COVID-19 has impacted the lives of many Australians, and we commend the Government for opening further avenues to provide relief for those affected. The reforms recognise that there is an opportunity for philanthropy to take the lead in assisting communities deal with the effects of the pandemic as public donations are expected to decrease in the coming months, while also balancing the potential adverse impact on the corpus of some established funds.
We have outlined the amendments and updates as made on 6 May 2020.
Disaster Relief Funds – COVID-19
- Assistant Minister Seselja declared the COVID-19 pandemic a disaster for the purposes of establishing and endorsing an Australian disaster relief fund as a DGR.
- Funds established for the relief of people in Australia affected by COVID-19 will now be able to be registered as DGRs and receive tax-deductible donations.
- Disaster relief funds must be registered with the ACNC as a charity or be operated by a registered charity and will need to apply for formal endorsement as a DGR fund with the Australian Taxation Office.
- Donations to these funds will be tax deductible when made from the date of declaration in March 2020.
- To be eligible for endorsement, the disaster must meet various legal requirements. To view a full list of disasters meeting these legal requirements, click here.
Ancillary Funds - Incentivising increased distributions
- Private Ancillary Funds are required to make a minimum annual distribution of 5% of the market value of the fund’s net assets and Public Ancillary Funds are required to make a minimum annual distribution of 4% of the market value of the fund’s net assets.
- The Government has announced that it will amend the guidelines in order to incentivise increased distributions during the 2019-20 and 2020-2021 financial years.
- Private and Public Ancillary funds that distribute at least 4% above the minimum annual distribution over these two years will be eligible for credit to reduce their minimum distribution in future financial years.
- The credit received will be equal to half the percentage points that exceeded the minimum distribution amount. For example:
- a Public Ancillary Fund (Fund A) distributes 7% in 2019-20 and 7% in 2020-21. This is 6% higher than the minimum distribution amount over the two years. Fund A is eligible for 3% credit; and
- a Private Ancillary Fund (Fund B) distributes 12% in 2019-20 and 7% in 2020-21. This is 9% higher than the minimum distribution amount over the two years. Fund B is eligible for 4.5% credit.
- The fund can use the credit to reduce its minimum distribution by up to 1% in 2021-22 and each financial year going forward until the credit is exhausted. For example:
- Fund A chooses to use its 3% credit to reduce its minimum annual distribution by 1% (from 4% to 3%) in 2021-22, 2022-23 and 2023-24, when its credit is exhausted; and
- Fund B chooses to use its 4.5% credit to reduce its minimum annual distribution by 0.5% (from 5% to 4.5%) for 9 years, beginning 2021-22.
Inability to meet minimum annual distribution due to COVID-19
- In line with already existing exceptions to minimum annual distributions, if an Ancillary Fund is unable to meet its minimum annual distribution due to special circumstances, it may apply to the Commissioner for a reduction in the rate.
- For the financial years of 2019-20 and 2020-21, the Commissioner will consider each applicant’s specific circumstances in balance with the COVID-19 administrative approach and exercise discretion in ‘exceptional circumstances’.
ABL welcomes these changes and will be monitoring further guidance as it is made available on the ATO website, particularly in relation to the ATO’s consideration of the COVID-19 administrative approach and what may constitute exceptional circumstances.