How philanthropy can be a ‘tax-smart strategy’

Now less than a month out from the end of the financial year, the Australian Philanthropic Services (APS) Foundation has urged Australians to consider utilising tax-deductible charitable donations as part of their tax-saving strategy.

As Australians and their financial advisers consider how they can maximise tax savings this time of year, APS Foundation head Rachael Rofe suggested that such contributions, whether through a public or private ancillary fund, can form part of a “tax-smart strategy” that benefits both the client and the community.

“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 said.

“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 (FY23–24) are anticipated to have reached a record high, building on the exponential growth in contributions over the past decade.”

Notably, as the intergenerational wealth transfer gets underway, Rofe said ancillary funds can also form part of a tax-efficient estate plan with assets bequeathed to deductible gift recipients, such as ancillary funds, being exempt from capital gains tax.

“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,” she said.

“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 already established in career and property ownership.”

Rofe added: “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.”

Despite the ongoing economic challenges and global market volatility, she said that many continue to give back, with the Australian Taxation Office (ATO) individual taxpayers claiming $4.55 billion in tax-deductible donations in FY21–22.

“With more wealth than they need, it is increasingly common to see such Australians undertake philanthropy and establish a giving fund and use the fund as a long-term vehicle to deliver capital to charities, one that can continue well beyond their own lifetime,” Rofe said.