Between the bushfire disaster earlier this year and the ongoing pandemic, the need for charitable donations has been heightened. The Federal Government has recognised that, due to the economic burden of COVID-19, charitable giving is likely to slow at a time when it is needed most. To support the increased demand for charitable services the Government is incentivising ancillary funds to increase their distributions to charities.
How does the incentive for ancillary funds work?
Ancillary funds will be given a credit for distributions of at least four percentage points above the minimum distribution in the 2020 and 2021 financial years. Generally, private ancillary funds are required to annually distribute at least 5% of the fund's net assets while public ancillary funds are required to distribute 4%.
Ancillary funds will receive a credit for half the percentage points by which the distributions exceed the minimum requirement over both financial years. The fund can use the credit to reduce its minimum annual distribution by up to one percentage point each year from the 2022 FY onwards, until the credit is exhausted.
For example, a private ancillary fund makes a distribution of 10% in the 2020 FY and 6% in 2021 FY. This distribution is 6% above the minimum over the two financial years. The fund will be entitled to a 3% credit (half of its increased distribution) that it can use to reduce its annual distributions by up to 1% each year from 2022 FY.
Disaster relief funds
Additionally, the Government has declared the COVID-19 pandemic as a disaster for the purpose of establishing Australian disaster relief funds as deductible gift recipients (DGR), allowing these funds to receive tax deductible donations.
Donations to Australian disaster relief funds established to provide relief from COVID-19 will be tax deductible when made within two years from 18 March 2020.
Disaster relief funds are still required to apply for formal endorsement as a DGR with the Australian Taxation Office. This process requires charity registration with the Australian Charities and Not-for-profits Commission.
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