Deciding to establish a private ancillary fund is the easy part. Once you have made that decision, a practical question follows quickly, what actually happens next? Setting up a PAF is a structured process with specific legal and regulatory steps, and getting them right from the outset saves considerable trouble later. This guide walks through how a private ancillary fund is established, from the trust deed to your first year of obligations, so you know what the road ahead looks like.
Before you start: is a PAF the right structure?
Before diving into setup, it is worth making sure a PAF genuinely suits your situation. A private ancillary fund is best suited to individuals, families or businesses committing a substantial sum to long-term, structured giving, and who want real control over how the fund invests and grants. If you are giving smaller amounts or want a simpler, hands-off approach, a sub-fund within a public fund may serve you better. If you are still weighing up what a PAF is and how it works, our paf guide covers the fundamentals, and it is worth reading alongside the recent reforms that have renamed these structures, before you commit to establishing one. Assuming a PAF is the right fit, here is how to set one up.
Step one, establish the trust and trustee
A private ancillary fund is a type of trust, so the first step is creating the legal structure behind it. This means engaging a solicitor to draft a trust deed that strictly conforms to the Private Ancillary Fund Guidelines. The deed sets out the fund’s charitable purpose and operational rules, and it must be compliant at the time of establishment, so this is not a document to improvise. A PAF must also have a corporate trustee, meaning a company acts as trustee rather than individuals, which provides better governance and continuity. The people behind the fund typically serve as directors of that trustee company.
Step two, register the fund
With the trust established, the fund needs to be registered with the relevant authorities. You will apply for an Australian Business Number and a Tax File Number for the fund, then seek endorsement from the Australian Taxation Office as a deductible gift recipient, which is what allows donors to claim tax deductions for their contributions. Where the fund meets the legal definition of a charity, it will also need to register with the Australian Charities and Not-for-profits Commission. These registrations are what give the fund its tax-advantaged status, so they need to be handled carefully and in the right order.
Step three, fund it and set an investment strategy
Once registered, the fund can receive its initial contribution, which is the capital that will be invested and grown over time. At this point the trustee takes on a key ongoing duty, maintaining a current investment strategy that sets out how the fund’s assets will be invested to meet its charitable purpose. Investments must be made on an arm’s length basis, and the fund’s assets must be kept entirely separate from the personal assets of those involved. A well-considered investment strategy matters, because the returns are what fund your giving year after year.
Step four, meet your ongoing obligations
A PAF carries continuing responsibilities that begin from its first year. Each year the fund must distribute a minimum proportion of its net assets to eligible charities, prepare financial statements, undergo an independent audit, and lodge an annual return with the ATO. Records must be kept for at least five years. It is worth noting that recent reforms, announced in 2026 and not yet fully law, will move the minimum annual distribution rate to 6% of net assets and introduce three-year distribution smoothing, so the current rate and timing are worth confirming as you set up. Our guide to the giving funds reforms covers these changes in more detail.
How long it takes and what it costs
Setting up a PAF is not instant, as the legal drafting and regulatory approvals take time, often some weeks from start to endorsement. Costs fall into two parts, the initial setup, including legal fees for the deed and the trustee company, and ongoing annual administration, audit and compliance. Because these vary with complexity, the sensible approach is to obtain a scoped quote based on your circumstances rather than rely on a headline figure. Weigh the cost against the long-term value of a structured, tax-effective giving vehicle.
Common setup mistakes to avoid
A few errors come up repeatedly. A non-conforming trust deed is the most serious, since a deed that does not meet the guidelines at establishment can jeopardise the fund’s status. Using individual trustees instead of a corporate trustee is another, as is underfunding the PAF so that it cannot meet its minimum distribution and running costs sustainably. Finally, many new funds overlook their first-year compliance obligations, so it pays to have your reporting, audit and distribution requirements mapped from day one.
Takeaways
Setting up a private ancillary fund is a methodical process, establish the trust and corporate trustee, register for the right endorsements, fund it with a sound investment strategy, and meet your ongoing obligations from year one. Done properly, it gives you a lasting, tax-effective vehicle for your giving. This information is current as at 2026, reflects reforms not yet fully law, and is general information only, not legal or financial advice. Engage a solicitor and a qualified adviser, and check current ATO guidance, before establishing a fund.
