In expectation of a marked decrease in community charitable giving following the COVID 19 economic downturn, the government introduced amendments to public and private ancillary fund guidelines with effect from 12 June 2020.
Currently, public ancillary funds are required to distribute at least 4% of the value of their funds annually, while private ancillary funds are required to distribute at least 5%.
Changes to the guidelines now allow a credit for ancillary funds which make total distributions in the 2019-20 and 2021-21 financial years that are at least four percentage points above these minimum required distributions. The credit will be equal to half the percentage points by which the distributions exceed the minimum distribution. Ancillary funds may then use these credits in the future to reduce the minimum distribution by up to one percentage point in the 2021-22 financial year and future financial years until the credit is exhausted.
Whilst Government’s action is expressed to be intended to ensure “charities are supported in the work they do”, it cuts across the position of some ancillary funds who have been hoping for a decrease in the annual minimum distribution due to their suffering significant losses to the value of their total funds as a consequence of the COVID-19 effects on the ASX.
It is likely however that the move will be welcomed broadly by charities in need of cash resources.