Attempts to avoid the proposed tax on the earnings of super balances above $3 million or land taxes could leave self-funded retirees exposed to back-dated claims and ATO audits.
A weakness of the super sector is the number of funds that take DIY literally and shun professional input. But this might be changing as a growing number of new funds reach out for a helping hand.
Massive wealth transfer ‘opening the door’ to philanthropic donations
Australians who have more than they need may want to consider giving greater purpose to their financial plans through philanthropy, says Rachael Rofe (pictured), head of the Australian Philanthropic Services (APS) Foundation.
Australia is undergoing a $5.4 trillion intergenerational wealth transfer, the largest in its history. Fuelled by decades of rising property prices and investment gains, this unprecedented shift is prompting many Australians to rethink the sharing of their wealth.
For those seeking to have a meaningful impact, structured giving is a practical option, with the bonus of significant tax advantages, Rofe says.
“With the end of the 2024-25 financial year nearing and tax considerations front of mind, we encourage those Australians who have more than they need to consider donating or sharing their wealth through gifts.
“Unlike previous generations, Australian heirs are more likely to receive wealth at a time when they are less likely to need it. The average recipient is in their 50s, typically at or near peak earning years, often established in career and owning a property.”
She says it’s increasingly common to see such Australians undertake philanthropy and establish a giving fund, using it as a long-term vehicle to deliver capital to charities, one that can continue well beyond their lifetime.
Givers can choose between establishing their own foundation (private ancillary fund, or PAF) or a ‘giving fund’ in the APS Foundation (a public ancillary fund). Both have the same tax deductibility and givers can select the eligible charities they wish to support.
“Such funds provide a tax-smart strategy for individuals seeking both an immediate tax deduction and the flexibility to give over time. Structured giving allows a person to pre-fund their giving, that is, to claim the tax deduction while they are still earning an income, then support the causes they care about,” Rofe says.
“Australians are generous — more than 80 per cent give in some form — but what is changing is the structure, scale and sophistication of that giving. There are now more than 3,000 ancillary funds in Australia, managing billions in capital committed to the community. Contributions to these vehicles in the last financial year (2024) are anticipated to have reached a record high, building on the exponential growth in contributions over the past decade.”
Financial advisers who suggest structured giving to clients can often save them a large tax bill. If the structure is a PAF, they will still have the care and management of the funds, allowing their client the time to think about their giving and engage with the charities they choose to support.
“Importantly too, the charitable sector benefits from structured giving because the funds in PAFs and giving funds are invested and earnings are tax-free, growing the amount committed to the community over time.”
While giving during one’s lifetime offers the greatest tax benefits, charitable gifts made through an estate can also be tax-efficient. Appreciated assets bequeathed to deductible gift recipients, such as ancillary funds, are exempt from capital gains tax, Rofe says.
“Structured giving is a tax-effective way to bring purpose and joy during a person’s lifetime. It also allows families to pass down not just wealth, but the profound joy of giving,” she says.
According to ATO data, in the 2021-22 income year, individual Australian taxpayers claimed a total of $4.55 billion in tax-deductible donations. This is an increase from the $4.39 billion claimed in the 2020-21 income year.
