Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 258

Maximising the impact of charitable giving

“To give away money is an easy matter and in any man’s power. But to decide to whom to give it, and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.” Aristotle

The giving season is upon us as taxpayers look to charitable donations to help balance their year-end tax liabilities. Yet the challenge for donors, as it was for Aristotle, is finding the most effective way to do it. If you want your giving to have an impact, it’s not just about how much you give, but how well you give it.

Here are some tips to help you get the most from your charitable giving.

Deduct now and distribute later using a sub-fund

Sub-funds in public ancillary funds are one of the fastest growing charitable structures in Australia. They give a tax deduction immediately with the flexibility to determine the charitable recipients later, can be established immediately (which is especially helpful in the final days of June), and cost nothing to set up.

A sub-fund is a philanthropic giving account established within a public charitable trust known as a public ancillary fund (PuAF). In the Australian Philanthropic Services Foundation, you can establish a sub-fund by making an initial tax-deductible donation of $50,000. The tax deduction can be claimed in full immediately or spread over the next four years.

You then advise the Trustee of the public ancillary fund which charities are to receive a distribution from your sub-fund and the quantum of the distribution. To be eligible, a charity must have Deductible Gift Recipient Item 1 status, and there are over 25,000 charities to choose from.

A minimum of 4% of the sub-fund’s balance must be distributed to charities each year, allowing you to achieve a regular ongoing flow of distributions to your preferred charities as opposed to making larger one-off lump sum direct donations. You can also nominate successors to advise the Trustee, ensuring your giving legacy continues beyond your lifetime.

Whilst you take the time to do your due diligence in deciding which charities you want to support from your sub-fund, the balance is invested. Investment returns are tax-free and franking credits are refunded so there is real potential to grow the amount that you give to charity over time.

After you have built up the balance through donations and investment returns, should you decide that you want to take full control of investment and administrative responsibilities, you can choose to establish your own private ancillary fund. This makes sense for balances over $1,000,000 and you are usually able to transfer your sub-fund to a new private ancillary fund (some providers have restrictions on this, so it is best to check before establishing the sub-fund).

Treat your donation like an investment decision

Whether you give directly to charity or via a structure like an ancillary fund, allow yourself the time to consider the charities you will support, including:

1. Focus

Instead of spreading your giving across multiple charities, consider giving more to less. Charities incur costs in processing donations so it follows that the smaller the donation, the greater the percentage absorbed by these costs. There is no ‘right’ amount to give, but your impact can be enhanced by directing your charitable dollars, whatever the amount, to one or a select few working for the causes most meaningful to you.

2. Research

Investigate the charities on your shortlist. The Australian Charities and Not-for-profits Commission (ACNC) is a great starting point. It maintains a public register with information on over 56,000 registered charities in Australia (including public ancillary funds). The register will confirm if a charity is committed to transparency by being up to date with its annual reporting obligations, and you can also download the financial statements of public charities with annual revenue of over $250,000.

Don’t hesitate to speak with the charity and ask about their goals – what they are, how they are measured, and the resources they need to achieve them. You can feel more confident giving to a charity with a clearly articulated goal and a strategic plan to get there.

3. Measure effectiveness in the right way

An investor will look for an opportunity supported by a strong team with solid systems to review and evaluate performance. A charitable investment should be no different. But qualified staff and infrastructure costs money, which is why you should resist measuring a charity’s effectiveness by its overheads. It can be more constructive to focus on the social impact of your donation, and not the ‘overhead’ cost incurred to achieve it.

4. Maintain an investment timeframe

Consider a multi-year charitable investment. You will benefit from deeper engagement with the charity and understanding the progress of their work. The charity will also appreciate the benefits  that flow from the certainty of a committed donor. Remember that it takes time to deliver real change and your charitable investment needs sufficient time to mature.

5. Incorporate your tax planning

Donors are generally motivated by the desire to make a difference, but if access to tax deductibility can also be achieved, you can make up to twice the difference by giving to one or more of the 25,000 charities that have Deductible Gift Recipient (DGR) status.

The best results happen when you start early, taking the time to explore the causes meaningful to you and to research the charities working within them. If you find yourself close to 30 June without a clear idea of which charities you want to fund, establishing a sub-fund in a public ancillary fund is smart. You will receive a tax deduction now when you most need it, and the liberty of time to decide which DGR charities you ultimately want to support.

To explore further, check out this video: Chris Cuffe: A tax effective way to support philanthropy

 

Rachael Rofe is a Governance & Giving Adviser at Australian Philanthropic Services (APS), a not-for-profit organisation that sets up and administers private ancillary funds, and offers sub-funds in the public ancillary fund, The Australian Philanthropic Services Foundation. Chris Cuffe is the pro bono Founder and Chairman of APS, and a Director of the Trustee of the Australian Philanthropic Services Foundation.

4 Comments
Martin Mulcare
June 15, 2018

A great set of considerations and I particularly like "Measure Effectiveness in the Right Way". In my work with a range of charities via The Growth Project it is very evident that suitable measures of impact are far more valuable than lazy measures like "% overheads".

Jessica Bowman
June 14, 2018

Great tips! If you want further guidance on specific charities, head to The Good Cause Co (https://www.thegoodcause.co). We have just launched "Should I Give To...", which provides independent evaluations on the trustworthiness and effectiveness Australia's largest charities.

Being Frank
June 13, 2018

Pity that most charity donations are done at tax time primarily to reduce tax. But any deduction at any time of year reduces the donor’s cash/wealth by the same amount, so donating to charity should be an issue all year round, not just at tax time.

Peter C
June 18, 2018

Hi Frank.

I agree with this. This is why I make regular payments to charity from my pay, using the workplace giving program, which my employer supports.

There is quite a long list of registered charities my employer has agreed to have on the list.

For medium and large employers a workplace giving program is a good way to encourage their employees to give to charity, and the charities get the money all through the year and not just in June.

This link ( https://www.ato.gov.au/business/payg-withholding/in-detail/workplace-giving-programs/) from the ATO provides some basic info on the topic.

At the end of the year the total amount I have given to charity is shown on my payment summary, and I just simply show this amount as a gift deduction on my tax return.

 

Leave a Comment:

RELATED ARTICLES

Charitable giving and tax deductions

Philanthropy is growing, but what’s the best way to give?

Philanthropy can blend tax deductions, engagement and impact

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.