Related Party Transactions by David Ward

Central to philanthropy is the achievement of community outcomes from the application of private resources.  The taxation benefits that are provided to those who donate into private or public ancillary funds are premised on the public good that will flow as those funds are distributed to eligible charities over time.

Once funds are donated into a private ancillary fund (PAF) – and tax benefits accessed – the funds are no longer the donor’s money. The funds belong to the community. The board of the trustee is in the privileged position of having stewardship over those funds and can decide which charities or community organisations to support. They cannot access the funds for their own purposes. Provision of any private financial benefit to donors or others involved with the fund is contrary to the PAF Guidelines and against the principles that underline the PAF framework.

Some transactions with parties linked to the ancillary fund are part of the rationale of the fund’s existence.  In particular, PAFs are established to receive donations from the founder and his or her family.  Similarly, many public ancillary funds (PuAFs) were set up by a charity or public institution to collect donations and pass them through to that charity.   Such transactions are consistent with the ancillary fund framework and do not need to be disclosed.

Transactions that can challenge the integrity of the ancillary fund framework are those transactions with related parties that relate to the provision of investment or administration services. These present a conflict as there is a potential for a private benefit to come from public funds, which goes against the core principle of philanthropy.  The PAF and PuAF Guidelines are clear that such transactions on a commercial arms-length basis are acceptable, but they must be transparent and be disclosed in the annual Financial Statements.

When administering ancillary funds, APS ensures that directors are aware of their responsibilities; the commercial terms of any related party transaction are documented; and appropriate disclosures are made in the annual Financial Statements.

Never hesitate to alert your APS Adviser to a particular transaction or query so that they can work with you to ensure that all related party transactions are appropriately disclosed.


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