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Charitable Giving When Selling Your Business Benefits Everyone


Charitable Giving When Selling Your Business Benefits Everyone

By , May 9, 2017

Successful business owners are known for their ability to make the most of opportunities.

This is particularly important when they decide to sell their business. More and more, business owners are using what is likely their largest influx of income as the charitable opportunity of a lifetime. Charitable donations deliver a win-win opportunity, enabling them to reduce their tax burden and have a positive impact on the community.

The community in which a business operates is a big reason for its success, and charitable giving can be a way to say thank you for the community’s support. As a financial strategy, making a donation as part of a sale event can also significantly reduce the income tax burden.


What options does a business have?

Business owners can offset the tax on the proceeds of the sale by simply making a donation directly to a charity. A direct gift to charity gives the business owner a tax deduction, but the decision on where the gifts go has to be made immediately. This sounds simple, but it isn’t always an easy decision to make. The proliferation of charities can make deciding where to give overwhelming. It takes time to think through the causes and organisations to support, and time is the one thing a business owner is unlikely to have when they are in the middle of a transaction.

Another option is to establish a private ancillary fund (PAF). A PAF is a type of charitable trust that allows an individual or family to put aside a chunk of money for charitable purposes in perpetuity. The individual donates capital into the PAF and gets a tax deduction for the donation (the deduction can be spread over a five year period). The capital is then invested long-term, and a minimum of 5% of the value of the PAF assets must be distributed as grants to charities each year. To be eligible, a charity must have Deductible Gift Recipient Item 1 status, and plenty do – there are well over 20,000 charities to choose from.

Most people make an initial donation of at least $500,000, meaning that a PAF isn’t suitable for everyone. However, PAFs aren’t the only option. Public ancillary funds, though less well known, are more accessible and growing in popularity all the time.

A public ancillary fund (PuAF) has the same tax advantages as a PAF but is a communal structure. Unlike a PAF, there is no requirement to establish a new trust or trustee company, so a named sub-fund can be established immediately (someone could even do so just a few days before 30 June), and there’s no set-up cost to do this. Initial amounts donated are often smaller – for example, a sub-fund in the Australian Philanthropic Services Foundation can be established with $50,000.  A minimum of 4% of the PuAF assets must be given away each year, slightly lower than with a PAF, and the same range of charities can be supported.

Rather than having to make a quick decision, a PAF or sub-fund allows an immediate tax deduction while the choice of charity can be made when there is more time for research. The founder can spend time articulating what they are passionate about and the types of causes they want to support, and then set about finding the right organisations. Having the time to carefully consider where to donate and to understand how the charitable donation is being used generally leads to greater satisfaction.

A philanthropic structure can also be an important investment in the future. Multi-year funding commitments are easier as the PAF or sub-fund founder knows the money is already set aside, and the charity has the benefit of knowing they have a revenue stream for the next few years.  Involving the family also plays a part. Setting up a PAF or sub-fund can help to increase children’s social awareness and inspire future generations, and ensure the business owner’s philanthropic legacy continues for many years to come.

Antonia Ruffell is CEO of Australian Philanthropic Services (APS), a not-for-profit organisation that sets up and administers private ancillary funds, offers a public ancillary fund, and provides grant-making advice –

Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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