year.

(5) The trustee must make the financial report available to the Commissioner of Taxation on request, unless the financial report has already been given to the Commissioner of the Australian Charities and Not‑for‑profits Commission.

Penalty: 10 penalty units.

19 Audits

(1) In relation to each *financial year, the trustee of a *public ancillary fund must arrange for a registered company auditor (within the meaning of the Corporations Act 2001) to audit (in accordance with this section):

(a) the financial report of the fund; and

(b) compliance with this instrument by the fund and the trustee.

Penalty: 10 penalty units.

(2) Despite subsection (1), if the trustee is the public trustee of a State or Territory, it may have the Auditor‑General of that State or Territory undertake the audit.

(3) Despite subsection (1) and unless the Commissioner, by written notice, provides otherwise in relation to a particular *public ancillary fund, a fund that meets both of the following:

(a) revenue of less than $1 million for a financial year; and

(b) assets of less than $1 million for a financial year;

may instead have its financial report, and compliance with this instrument, for that year reviewed rather than audited.

(4) A reviewer must also be a registered company auditor (within the meaning of the Corporations Act 2001). However, an individual who is taken to be a registered company auditor under section 324BE of the Corporations Act 2001 is also taken to be a registered company auditor for the purpose of this subsection.

Note: Section 324BE has the effect of widening the class of individuals who can undertake a review to all members of a professional accounting body.

(5) The auditor or reviewer must undertake the audit or review, and provide the fund with a report, in accordance with the *auditing standards.

(6) The audit or review must be finalised before the fund is required to give to the Commissioner the fund’s *income tax return for the relevant *financial year.

(7) The trustee must make the report available to the Commissioner of Taxation on request, unless the report has already been given to the Commissioner of the Australian Charities and Not‑for‑profits Commission.

Penalty: 10 penalty units.

20 Investment strategy

(1) The trustee of a *public ancillary fund must prepare and maintain a current investment strategy for the fund in accordance with this section.

Penalty: 10 penalty units.

(2) An investment strategy must set out the investment objectives of the fund and detail the investment methods the trustee will adopt to achieve those objectives.

(3) An investment strategy must also reflect the purpose and circumstances of the fund and have particular regard to:

(a) the risk involved in making, holding and realising, and the likely return from, the fund’s investments, having regard to the fund’s objects and its expected cash flow requirements (including distribution requirements); and

(b) the composition of the fund’s investments as a whole, including the extent to which the investments are diverse or expose the fund to risks from inadequate diversification; and

(c) the liquidity of the fund’s investments, having regard to its expected cash flow requirements (including distribution requirements); and

(d) the ability of the fund to discharge its existing and prospective liabilities; and

(e) the investment restrictions imposed by *Australian laws; and

(f) the status of the fund as a *registered charity (if relevant); and

(g) material conflicts of interest (whether actual or perceived) in holding particular investments (including conflicts affecting individuals involved in the decision‑making of the fund); and

(h) the terms and other circumstances relating to any gift to the fund under a will.

(4) The trustee must implement the investment strategy, and must ensure that all investment decisions are made in accordance with it.

Penalty: 15 penalty units.

(5) The investment strategy (and a record of the associated decision‑making processes) must be available in writing so that the trustee, an auditor, a reviewer or the Commissioner can determine whether the fund has complied with this instrument and other *Australian laws.

Penalty: 10 penalty units.

21 Investment limitations

(1) The trustee of a *public ancillary fund must not *borrow money or maintain an existing borrowing of money.

Penalty: 30 penalty units.

(2) However, subsection (1) does not prohibit a trustee from *borrowing money if:

(a) the purpose of the borrowing is to enable the trustee to make a distribution, to a *deductible gift recipient, to comply with this instrument; and apart from the borrowing, the trustee would be unable to make the distribution; and

(b) the period of the borrowing does not exceed 90 days; and

(c) the borrowing, when made, would not result in total borrowings by the fund exceeding 10 per cent of the *market value of the fund’s assets.

(3) Subsection (1) also does not apply to the acquisition of a financial instrument excluded by the Commissioner, by written notice, from that subsection in relation to a fund.

(4) The trustee of a *public ancillary fund must ensure the fund’s investments are made and maintained on an *arm’s length basis, unless another provision of this instrument allows otherwise.

Penalty: 30 penalty units.

(5) The trustee of a *public ancillary fund must not give a security over, or in relation to, an asset of the fund.

Penalty: 30 penalty units.

(6) However, subsection (5) does not apply to:

(a) a financial instrument excluded by the Commissioner from that subsection in relation to a fund; or

(b) an agreement to guarantee the repayment of any money lent by an arm’s length creditor (including any related unpaid interest or fees) for the sole benefit of one or more *deductible gift recipients to which the fund may make a distribution.

(7) The trustee of a *public ancillary fund:

(a) must ensure the fund does not acquire an asset (except by way of gift) from; and

(b) must not make a loan or provide any other kind of financial assistance to;

a founder of the fund, a *relative of the founder, a donor to the fund, a *relative of the donor, the trustee, a director, officer, agent, *member or employee of the trustee, or an *associate of any of these entities except:

(d) on terms each of which is more favourable to the fund than would otherwise be expected under an arms’ length transaction.

Penalty: 30 penalty units.

(8) The trustee of a *public ancillary fund must keep the assets of the fund separate from all other assets.

Penalty: 30 penalty units.

(9) However, subsection (8) does not prevent a licensed trustee company (within the meaning of the Corporations Act 2001) or the public trustee of a State or Territory from operating common funds for investment purposes.

(10) The trustee of a *public ancillary fund must ensure that the fund does not acquire an asset (except by way of gift) if the asset is a *collectable (or would be a collectable but for the asset not being used or kept mainly for an entity’s personal use or enjoyment). If the fund acquires such an asset by way of gift, it must sell or distribute the asset within 12 months after acquiring it.

Penalty: 30 penalty units.

(11) The trustee of a *public ancillary fund must ensure the fund does not *carry on a *business.

Penalty: An amount equal to 25 per cent of the net profit (if any) of the business for each *financial year during all or part of which the contravention continues.

(12) However, a trustee does not contravene subsection (11) in the following situations:

(a) merely because the fund’s passive investment activities, because of repetition, volume and regularity, mean that the fund is *carrying on a *business;

(b) the fund undertakes a public fundraising appeal.

Note: This subsection has the effect that the mere holding of, or dealing in, investments, such as shares or rental properties, for the purpose of deriving income that can be distributed to eligible deductible gift recipients, does not contravene subsection (11).

Example: A public fundraising appeal would including a public appeal for donations, a lamington drive, a raffle, and a charity ball.

22 Uncommercial transactions and benefits to founders and donors

(1) The trustee of *public ancillary fund must ensure the fund does not enter into any transaction that is uncommercial when entered into, unless the transaction is:

(a) with a *deductible gift recipient covered by item 1 in the table in section 30‑15 of the Income Tax Assessment Act 1997; and

(b) in the course or furtherance of the fund’s purpose.

Penalty: 30 penalty units.

(2) However, subsection (1) does not prevent the fund from entering into an uncommercial transaction on terms each of which is more favourable to the fund than would otherwise be expected under an arms’ length transaction.

(3) The trustee of a *public ancillary fund must ensure the fund does not *provide any benefit (except as set out in section 23), directly or indirectly, to:

(a) the trustee; or

(b) a *member, director, employee, *agent or officer of the trustee; or

(d) a founder of the fund; or

(e) a *relative of an individual covered by paragraph (c) or (d); or

(f) an *associate of any of those entities (other than a *deductible gift recipient).

Penalty: An amount equal to the amount or value of the benefit provided.

23 Fees and expenses

The trustee of a *public ancillary fund may apply income or capital of the fund:

(a) to pay or reimburse the trustee for reasonable expenses incurred on behalf of the fund; and

(b) to pay fair and reasonable remuneration for the trustee’s services in administering the fund.

24 Donors

Note: A public ancillary fund is public in nature. This characteristic implies that it was and remains the intention of the founders or promoters of the fund that the public will contribute to the fund and that the public participates in the administration of the fund. These features of a public ancillary fund can be contrasted with those of a private ancillary fund where there is a close relationship between those who establish the fund, those who donate to it and those that operate the fund.

(1) The trustee of a *public ancillary fund must ensure the public is regularly invited to contribute to the fund.

Penalty: 30 penalty units.

Note 1: Due to the public nature of a public ancillary fund, it will be good governance for a trustee to review non‑binding preferences and other feedback provided by donors, before making distributions, unless the governing rules provide otherwise.

Note 2: A public ancillary fund may establish sub‑funds in relation to donations from particular donors. However, the fund cannot be under any obligation to comply with requests from those donors.

(2) The fund must:

(a) issue a receipt for every gift it receives; and

(b) include on the receipt the name and *ABN of the fund, the name of the donor and a statement that the receipt is for a gift received by the fund.

25 Compliance with all relevant laws

The trustee of a *public ancillary fund must ensure the trustee and the fund comply with all relevant *Australian laws, all legally binding directions given to the trustee by the Commissioner and all the requirements contained in this instrument.

Division 4—Winding up, or ceasing to be, a public ancillary fund

26 Winding up, or ceasing to be, a public ancillary fund

If a fund is wound up, or ceases to be a *public ancillary fund, all of the fund’s net assets must be provided as described in paragraph (a) of item 2 of the table in section 30‑15 of the Income Tax Assessment Act 1997.

Note: see also subsection 9(3).

27 Portability

(1) With the agreement of the Commissioner, a *public ancillary fund may transfer assets to another *ancillary fund if:

(a) the public ancillary fund does one of the following:

(i) if the public ancillary fund operates sub‑funds—the fund transfers all of the net assets of one of more sub‑funds to that ancillary fund; or

(ii) otherwise—transfers all of its net assets to that ancillary fund; and

(b) the public ancillary fund has already complied with section 15 for that financial year (about minimum annual distributions); and

(c) none of the net assets referred to in paragraph (a) have been received from another ancillary fund during the 2 previous financial years.

(2) The Commissioner must not agree to a transfer of assets under subsection (1) if the transfer involves transferring assets contributed, either directly or indirectly, by the general public from a public ancillary fund to a private ancillary fund.

Part 3—Application and transitional provisions

Division 1—Transitional rules for pre‑2012 public ancillary funds

Note: This Division sets out transitional rules modifying how Part 2 applies to a public ancillary fund that was endorsed as a deductible gift recipient under item 2 in the table in section 30‑15 of the Income Tax Assessment Act 1997 at the end of 30 December 2011.

28 Governing rules inconsistent with these guidelines

(1) If:

(a) a *public ancillary fund does not have only trustees that are a *constitutional corporations; and

(b) the fund was a public ancillary fund that was endorsed as a *deductible gift recipient under item 2 in the table in section 30‑15 of the Income Tax Assessment Act 1997 at the end of 30 December 2011;

then subsection 12(3) does not apply to the fund. Instead, a majority of the active trustees must be responsible persons.

(2) If a *public ancillary fund had an existing borrowing on 30 December 2011, the fund may maintain that borrowing despite subsection 21(1). However, the fund may not alter the terms of the borrowing without the prior agreement of the Commissioner.

Division 2—Things done under the Public Ancillary Fund Guidelines 2011

Note: This Division sets out transitional rules modifying how Part 2 applies to a public ancillary fund to ensure a seamless transition between the Public Ancillary Fund Guidelines 2011 and this instrument.

29 Things done under the Public Ancillary Fund Guidelines 2011

(1) If:

(a) a thing was done for a particular purpose under the Public Ancillary Fund Guidelines 2011 as in force immediately before that instrument was repealed; and

(b) the thing could be done for that purpose under this instrument;

the thing has effect for the purposes of this instrument as if it had been done for that purpose under this instrument.

(2) Without limiting subsection (1), a reference in that subsection to a thing being done includes a reference to a notice, application or other instrument being given or made.

Division 3—Transitional rule: coronavirus economic response

30 Carry forward credit for distributions in excess of minimum

(1) This section applies to a *public ancillary fund if the fund exceeded its annual minimum distribution for the *financial years 2019‑20 to 2020‑21, as calculated under subsection (2), by more than 4.

(2) Work out how much a *public ancillary fund exceeded its annual minimum distribution for the *financial years 2019‑20 to 2020‑21 as follows:

Method statement

Step 1. Work out the fund’s actual distribution for the 2019‑20 financial year by dividing the fund’s distributions made in that financial year by the *market value of the fund’s net assets (as at the end of the previous financial year). The result should be expressed as a percentage and rounded to the nearest whole number.

Step 2. Work out the fund’s actual distribution for the 2020‑21 financial year by dividing the fund’s distributions made in that financial year by the market value of the fund’s net assets (as at the end of the previous financial year). The result should be expressed as a percentage and rounded to the nearest whole number.

Step 3. Add the result of step 1 with the result of step 2.

Step 4. Reduce the result of step 3 by 8, but not so as to reduce the result to an amount less than nil. The result is how much a *public ancillary fund exceeded its annual minimum distribution for the financial years 2019‑20 to 2020‑21.

(3) Where this section applies, the minimum annual distribution rate for a *public ancillary fund the purposes of subsection 15(1) for a *financial year covered by subsection (4) of this section is 3 per cent.

(4) The following are the *financial years covered by this subsection for a *public ancillary fund:

(a) the 2021‑22 financial year; and

(b) the 2022‑23 financial year; and

(c) a subsequent financial year or years for each amount of 2 the result of the method statement in subsection (2) exceeds 4.

Example: If the result of the method statement in subsection (2) is 7 for a public ancillary fund, the 2023‑24 financial year is also covered by subsection (4).

Schedule 1—Amendments

Public Ancillary Fund Guidelines 2011

1 The whole of the instrument

Repeal the instrument.

Taxation Administration (Private Ancillary Fund) Guidelines 2019

2 At the end of section 15

Add:

(11) A *private ancillary fund that is dissatisfied with a decision of the Commissioner covered by subsection (12) may object against the decision in the manner set out in Part IVC of the Act.

(12) This subsection covers the following decisions of the Commissioner:

(a) a decision not to reduce the annual distribution rate under subsection (7) (after receiving an application as described in that subsection);

(b) a decision not to reduce the annual distribution rate under subsection (7) to extent requested in an application (as described in that subsection);

3 Section 27 (Note 2)

Omit “Public Ancillary Fund Guidelines 2011”, substitute “Taxation Administration (Public Ancillary Fund) Guidelines 2022”.

4 Paragraph 29(1)(a)

Omit “single”, substitute “sole”.

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Taxation Administration (Public Ancillary Fund) Guidelines 2022

I, Michael Sukkar, Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, make the following guidelines.

Dated 17 February 2022

Michael Sukkar

Assistant Treasurer Minister for Housing Minister for Homelessness, Social and Community Housing

Contents

Part 1—Preliminary

1 Name

2 Commencement

3 Authority

4 Schedules

5 Interpretation

6 Penalties

Part 2—Rules for establishing and maintaining public ancillary funds as deductible gift recipients

Division 1—General

7 Object of this Part

8 General principles

Division 2—Establishing a public ancillary fund

9 Purpose and objects of the fund

10 Not‑for‑profit

11 Operated only in Australia

12 Trustees

13 Change to governing rules

14 Trustee liability

Division 3—Operation of a public ancillary fund

15 Minimum annual distribution

16 Valuations

17 Keeping accounts

18 Financial statements

19 Audits

20 Investment strategy

21 Investment limitations

22 Uncommercial transactions and benefits to founders and donors

23 Fees and expenses

24 Donors

25 Compliance with all relevant laws

Division 4—Winding up, or ceasing to be, a public ancillary fund

26 Winding up, or ceasing to be, a public ancillary fund

27 Portability

Part 3—Application and transitional provisions

Division 1—Transitional rules for pre‑2012 public ancillary funds

28 Governing rules inconsistent with these guidelines

Division 2—Things done under the Public Ancillary Fund Guidelines 2011

Public ancillary funds are governed as trusts established and maintained solely for the ancillary purposes described in item 2 of the table in s30‑15 of the Income Tax Assessment Act 1997 (s9(2)). The Guidelines treat a public ancillary fund as a philanthropic trust vehicle that must be transparent and accountable to the Commissioner of Taxation and, where applicable, to the Australian Charities and Not‑for‑profits Commission (ACNC) (s8(d)(ii) and associated note).

Key definitional and conceptual anchors in the instrument are:

distribution: the term is defined by reference to subsection 15(4) (see s5(1)). Subsection 15(4) makes clear a distribution is the provision of money, property or benefits, and that when property/benefits are provided the market value is used for compliance calculations. The Guidelines provide worked examples to make clear that discounted leases, concessional loans, guarantees and forgiven interest are treated as distributions measured by market value (s15(4) and examples).
governing rules: the instrument uses the same phrase as the ACNC Act and requires governing rules to set out objects and winding‑up recipients (s9(3)). A trustee must notify the Commissioner of changes to governing rules in the approved form within 21 days (s13(1)).
responsible person: defined in ss12(7)-(8) and used to require a majority of decision‑makers to be responsible persons (s12(2)). The Guidelines give examples and reference Taxation Ruling TR 95/27 as guidance on who is a responsible person (s12 note and examples). Where the public trustee of a State or Territory is trustee, some of these requirements do not apply (s12(5)).
minimum annual distribution: the 4 per cent rule uses the market value of net assets at the end of the previous financial year as the base (s15(1)). The instrument includes a floor of $8,800 when expenses of the fund are paid from fund assets (s15(2)), and a dawn‑period of four financial years post‑establishment with no required distribution (s15(3)). The Commissioner can reduce the rate below 4 per cent but not to zero, subject to factors listed in s15(10), and such decisions are open to objection under Part IVC of the Act (s15(7)-(12)).
valuation and market value: trustees must estimate market value of assets at least annually (other than land) and land at intervals no greater than three financial years; land valuations must be by a qualified valuer or the Commissioner (s16(1)-(4)). Methodology and data must be documented (s16(8)).
investment and operational limits: trustees must prepare and implement an investment strategy (s20), must not borrow except in narrow circumstances (s21(1)-(2)), must maintain arm’s length investments (s21(4)), must not give security over fund assets (s21(5)) except for Commissioner exclusions or specified guarantees (s21(6)), and must avoid acquiring collectables (s21(10)) or carrying on a business, subject to specific exceptions (s21(11)-(12)).
conflicts and related‑party rules: uncommercial transactions are prohibited except where they are with certain deductible gift recipients and in furtherance of the fund’s purpose (s22(1)), and benefits to trustees, donors, founders and their relatives/associates are prohibited save for narrowly permitted fees and expenses (ss22(3), 23).

The Guidelines incorporate external legal standards: accounting standards for financial reports (s18(2)), auditing standards and the Corporations Act definition of registered company auditor (s19(1), (4)), record‑keeping rules under Subdivision 382‑B in Schedule 1 to the Act (s17 note), and cross‑references to the Acts Interpretation Act and the Crimes Act for terms and penalty unit values (s16 note; s5(3) notes).

Primary actors subject to obligations under the Guidelines are trustees of public ancillary funds. The instrument repeatedly states duties are owed by the trustee to prepare strategies, keep accounts, lodge valuations, obtain audits or reviews, and to make distributions (ss12, 15-21). The term trustee also encompasses multiple trustees acting jointly or severally (s5(1)).

Specific groups affected:

trustees and their officers: trustees must meet a prudential standard of care (s12(1)); governing rules must prohibit indemnification for deliberate breaches, dishonesty or gross negligence (s14); trustees must maintain separate fund assets and comply with investment rules (ss21(8), 20); trustees must notify the Commissioner of governing rule changes (s13).
responsible persons and board composition: a majority of individuals involved in decision‑making must be responsible persons (s12(2)-(3)); this affects board selection and governance practices. Persons convicted of specified taxation indictable offences are disqualified from being a director or member (s12(6)).
donors and founders: donors are constrained by the fund’s obligation not to provide improper benefits (s22); founders are prohibited from receiving benefits except on arms‑length or more favourable terms to the fund (s21(7)). Donors are entitled to receive receipts including the fund’s ABN and name (s24(2)), but donor preferences are non‑binding unless governing rules provide otherwise (s24 note).
beneficiaries / deductible gift recipients: public ancillary funds must distribute to entities within the scope set out in item 2 of s30‑15 ITAA 1997 and must provide for eligible recipients on winding up (ss9(2)-(3), 26). The Guidelines also allow distributions to eligible recipients operating outside Australia, subject to the “operated only in Australia” requirement for the fund itself (s11(1)-(2)).
auditors and reviewers: funds must engage a registered company auditor to audit the financial report and compliance (s19(1)); smaller funds under $1 million revenue and $1 million assets may have a review instead, but the reviewer must be a registered company auditor or an individual treated as such under s324BE of the Corporations Act (s19(3)-(4)).
the Commissioner of Taxation and the ACNC: the Commissioner is the primary regulator under these Guidelines. The Commissioner has powers to approve valuation methodologies (note to s15(4) referring to Subdivision 960‑M ITAA 1997), to reduce distribution rates and impose conditions (s15(7)-(10)), to request valuations or undertake them (s16(3)-(4) and note), to require rectification of distribution shortfalls (s15(5)), and to approve portability of assets (s27). The ACNC is referenced as an additional accountability channel where the fund is a registered charity (s8(d)(ii), s18(2) note).
public trustee and trustee companies: the Guidelines carve out special treatment for funds with a State or Territory public trustee as trustee (s12(5)), and allow licensed trustee companies to operate common investment funds (s21(9)).

The Schedule 1 amendments also affect private ancillary funds by inserting an explicit objection right mirroring public ancillary funds to certain Commissioner decisions (Schedule 1 item 2). Transitional rules in Part 3 affect pre‑2012 funds and funds with borrowings existing on 30 December 2011 (s28).

The Guidelines impose a set of specific fiduciary and compliance duties on trustees, and parallel rights for funds to seek administrative relief.

Trustee duties (selected):

duty of care: trustees must exercise the care, diligence and skill of a prudent individual managing affairs of others (s12(1)). This sets a standard to which the trustee’s investment strategy, valuation choices and distribution decisions must conform.
composition and decision‑making: a majority of decision‑makers must be responsible persons (s12(2)-(3)), with limited exceptions for public trustees (s12(5)). Trustees must not exercise powers if subsections (2) and (3) are not complied with except to appoint a trustee, protect property, or deal with urgent matters (s12(4)).
governing rules and notification: the governing rules must include clear objects and winding‑up clauses (s9(3)), and any change to governing rules must be notified to the Commissioner in the approved form within 21 days (s13(1)); failure attracts a penalty of 5 penalty units.
indemnity prohibition: the governing rules must prohibit indemnifying trustees, employees, officers or agents for deliberate, dishonest or grossly negligent acts (s14).
minimum distributions: trustees must distribute at least 4 per cent of the market value of net assets each financial year (s15(1)), subject to exceptions and possible reductions by the Commissioner (s15(7)). Where fund expenses for the financial year are paid from fund assets, a minimum distribution of $8,800 applies (s15(2)). Trustees must comply with rectification requests within 60 days if the Commissioner asks (s15(5)); rectifying distributions do not count for later year compliance (s15(6)).
valuations and documentation: trustees must estimate market value for assets at required frequencies, use qualified valuers for land, and document methodologies and data (s16(1)-(8)). The Commissioner may require a new valuation and may charge the trustee for valuations undertaken by the Commissioner (s16(7) and note).
accounts, financial reporting and audits: trustees must keep proper accounts for at least five years (s17(1)) and make them available on request (s17(2)); prepare financial reports in accordance with accounting standards (s18(2)) and disclose related transactions (s18(3)); and obtain audits or reviews by registered company auditors and provide reports to the Commissioner on request (s19(1)-(7)).
investment strategy and implementation: trustees must prepare, maintain and implement an investment strategy that addresses risk, diversification, liquidity, liabilities, legal restrictions and conflicts of interest (s20(1)-(4)), and keep a record of decision‑making (s20(5)).
investment and transaction constraints: trustees must not borrow except under a narrow 90‑day, 10 per cent assets exception to enable a distribution (s21(1)-(2)); must maintain arm’s length investments (s21(4)); must not give security over fund assets subject to narrow exceptions (s21(5)-(6)); must not acquire assets (except by gift) from related parties unless arms‑length or more favourable to the fund (s21(7)); must keep assets separate (s21(8)); must not acquire collectables except by gift and must dispose within 12 months (s21(10)); and must not carry on a business except as passive investment activities or public fundraising (s21(11)-(12)).
prohibitions on uncommercial transactions and benefits: trustees must avoid entering into uncommercial transactions unless with eligible deductible gift recipients and in the course of the fund’s purpose (s22(1)), and must not provide benefits to trustees, donors, founders, relatives or associates except as expressly permitted (s22(3)). Penalty measures can equal the value of the benefit (s22(3) penalty).
donor‑facing obligations: trustees must ensure the public is regularly invited to contribute (s24(1)) and must issue receipts including the fund’s ABN and donor name (s24(2)).

Commissioner rights and trustee procedural rights:

Commissioner discretion to reduce minimum distribution: the Commissioner may reduce the minimum distribution rate for a fund upon application and subject to conditions, and must have regard to listed matters such as market conditions, investment returns, fund size and compliance history (s15(7)-(10)). The Commissioner may act after the relevant financial year and may impose conditions (s15(9)).
rectification and valuation powers: the Commissioner may request rectification of distribution shortfalls (s15(5)), and may require or undertake valuations and charge for them (s16(3)-(4) and note).
portability consent: the Commissioner must consent for transfers of assets to another ancillary fund under specified conditions and must refuse consent where the transfer would move assets contributed by the general public to a private ancillary fund (s27(1)-(2)).
objection rights: a public ancillary fund dissatisfied with certain Commissioner decisions relating to distribution rate reductions or conditions may object under Part IVC of the Act (s15(11)-(12)). Schedule 1 similarly inserts objection rights for private ancillary funds (Schedule 1 item 2).

The Guidelines also give the Commissioner authority to treat administrative penalties arising from contraventions under section 426‑120 in Schedule 1 of the Act as set out in the instrument (s6), and make clear those penalties cannot be reimbursed from the fund (note to s6 and s14).

The Guidelines set out specific penalty consequences, and refer to the administrative penalty regime in Schedule 1 to the Taxation Administration Act 1953 (see s6). Administrative penalties under s426‑120 in Schedule 1 apply where a person contravenes provisions of this instrument; the amount is the penalty this instrument specifies or the amount worked out under the instrument (s6). The instrument also records that the Commissioner may remit all or part of an administrative penalty under section 298‑20 in Schedule 1 to the Act (s6 Note 1), and that an administrative penalty under section 426‑120 cannot be reimbursed from the fund (s6 Note 2 and s14 note).

Specific penalties stipulated in the Guidelines include:

notification of governing rules change: failure to notify the Commissioner in the approved form within 21 days attracts a penalty of 5 penalty units (s13(1));
minimum annual distribution shortfall: 30 penalty units if the shortfall is greater than $1,000 (s15(1) penalty);
Commissioner rectification demand: where the Commissioner requests rectification of a shortfall, the trustee must comply within 60 days or face a penalty equal to 10 per cent of the shortfall as at the end of the 60 days reduced (but not below nil) by any penalty under s15(1) (s15(5));
record keeping: failing to keep proper accounts or retain them for at least five years attracts a penalty of 10 penalty units (s17(1));
failing to make accounts available to the Commissioner on request attracts 10 penalty units (s17(2));
failure to prepare financial report in accordance with the accounting standards attracts 10 penalty units (s18(1)); failing to make the financial report available to the Commissioner on request also attracts 10 penalty units (s18(5));
audit duties: failing to arrange an audit or review as required attracts 10 penalty units (s19(1) and (7));
investment strategy: failure to prepare and maintain a current investment strategy attracts 10 penalty units (s20(1)); failure to implement the investment strategy and ensure all investment decisions align with it attracts 15 penalty units (s20(4)); failure to make the strategy and decision records available attracts 10 penalty units (s20(5));
investment limitations: multiple 30‑penalty unit offences for borrowing (s21(1)), maintaining non‑arm’s length investments (s21(4)), giving security over fund assets (s21(5)), related‑party acquisitions and loans (s21(7)), failure to keep assets separate (s21(8)), and entering uncommercial transactions (s22(1));
benefits to founders and donors: providing a prohibited benefit may incur a penalty equal to the amount or value of the benefit provided (s22(3) penalty);
business operations: if a fund carries on a business in contravention of s21(11), the penalty is an amount equal to 25 per cent of the net profit (if any) of the business for each financial year during which the contravention continues (s21(11) penalty);
public invitation requirement: failing to ensure the public is regularly invited to contribute attracts 30 penalty units (s24(1)).

Enforcement mechanisms beyond monetary penalties include the Commissioner’s authority to request rectification of distribution shortfalls (s15(5)); the Commissioner’s discretion to reduce distribution rates subject to reasons (s15(7)-(10)); the Commissioner’s power to direct valuations and to charge for valuations undertaken by the Commissioner (s16(3)-(4) and note referring to s359‑40 in Schedule 1 to the Act); and the Commissioner’s ability to refuse portability transfers where assets contributed by the general public would move to a private ancillary fund (s27(2)). Decision review pathways are available: s15(11) provides a right of objection under Part IVC of the Act for specified Commissioner decisions, and Schedule 1 amends the Private Ancillary Fund Guidelines 2019 to insert parallel objection rights for private ancillary funds (Schedule 1 item 2).

The instrument also cross‑references other statutory compliance and record regimes, meaning enforcement can interact with broader taxation and charity regulatory mechanisms, including potential remission of penalties and secrecy/confidentiality obligations (s6 note, s8 note).

The Guidelines are an instrument made under the Taxation Administration Act 1953 (s3) and explicitly imports definitions and interpretative connections to Schedule 1 of that Act and to the Income Tax Assessment Act 1997 (ITAA 1997) through s5. Paragraph 13(1)(b) of the Legislation Act 2003 is modified for the instrument so expressions have the same meaning as in Schedule 1 to the Act (s5(2)). Section 3AA of the Act ties expressions in Schedule 1 to the ITAA 1997 (s5 note). The instrument also states the interpretation rules in Division 950 of the ITAA 1997 apply (s5(3)), and identifies where a definition is found in s995‑1 ITAA 1997.

Specific statutory interactions and cross‑references:

Income Tax Assessment Act 1997: the qualifying description of public ancillary funds is anchored to item 2 of the table in s30‑15 ITAA 1997, which defines the deductible gift recipient category and the permissible distribution recipients. The Guidelines require governing rules and winding up clauses to be consistent with item 2 (ss9(2)-(3), 26).
Taxation Administration Act 1953 Schedule 1: administrative penalties and objection/review pathways reference provisions in Schedule 1 to the Act, including s426‑120 (administrative penalties), s298‑20 (remission), and s359‑40 (Commissioner charging for valuations) as noted in the instrument (s6 and notes, s16 note). The objection mechanism points to Part IVC of the Act (s15(11)).
Australian Charities and Not‑for‑profits Commission Act 2012 (ACNC Act): the instrument imports the ACNC definition of governing rules (s5(1)), requires openness and accountability to the Commissioner and to the ACNC where relevant (s8(d)), and accepts that a fund preparing financial statements under Subdivision 60‑C of the ACNC Act will satisfy s18(2) accounting obligations (s18 note).
Corporations Act 2001: the audit and reviewer requirements rely on the Corporations Act definition of registered company auditor (s19(1), (4)) and on s324BE via note, widening who may perform reviews.
Acts Interpretation Act 1901 and Crimes Act 1914: the instrument refers to the Acts Interpretation Act for the meaning of land (s16 note) and to the Crimes Act for the current value of a penalty unit (s5(3) note).
Other instruments: this instrument repeals the 2011 Guidelines (Schedule 1 item 1) and amends the Private Ancillary Fund Guidelines 2019 (Schedule 1 items 2-4), adding objection rights and minor textual changes; it thus directly modifies the regulatory framework for ancillary funds.

Operational overlaps and points of interaction to note:

ACNC and Commissioner information flows: the Guidelines require notification of governing rule changes to the Commissioner of Taxation but allow this requirement to be satisfied by a concurrent notification to the ACNC if Division 65 of the ACNC Act requires the same information (s13(2)). The Guidelines also note both Commissioners’ obligations to protect confidentiality under secrecy, disclosure and privacy laws (s8 note).
Tax reporting and charity rules: financial reporting and auditing obligations reference accounting and auditing standards that also govern ACNC reporting; trustees may satisfy both regimes by preparing a report under the ACNC Act (s18 note).
Corporations and trustee companies: licensed trustee companies are permitted to operate common investment funds for investment purposes (s21(9)), which engages Corporations Act prudential and company law rules.
Disposal or transfer constraints: s27(2) prohibits Commissioner consent where a transfer would move assets contributed by the general public from a public ancillary fund to a private ancillary fund, creating a statutory barrier to converting broadly sourced public funds into private control.

Overall, the Guidelines sit within a web of taxation, company law, accounting, auditing and charity law obligations. Trustees must manage compliance across these overlapping regimes, and the Commissioner’s discretionary powers create administrative intersections with taxation enforcement and charity regulation.

The principal instrument is the Taxation Administration (Public Ancillary Fund) Guidelines 2022, made 17 February 2022 and commencing the day after registration (s2 and heading). Schedule 1 to the instrument records express amendments and repeal actions:

repeal of the Public Ancillary Fund Guidelines 2011: Schedule 1 item 1 repeals the 2011 instrument entirely.
amendments to the Taxation Administration (Private Ancillary Fund) Guidelines 2019: Schedule 1 item 2 inserts into section 15 of the Private Ancillary Fund Guidelines (at its end) a new subparagraph that grants private ancillary funds a statutory right to object to the Commissioner’s decisions concerning reduction in the annual distribution rate or conditions on such reductions, mirroring the public ancillary fund objection right that appears at s15(11)-(12) of this instrument.
textual amendments to cross‑references: Schedule 1 items 3 and 4 replace previous cross‑references to the 2011 Guidelines and alter a term in paragraph 29(1)(a) from “single” to “sole”.

Transitional and application provisions within Part 3 preserve continuity for pre‑existing funds and operations:

Division 1 (s28) sets transitional rules for funds that were endorsed as public ancillary funds before 30 December 2011, modifying how certain trustee composition and borrowing rules apply. For example, where trustees are not constitutional corporations and a fund was endorsed at 30 December 2011, a majority of active trustees must be responsible persons instead of the broader majority of individuals involved in decision‑making being responsible persons (s28(1)). Existing borrowings on 30 December 2011 may be maintained though the fund may not alter borrowing terms without Commissioner approval (s28(2)).
Division 2 (s29) preserves acts, notices, applications, or instruments done under the 2011 Guidelines where they could have been done under the 2022 Guidelines, ensuring continuity of effect.
Division 3 (s30) provides a coronavirus‑era transitional mechanism that can reduce a fund’s minimum annual distribution rate to 3 per cent for specified later financial years where the fund exceeded its minimum distribution in 2019-20 and 2020-21 by more than certain thresholds. The section contains a stepwise method statement to calculate the extent of excess distributions and maps how many subsequent years may be covered by the lower 3 per cent rate.

The instrument also confirms that other instruments specified in a Schedule are amended or repealed as set out (s4), showing an intention to roll the Public Ancillary Fund regulatory framework into a consolidated 2022 instrument and to harmonise related instruments for private ancillary funds.

No later amendments appear in the text provided. The instrument itself directs that the modification of paragraph 13(1)(b) of the Legislation Act 2003 in s5(2) has the effect that expressions have the same meaning in this instrument as in Schedule 1 to the Act as in force from time to time, so definitions in the connected Acts remain live and will reflect subsequent amendments to those Acts.

The instrument provided contains no judicial decisions, case citations or a litigation history. It does not cite any cases, and there are no references to decided litigation arising under these Guidelines in the text. The only dispute mechanism specified within the instrument is administrative: a public ancillary fund dissatisfied with certain Commissioner decisions regarding reductions in the annual distribution rate or conditions on such reductions may lodge an objection under Part IVC of the Taxation Administration Act 1953 (s15(11)-(12)). Schedule 1 amends the Private Ancillary Fund Guidelines 2019 to provide similar objection rights for private ancillary funds (Schedule 1 item 2).

Other legal avenues that may be available outside the Guidelines are not mentioned in the instrument. The instrument notes the Commissioner may remit penalties under section 298‑20 in Schedule 1 to the Act (s6 Note 1), and references to record‑keeping, accounting and auditing standards and Corporations Act requirements suggest potential interaction points with other regulatory enforcement regimes, but the instrument itself does not document any reported litigation, precedent, or judicial interpretation of its provisions.

Users seeking case law on the application, interpretation or enforcement of these Guidelines will need to consult external legal databases and reported decisions under the Taxation Administration Act, the Income Tax Assessment Act, corporation law and charity law; none are supplied by the instrument.

The Guidelines set out many detailed technical requirements; several points are easy to miss or to mis‑apply in practice. The following are concrete operational “gotchas” anchored to the specific provisions:

what counts as a distribution: distributions are not limited to cash grants. The market value of property or benefits provided is included for compliance calculations (s15(4)). Examples explicitly equate discounted leases, concessional loans, social impact bonds issued at below‑market returns, loan guarantees, interest forgone and loan payments made under a guarantee to distributions. Trustees must therefore value non‑cash support and consider its effect on minimum distribution compliance.
rectification does not buy forward compliance: a distribution made to rectify a contravention of s15(1) does not count towards compliance with s15(1) for a later year in which the rectification occurs (s15(6)). Trustees cannot treat rectification as a forward‑looking cure for future years.
valuation timing and methodology: market value estimates must be prepared within two months before or after the end of the relevant financial year (s16(6)) unless unnecessarily onerous; land valuations must be done by a qualified valuer and no less frequently than every three financial years (s16(2)-(4)). Trustees must document methodology and data (s16(8)). Failure to comply opens the door to Commissioner requests for new valuations (s16(7)) and potential challenge to distribution calculations.
Commissioner valuation charge: the Commissioner may undertake a valuation and charge the trustee (s16 note, referencing s359‑40 in Schedule 1 to the Act). Trustees requesting a Commissioner valuation should budget for potential fees or prefer to engage an independent qualified valuer.
borrowing constraints are tight: general borrowing is prohibited (s21(1)), with a narrow exception that permits short‑term borrowing to enable distributions where otherwise impossible, limited to 90 days and such that total borrowings do not exceed 10 per cent of market value of assets when made (s21(2)). Trustees contemplating liquidity facilities must design them to fit within those constraints or risk a 30 penalty unit offence.
limited security and guarantees: trustees cannot give security over fund assets (s21(5)) except for Commissioner exclusions or where guaranteeing repayment of money lent by an arm’s length creditor for the sole benefit of deductible gift recipients (s21(6)). Guarantees and security require careful structuring and, at times, Commissioner engagement.
separation of assets and common funds: trustees must keep fund assets separate (s21(8)); however licensed trustee companies and public trustees may operate common funds for investment purposes (s21(9)). Where trustees use pooled investments, they must ensure proper accounting to maintain separation and satisfy the valuation and distribution base calculations.
related‑party transactions and benefits prohibition: the Guidelines disallow acquiring assets (other than by gift) from related parties and disallow loans or financial assistance to related parties except on arms‑length terms or more favourable terms to the fund (s21(7)). Additionally, prohibited benefits to trustees, donors, founders and related parties attract penalties equal to the value of the benefit (s22(3)). Trustees must identify related parties and document arm’s‑length processes.
carry‑forward COVID relief has a precise calculation: s30’s carry‑forward credit is not an automatic reduction; it requires calculating the extent by which the fund exceeded minimum distributions in two financial years using a stepwise method and converts that into years of 3 per cent minimum entitlement. Miscalculating rounding steps or failing to round to the nearest whole number per the method statement can change entitlements under s30.
publicness requirement and donor preferences: public ancillary funds must invite the public to contribute regularly (s24(1)), and are not obliged to comply with donor preferences unless their governing rules require it (s24 note). Trustees who accept donor‑directed sub‑funds must be careful: the Guidelines permit sub‑funds but do not bind trustees to donor requests. Practically, trustees should document donor agreements and ensure donor expectations match legal obligations.
audits and review timing: financial reports, audits/reviews and valuations must be completed before the fund is required to lodge its income tax return (ss16(6), 18(4), 19(6)). Trustees must coordinate these deliverables, and smaller funds that qualify for reviews must ensure the reviewer is an appropriately registered company auditor (s19(3)-(4)).
indemnity prohibition: governing rules must prohibit indemnifying trustees, officers or agents for deliberate breaches, dishonesty or gross negligence (s14). Drafting governing rules that permit broad indemnities could contravene s14 and endanger endorsement.
portability and public to private transfers blocked: the Commissioner must not consent to asset transfers that would move assets contributed by the general public from a public ancillary fund to a private ancillary fund (s27(2)). Trustees considering consolidation or transfer must document the provenance of assets and seek Commissioner agreement.
penalties interact with fund assets: administrative penalties under s426‑120 cannot be reimbursed from the fund (s6 Note 2). Trustees must therefore be prepared to meet penalties from personal or trustee resources, not the fund, for contraventions that trigger such penalties.
majority responsible persons requirement: the requirement that a majority of decision‑makers be responsible persons is stricter than for private ancillary funds and is applied at all times (s12(2)-(4)). Where a trustee structure changes unexpectedly, trustees are limited in their power to act until composition requirements are restored (s12(4)).

These operational traps point to the need for integrated governance documentation, careful transaction structuring and a documented compliance program covering valuation, investment policy, audit scheduling and donor engagement.

The Guidelines create a clear compliance checklist that trustees should operationalise. Below are practical steps mapped to specific provisions:

governing rules and trust deed alignment (s9(1)-(3), s14)
- ensure the trust deed or governing rules explicitly state the fund’s objects consistent with item 2 of s30‑15 ITAA 1997 and specify the recipients of net assets on winding up (s9(2)-(3), 26);
- include a clause establishing the fund as not‑for‑profit and explicitly prohibiting indemnification for deliberate breaches, dishonesty or gross negligence (ss10(2), 14).
board composition and responsible persons (s12)
- confirm that a majority of individuals involved in decision‑making are responsible persons and that responsible persons meet the examples provided (s12(2)-(3), note and examples);
- have processes to remove or replace persons convicted of an indictable taxation offence within one month (s12(6));
- document delegation limits: do not exercise powers if majority responsible person requirement is unmet except for appointing a trustee, protecting property or dealing with urgent matters (s12(4)).
minimum distribution planning and application for relief (s15)
- calculate the minimum annual distribution at 4 per cent of market value of net assets at the prior year end (s15(1));
- if expenses are paid from the fund, ensure distributions are at least $8,800 or the calculated 4 per cent amount, whichever is greater (s15(2));
- where financial or market circumstances might justify a lower rate, prepare an application in the approved form with supporting documents addressing s15(10) factors (investment returns, liquidity, fund size, compliance history, donor terms, fees) to seek a reduction; be ready for conditions attached to any reduction (s15(7)-(10));
- maintain records to demonstrate how non‑cash benefits were valued and counted as distributions (s15(4) and examples).
valuation and documentation regime (s16)
- adopt a valuation policy that meets s16(6) timing: market value estimates for non‑land assets at least annually and land valuations at intervals no greater than three years, with land valuations by a qualified valuer (s16(1)-(4));
- document valuation methodology and data for each asset and keep valuer reports on file (s16(8));
- consider whether to engage a qualified external valuer for complex or material assets to avoid Commissioner challenges and potential revaluation requests (s16(7) and note).
accounting, reporting and audit architecture (ss17-19)
- establish bookkeeping systems to capture all receipts, payments, and financial dealings, and retain records for at least five years (s17(1));
- prepare financial reports in accordance with accounting standards and disclose transactions with founders, donors and related persons (s18(2)-(3));
- coordinate audit/review scheduling so the audit/report is finalised before lodging the fund’s income tax return (s19(6));
- if revenue and assets are each under $1 million, document eligibility for a review rather than an audit and engage an appropriately registered reviewer (s19(3)-(4));
- maintain copies of audit and review reports and be ready to provide them to the Commissioner on request (s19(7)).
investment strategy and execution (s20)
- prepare and approve a written investment strategy that sets objectives, risk appetite, diversification, liquidity planning, expected cash flow requirements including distribution timing, conflict of interest management and any testator‑gift terms (s20(2)-(3));
- ensure the trustee implements all investment decisions in accordance with the strategy and keep meeting minutes and decision records (s20(4)-(5));
- update the strategy periodically and on material changes to assets, liabilities or distribution plans.
structure transactions to meet investment limitations and related‑party rules (s21, s22)
- prohibit borrowings except under the narrow 90‑day/10 per cent exception intended to enable distributions (s21(1)-(2));
- avoid giving security over fund assets unless a Commissioner exclusion applies or the transaction falls within the guarantee exception for the sole benefit of deductible gift recipients (s21(5)-(6));
- design any acquisitions from donors, founders or related parties to be arms‑length or on terms that are more favourable to the fund (s21(7));
- keep fund assets separate and, if using a licensed trustee company common fund for investment, document the allocation methodology (s21(8)-(9));
- avoid acquiring collectables other than by gift, and if acquired by gift, sell or distribute within 12 months (s21(10));
- do not carry on commercial business activities, except passive investment activity or permitted public fundraising (s21(11)-(12));
- avoid uncommercial transactions unless they are with permitted deductible gift recipients and further the fund’s purpose (s22(1)).
donor engagement and record protocol (s24)
- maintain a public engagement plan to “regularly invite” public contributions and evidence of outreach (s24(1));
- issue receipts for all gifts that include the fund’s name and ABN, the donor’s name and a statement that the receipt is for a gift (s24(2));
- if offering sub‑funds for donor preferences, include clear governance terms and record that donor preferences are non‑binding unless legally incorporated into governing rules (s24 note).
compliance monitoring and contingency planning
- put in place an annual compliance calendar aligning valuations, financial reporting, audit/review, and tax return lodgement deadlines so statutory timing requirements are met (ss16(6), 18(4), 19(6));
- maintain written minutes and decision logs to evidence compliance with the investment strategy and arms‑length processes, and to support any Commissioner objections or applications for reduced distribution rates;
- prepare for potential Commissioner engagement: document the provenance of fund assets to address portability queries (s27), be ready to respond to valuation re‑requests (s16(7)), and ensure capacity to pay any administrative penalties out of trustee resources because penalties cannot be reimbursed from the fund (s6 note).
external professional engagement

engage qualified valuers for land and material or complex asset valuations, use registered company auditors for audits or reviews, and consider legal review of governing rules and donor agreements to confirm conformity with s9, s14 and s21 constraints;
where relief or discretion is sought from the Commissioner (reduced distribution rate, valuation approach, portability consent), prepare comprehensive evidence addressing the statutory factors listed in the instrument (s15(10), s16(7)).

These steps will not eliminate all regulatory risk but they map directly to the express requirements of the Guidelines. Trustees should maintain contemporaneous records of valuation methodologies, investment decisions, minutes that evidence majority responsible persons’ involvement, and donor communications to support compliance and to demonstrate reasoned exercise of trustee powers in case of Commissioner review or objection.

Taxation Administration (Public Ancillary Fund) Guidelines 2022

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