By Jessica Wills, Senior Associate and Vera Visevic, Partner

A brief history

Ancillary funds, unique giving structures originating under the Howard Government, serve a critical role in Australia’s philanthropic ecosystem. As trusts that are able to receipt tax-deductible gifts ‘upfront’ while accumulating and growing their corpus tax-effectively into the future, they are uniquely positioned to support long-term funding initiatives, legacy giving and endowments — whether run by a family for private giving (Private Ancillary Funds) or established as public fundraising vehicles (Public Ancillary Funds).

Latest announcements

After a 2022 Treasury consultation on distribution guidelines, the Productivity Commission’s Future Foundations for Giving inquiry report and NFP sector-led Not-for-profit Sector Development Blueprint proposed a broader set of reforms across the entire deductible gift recipient system. Further consultation followed in 2025, leading to a government announcement on 26 February 2026 confirming three key changes to ancillary funds as we know them.

1. Giving Funds a new name.Ancillary funds are to be renamed private and public “giving funds”. This change in terminology for funds colloquially known to many as ‘foundations’ is intended to better reflect their role in facilitating giving (rather than ‘doing’). This reflects the fact that these philanthropic trusts are prohibited from operating their own programs or delivering services, operating instead as conduits to item 1 deductible gift recipients which themselves engage in purpose-driven initiatives and activities.

2. Raising the rate.The (current) general rule is that an ancillary fund must distribute a certain minimum percentage of the market value of its net assets during each financial year – 5% for Private Ancillary Funds and 4% for Public Ancillary Funds. This is being replaced by a standardised 6% of net assets across both fund types. Tax Determination TD 2026/3 was also released recently which provides some helpful guidance on the ATO’s views regarding the provision of benefits by ancillary funds, which is relevant when we consider that funds can meet their annual distribution obligations through distribution of money, property or benefits (not just cash).
3. Smooth sailing.To increase flexibility for the types of projects funds can support – particularly larger-scale or multi-year projects – funds will be able to average or ‘smooth’ distributions over a three-year period rather than meeting the new 6% threshold annually.

Where are we now?

Critically for impacted stakeholders, these changes are not yet law. Ultimately the changes will be implemented through amendments to the Taxation Administration (Private Ancillary Fund) Guidelines 2019 and Taxation Administration (Public Ancillary Fund) Guidelines 2022, and there will be a transition period applicable for existing funds in respect of the annual distribution changes. With that in mind, now is the ideal time to review your future giving plans, investment strategy and distribution policies in anticipation of the proposed reforms.