Unlock the power of structured philanthropic giving

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast brought to you by CPA Australia.

Ram Subramanian:
Welcome to With Interest. I'm Ram Subramanian. Today we're talking to Judith Fiander about gift-giving or more specifically philanthropy, the type of giving which aims to promote and improve the welfare of others. Philanthropy has had the attention of government recently, especially with the delivery of the Productivity Commission's Future Foundations were giving report delivered last July.

More recently, government has announced further changes to allow tax deductions for small donations and also a number of reforms to ancillary funds. Australian Philanthropic Services or APS for short describes itself as the leading supplier of philanthropic support services in the area of structured giving. Judith Fiander is the CEO of APS and has been working at APS since 2012.

She's a solicitor admitted in 1992 and also worked in financial services in a number of senior executive roles before moving into philanthropy at APS. She led the advisory team at APS for a number of years and was named chief executive in June 2022. Welcome to With interest, Judith.

Judith Fiander:
Thank you, Ram. It's great to be here with you today.

Ram Subramanian:
Judith, for a starter, could you explain the mission of Australian Philanthropic Services and more particularly what philanthropic and other services do you offer?

Judith Fiander:
Of course. Thanks, Ram. APS is a not-for-profit entity. In fact, we're a charity ourselves registered with the ACNC and we came into existence specifically because our founder and chair, Chris Cuffe, found it complex time-consuming and expensive when he was establishing his own philanthropic structure and he reasoned that other Australians who had the means to give might be put off by those same hurdles that he'd experienced.

So in 2012 he established a not-for-profit with the sole purpose of making structured giving simple and low cost. Literally the purpose in our governing document is to grow giving in Australia, that's what we're about. And we do that in a very small niche area, Ram.

We do that by establishing and administering Private Ancillary Funds or PAFs as they're known. We manage the fastest growing and most generous public ancillary fund in the country called APS Foundation and we support all of our clients and there are about 960 of them now with their giving as they need.

Ram Subramanian:
So you've been in existence for over 12 years now and quite involved in the area of structured giving. So what are the benefits for individuals and organisations who choose structured giving for their philanthropic goals in your view, Judith?

Judith Fiander:
Well, structured giving is one of those rare things in life that is genuinely a win-win-win for absolutely everybody involved. First off, there are the donors who are likely to be clients of CPA stakeholders. They benefit immediately with a tax deduction for the donation that they make into the structure and that deduction can be spread over up to five years. They also often use the Private Ancillary Fund, the PAF as a training ground for the next generation in a couple of different ways as an ethics and values tool in terms of getting young people engaged with giving and the social issues that they are interested in.

And as a practical training ground for teaching the next generation about dealing with the wealth that as we know they are going to inherit someday. We're all very aware of that $3.5 trillion number that people talk about in terms of intergenerational wealth transfer. And really that transfer is already well underway. As PAFs have corporate trustees, then that next generation gets exposed to what directors have to do, what happens in board meetings, how to read a simple P&L and balance sheet, how to interact with professional advisors like accountants and financial advisors and lawyers, what questions to ask and so on.

It can be a very unifying experience for a family regardless of what other dynamics are at play. And we all know families are very diverse and very different, but the thing about PAFs is that the funds once it's inside the private ancillary fund no longer belong to the donor or the family. They belong to the community. The directors of the PAF have the responsibility and indeed the fiduciary duty to take good care of the assets and the joy of giving them away. And Ram, the joy should not be underestimated. The satisfaction that giving brings to people is well documented and it's certainly something that clients say to us all the time about what a satisfying experience it is to be involved in giving that and they often say, "Why didn't I just start this sooner? It's so good." That's for PAFs and for giving fund holders, the win is very similar.

It's just that it is without the need for holding board meetings or the responsibility for the investments because that happens at the trustee level. That's the win for the donors and their family members. For professional advisors engaged with the family like accountants for instance, it's also a win. I guess firstly, it's likely that they are the ones that have suggested structured giving to their client as a way of dealing with a tax issue. And if that's how it's occurred, then they already look like a superstar for coming up with a good solution to a tax issue. But I guess the beauty of these structures, whether it's a PAF or a giving fund, is that they're an ongoing opportunity for tax planning year-on-year.

And in the case of a PAF, accountants qualify to be what's called the responsible person. Each PAF board has one director who must be a responsible person and that person can't be a family member. Their job, if you like, is to represent the community on the board and it's a great job. It's an opportunity for professional advisors to support their clients in their giving and to really engage with them about some feel-good joyful stuff that they might not necessarily otherwise be engaging with them around.

We find that lots of accountants really enjoy this aspect of the role. And lastly, and most importantly of course the community benefits, the Productivity Commission's final report, which you've referenced just a moment ago was very clear that ancillary funds are additive to the total pool of giving in Australia. We live that reality every day and the ATO data packs it up too. So it's not particularly news to us, but it was good to have the Productivity Commission say it out loud if you like.

What that means is that these are new funds. They're not funds that would otherwise necessarily have made their way to charities anyway, and this is a key PAF point and about giving funds too. They're often established when an opportunity presents itself.

Ram Subramanian:
Judith, you talked about a win-win-win situation here for the donors, the accountants and advisors and the community. Fair enough. But what about compliance? In my introduction, I mentioned the government announcement about reforms to ancillary funds and that would include PAFs. Is there anything there which could bring down that win-win-win situation that you just talked about in the context of compliance and costs associated with it?

Judith Fiander:
That is a great question, Ram. Very happy to speak to that. That's really the purpose of APS. So what we do is offer a wraparound service to PAF directors in terms of support. So we take care of the accounting, we facilitate an audit, we provide compliance and company secretarial services, and we take care of all of the reporting to the various regulators, the ACNC, the ATO and ASIC.

For giving fund holders, all of those things happen at trustee level and all the holder of a giving fund needs to do is concentrate on where to make gifts in terms of the charities, which is a fairly simple process using our portal. But in the area of PAFs, compliance and governance is the whole purpose, really the initial whole purpose of Australian Philanthropic service to provide that support. So that directors of PAFs were always comfortable that they were absolutely up to speed in terms of any regulatory change and complying with accounting standards and any other regulation.

Ram Subramanian:
Thanks for that, Judith. Just to quiz you a little bit about how donors can achieve their charitable objectives, do people come to you knowing what they want or is there an advisory and goal identification process here?

Judith Fiander:
Yes, sure, of course. So I mentioned before we have about 960 clients you would imagine amongst a pool of that size, and there are 350 of them are private ancillary funds with multiple directors that, there would be a great diversity across people's interests. It's important to say that APS is charity agnostic and cause agnostic as well. So when clients look to us in terms of support around their giving, which is very much something that we engage with them around, we meet our clients where they are in terms of their giving, if I can put it that way. And a lot of our clients know exactly where they want to give and to what charities they would like to make gifts. For those clients, they're pretty clear, they're pretty self-sufficient.

They like to be kept up to date and engage in some educational opportunities and some opportunities for community in terms of meeting other givers. But generally speaking, they know what they would like to do. Other clients want more from us in the giving space. They might need some support grappling with a particular issue or working with multiple generations or coming together and formulating a giving strategy. They might need some assistance in working out the particular areas that they would like to focus on. Families, as I mentioned before, are diverse and we've got a small team of experts that work in this space. And if you ask them, and I ask them all the time, they would be saying, "If clients ask us for advice, we deliver advice and we can make recommendations that are evidence-based.

We understand and appreciate, and we are schooled in best practice in the sector and we're an intermediary, but we're not a matchmaker Ram. So we talk to our clients about where they want to give and we can give them information about particular charities or sector areas or educational tools, whatever it is that they need." And that can involve us working in a variety of different ways. When I say we work with families, families have lots of different age groups within them, if I can put it that way.

So we do some work with smaller children using something we call the Giving Game. We work with teenagers through a programme called Pathways to Impact that our giving services team has created and that includes a really great game called the Zombie Apocalypse, which I can tell you that I have played and survived, Ram, I'm pleased to say, but it's lots of fun. We work with multi-generational families that just consist of adults or a mixture of all of the above. So there's a lot to do and there's a great diversity, but it's very satisfying work.

Ram Subramanian:
So what is this Zombie Apocalypse that you just mentioned, Judith?

Judith Fiander:
It's lots of fun, Ram. So we actually, in order to test it and to give everyone who works at APS an experience of it, we were divided up into teams. And the scenario that's put in front of people and teenagers love this, is that the world has gone to hell in a hand basket. The zombies have taken over and there is only one valley left that is untouched by zombies. So there's a small group of teenagers that makes their way to this one valley and they need to build the world anew and they're given a series of questions around what their priorities might be in terms of building the world. And it's very interesting. It's great fun.

Ram Subramanian:
Excellent. Okay, I'm a wealthy individual and I've got disposable income that I would like to put to good use within the community. So I want to do some philanthropic work. So what strategies or considerations should I be taking into account in planning how I structure my giving activities?

Judith Fiander:
So what we find is that people will establish a structure or a giving fund, they've made their initial donation and then they need to year on year think about whether they might want to add to that in of what their tax planning looks like. But they also are required to give away a minimum amount. And that means that they have to think regularly about what it is that they would like to support in terms of causal areas and individual charities. We encourage clients very much to engage with the charities that they support and to look at providing multi-year support, which is always very helpful for charities rather than needing to seek funding anew year-on-year.

It allows them to budget and plan better in both a project and ongoing resourcing way. And we also encourage our clients to consider important issues around, say for instance, the question of administration costs is often raised by new clients with us on the basis that sometimes that gets a bit of media airplay in terms of coverage that might run along the lines of, oh, a particular charity has spent X amount of dollars on administrative costs. But as you and your stakeholders would probably know, Ram, there is no standard for how that is captured in terms of an accounting standard, how expenses and administration costs are dealt with in the P&L of not-for-profits.

So we encourage clients very much to think about the impact that their funding is going to provide, to engage with the charity, to understand and look at how they are working and what's coming out the other end in terms of community impact, if I can put it that way. So there is an annual cycle for everyone who has a private ancillary fund or a giving fund in terms of requirements to give away a certain amount of money. And so there are conversations that are ongoing and conversations that sometimes happen at particular points in the year in order to support clients around determining whether or not they will continue funding in the same way, whether they would like to focus in another area, how they would like to engage with the charities and so on.

Ram Subramanian:
So you mentioned that tax plays a part in how someone goes about structuring their philanthropy giving. So what are the tax implications here, Judith?

Judith Fiander:
So it's important to say at this point, Ram, that I am not an accountant, so let's just keep that in mind as we talk about tax. But as we mentioned earlier, donations into ancillary funds are a hundred percent tax-deductible and that deduction can be spread over up to five years. So for people with variable income year-on-year, that can be particularly useful. And, good to say that ancillary funds are themselves income tax-exempt and don't pay any capital gains tax either. So they are excellent long-term investment vehicles for that reason, which of course boosts the philanthropic pool of capital for future use by charities.

It's not always about cash donations for people making donations into their private ancillary funds or into ancillary funds generally either. We have a number of clients who make donations into their PAFs of other things, be that shares managed funds, whatever it might be. Commonwealth Bank shares as an example for instance. If they were bought early on, we sometimes see them being donated into PAFs, which is terrific because the PAF can receive the full value and then be able to pass that on out to the community over time.

If we are talking to professional advisors of any sort, then the kind of things that come up might be if they have a client who sold an investment property or a business and has a capital gains tax issue, or perhaps a client who's about to exceed the Division 293 threshold of $250,000 in terms of income or maybe they're about to retire in the next few years. So the tax deduction is available now, but potentially not later or not at the same level.

These are all great opportunities to open a giving fund and to do that only requires $40,000. That's still a lot of money to be able to put aside in one lump for charitable giving, but it is a much more approachable number than we usually say that you require a million dollars or more in order to justify the cost of a private ancillary fund.

Ram Subramanian:
With over 960 clients, I expect you'd have a number of success stories amongst your clients. Could you share with us one such success story?

Judith Fiander:
Yes. Look, we've got lots of truly great client stories, Ram and a lot of them are on our website if anyone's interested. And I could talk about this for hours, so I will just talk about one and don't be afraid to say, "Stop, Jude. That's enough." And I will. But if I tell you a story that's a fairly common story for an APS client and shows change over time, that might be the most useful use of our time together. Context for this was that a business was sold in I think about 2016 and a PAF was established with part of the proceeds of that sale price, capital gains tax event obviously.

These people had been working very hard on their business, it was their own business, been working very hard on that for a dozen or more years, about 15 years and raising a family. So there were very, very busy people during that period of time and they were not wealthy, very important to say that. And then suddenly they were. They had the ability to give and they did give and very generously. And what we find is that when people start giving through a structure in a structured way in the first couple of years, they usually give to quite a wide variety of charities and a variety of cause areas, and in relatively small amounts.

They're kind of testing the water, I guess you might say. But over time they generally focus down on one or two cause areas that they really want to become engaged with and the gifts become fewer in number and larger in size. They provide multi-year funding so the charities can plan a budget as I mentioned before. And they think more and more about the issues and the causes and how they can give better. And I guess this story is an example of just that frequent pattern that we see.

Over time, this particular family, through sad exposure, they lost a very close friend and they became very engaged with the research around a particular form of brain cancer. So from giving to a variety of charities in years one and two, they focused in on this particular area and they gave a lot of money to it over the next five or six years. They met with the researchers, they went to the labs, and I can tell you when I was speaking to them about it, they were very on top of the research and where it was up to, what phase it was in, were their trials starting, what the stats were that came out of the trials.

They were very, very engaged. And at the end of about another five years, they were very excited to tell me that the researchers project that they will have a simple cure in the next five years or so. So from going to giving to a variety of charities, they've actually participated in funding what will ultimately in the next five years or so end up with a cure to a particular form of cancer. That is a great example of the excellence of structured giving really. The PAF started with a certain amount of money. They had a very good professional financial advisor. They were not in a position to make any further donations, just small top-ups here and there.

But when I last checked, they had distributed millions of dollars to that particular cancer research institute and they in fact had about the same amount still in their PAF. And so even if they closed that PAF today and gave all of the money in it to a charity and just walked away because they've had the earnings over the last sort of six or seven years, they've already given away almost the totality of the PAF and it's still going and will continue to provide support to charities in an ongoing basis from now and into the future. And that's really the purpose of structured giving, to be able to give now and give in the future.

Ram Subramanian:
Thank you, Judith. That's a great story that showcases how donors can actually contribute some of their wealth in a structured way to society and particularly to something that they find important close to their hearts if you wish, and do something meaningful for society. It was great to hear from you on how you and APS contribute to philanthropic giving in Australia and hearing some of the challenges or some of the issues that need to be considered when someone wants to use structured giving as a vehicle for philanthropy. So thank you very much for all of that, Judith, and it was great to have you on the show.

Judith Fiander:
Thank you very much, Ram. It was great to speak with you.

Ram Subramanian:
For more information about philanthropy and structured giving, including links to additional resources, you can refer to the show notes for this episode. With Interest is a regular podcast. If you liked today's show, you can subscribe on your favourite podcast app by searching for CPA Australia's With interest. I'm Ram Subramanian. Until next time, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.