Philanthropy and Charity – Tailoring Your Giving Regime
Philanthropy and charity are two terms often used interchangeably, yet they are different.
Charity is defined as the voluntary giving of help, typically in the form of money, to those in need. Philanthropy has been defined as the planned and structured giving of time, information, goods and services, voice and influence, as well as money, to improve the wellbeing of humanity and the community.
Given the similar meanings of charity and philanthropy, Australian courts been reluctant to or have admitted to being unable to adequately differentiate between the two.
Indeed, many cases where individuals have believed that the terms mean the same thing have led to the reliance on section 31 of the Wills Act 1997 (Vic), which permits a court to rectify a will to carry out a person’s intentions where the wording previously used would not.
Perhaps a distinction can be made from the intention of the giver. Charity tends to be more of an emotional response which mainly targets immediate relief, whereas philanthropy is more strategic and attempts to address the root of the issue and rebuild.
The two most common forms of philanthropic structures in Australia are Private Ancillary Funds (PAF) and Public Ancillary Funds (PuAF). Both funds aim to provide a link between donors and organisations that can receive tax deductible donations, known as deductible gift recipients (DGRs).
PAFs are used as a means for achieving tax effective private philanthropy. This is because a PAF donates to entities that have been entitled DGRs by the Australian Taxation Office. As PAFs solely donate to DGRs, donors of the PAF can claim tax deductions on their donations. Further, PAFS themselves are not required to pay tax on their received donations. PAFs are having a significant impact on Australia’s philanthropic growth, with over 1,400 in Australia who collectively distribute over $457 million per year to Australian charities.
A PuAF is a communal philanthropic structure established by a will or trust deed for the purpose of making distributions to DGRs. A PuAF is itself a DGR and is therefore eligible for income tax exemptions. Unlike a PAF, a PuAF must invite the public to contribute to the fund.
In recent years as philanthropists are becoming more aware of the many benefits of operating ancillary funds, their number and use have increased exponentially. Common reasons cited for the establishment of these funds include a desire to create a legacy and a long-standing charitable foundation for either an individual, a company, a family or a group of individuals, a tax-effective means of community giving where fundraising for other organisations is the main goal and for dealing with unexpected liquidity events (such as inheritances, bonuses, sales, lottery wins) in a tax-effective and community-minded manner.
As charities engage with various charitable and philanthropic individuals and organisations, it is crucial to build relationships with each in order to understand their unique objectives and visions. Rather than being seen as donors, philanthropists should be viewed as long term partners who share the goals and passion of the charity itself.
For more information, please contact a member of our Charities and Not-for-Profit Law Team.