It’s that time of year again. June 30 is only weeks away, and for many Australians it brings the familiar mix of tax planning, investment decisions and, hopefully, some thought about charitable giving. I’ve written about this before for Firstlinks, and I make no apology for returning to it, as philanthropy benefits from repetition. The more people are reminded of the options available to them, the more likely they are to act.
Australian Philanthropic Services (APS) is a not-for-profit I founded more than a decade ago. Our APS Foundation is a public ancillary fund: a communal philanthropic structure in which individuals, families, and organisations can establish their own giving fund, typically within 24 hours and with an initial donation of $40,000 of more.
The mechanics of these structures are straightforward. You make a donation into your giving fund before June 30 and receive the tax deduction in this financial year (although if you prefer, the tax deduction can be spread over up to five years). The donated funds are pooled and invested by APS, with returns accumulating tax-free. You decide which eligible charities to support each year, giving you the space and time to make considered, thoughtful giving decisions.
I sometimes describe it to people as the superannuation model applied to giving. Just as many Australians pre-fund their retirement by contributing to super while they’re earning, structured giving allows you to pre-fund your philanthropy, claim the deduction when your income is highest, then support the causes you care about over time, alongside your children and grandchildren if that’s what you choose to do. The giving fund can be designed to last a lifetime, or many generations.
Why investment returns matter deeply to philanthropy
Giving is at its heart an altruistic endeavour, but I don’t think we speak enough about how the investment returns generated within philanthropic structures directly determine how much money flows to charities over time. A desire to give matters, as does returns.
APS Foundation’s General Portfolio, which I manage, has returned 10.1% per annum after fees since its inception in 2012, and is well diversified across the full investment spectrum. It distributes returns tax-free back to giving funds, compounding the capital available for charitable grants.
A giving fund that generates 10% per annum, distributes 4% to charity each year, and retains 6% for growth will roughly double in real terms over a decade. The charities supported in year 10 receive far more than those supported in year one. Strong returns benefit the investment portfolio and magnify the philanthropic impact for every year the fund operates. This is why, in my view, taking investment management seriously within a giving structure is key to its success.
This also speaks to an ongoing policy debate that is very much alive right now. The Government recently announced it would raise the minimum annual distribution rate for public ancillary funds from 4% to 6%. At APS, we understand the intention, but Treasury’s own modelling shows that higher distribution rates maximise short-term flows to charities at the expense of long-term giving, meaning funds run down faster, and the capital compounding effect is diminished. The 5% rate applied to private ancillary funds (also soon to increase to 6%) has long represented a balance between giving now and preserving capital for future generations. Eroding that balance through regulatory settings that prioritise the short term is, in my view, a mistake. The best way to deliver more to charities is to grow both the number of givers and the pools of capital they contribute to. Despite this change, private and public ancillary funds remain enormously effective options to magnify your giving.
A word on making the most of EOFY
June 30 is, for most Australians, primarily a tax deadline. But it is also one of the most useful prompts in the financial calendar for thinking about giving, and the ideal time to act on charitable intentions that might otherwise drift into "I'll get to it next year."
For those who have had a strong financial year, be it a business sale, a bonus, a capital gain, or simply a good run in their investment portfolio, June presents an opportunity to claim a tax deduction now and take your time to decide which charities to support. That combination of immediacy and flexibility is, in my view, one of the most underappreciated tools in the Australian financial landscape.
This matters particularly for people facing a one-off income spike. Marginal tax rates being what they are in Australia, a deduction taken in a high-income year is worth considerably more than the same deduction taken in an ordinary year. Structured giving allows you to lock in that deduction at the right moment, while the capital continues to be invested and grow tax-free inside the giving fund giving you time to make thoughtful granting decisions each year.
The bigger picture
Australia is in the midst of the largest intergenerational wealth transfer in its history - estimates put it at around $5.4 trillion over the coming decades. A growing number of Australians are asking not just how to transfer wealth to the next generation, but what kind of legacy they want to leave. I firmly believe that philanthropy can be a bigger part of that answer.
APS has more than 1,100 clients who donated over $242 million to charity last financial year and have committed more than $2.9 billion to charity held in structures they support. We see families establishing giving funds not just for tax efficiency, but to involve their children and grandchildren in decisions about charitable priorities. Some of the most meaningful conversations happening in family wealth planning right now are about shared values, purpose, and the kind of future people want to help build.
For anyone who has had a strong financial year and hasn’t yet thought about structured giving, now is the time to act.
Chris Cuffe is Portfolio Manager of the charitable trust Third Link Growth Fund and Chairman of Australian Philanthropic Services. Chris is involved with many other groups as a director, chairman and investment professional. This article is general information and does not consider the circumstances of any person. The views expressed are his own and they are not personal financial advice.