What’s the difference between a charity and a foundation?
A charity is a registered organisation that exists to benefit the community or serve a public purpose. It may provide direct services such as housing support, education programs, medical research, or animal welfare. Charities typically help the end recipient directly and rely on funding from public donations, fundraising efforts, government grants, or contributions from foundations.
A foundation, by contrast, usually supports charities through financial grants rather than running its own programs. Foundations are most commonly structured as either Private Ancillary Funds (PAFs) or Public Ancillary Funds (PuAFs). They are typically established and funded by individuals, families, or businesses with the primary purpose of distributing funds to other registered charities. Like all charities, foundations must be registered with the Australian Charities and Not-for-profits Commission (ACNC), and often require a more robust legal structure — particularly when tax concessions, such as Deductible Gift Recipient (DGR) status, are involved.
How much does it cost to start a foundation?
t’s not exactly cheap, but whether it’s considered expensive depends on context. Generally, establishing a foundation will cost more than $30,000, with the majority of that cost coming from legal fees. This is due to the complexity and time involved in setting up the right structure and meeting all compliance requirements.
The ongoing costs, however, are typically quite low. Once established, a foundation usually only incurs accounting fees and occasional legal and compliance costs if you’re running it yourself. The setup process itself can take more than three months, as it involves creating multiple entities, meeting specific regulatory requirements, and obtaining various government approvals and checks to ensure the foundation is structured correctly from the outset.
How to start & set up a foundation in Australia?
I believe the process requires qualified professionals, particularly legal experts, to ensure everything is structured correctly. While it’s technically possible to set up a foundation yourself, I’ve established a few and have always partnered with a law firm to handle the documentation, provide proven templates, and apply their legal expertise. In my view, trying to do it alone increases the risk of errors, delays, and ultimately higher costs.
Working with professionals creates a far more efficient process. They manage the complex and time-consuming compliance work, so the founder can focus on the bigger picture — defining the foundation’s purpose and identifying the charitable causes they want to support.
What Qualifies as a Foundation in Australia?
To qualify as a foundation in Australia, the organisation must be registered with the Australian Charities and Not-for-profits Commission (ACNC). This involves submitting an application along with supporting documentation that clearly outlines the foundation’s charitable purpose.
The foundation must also operate under a formal legal structure, most commonly as a Private Ancillary Fund (PAF) or a Public Ancillary Fund (PuAF). In addition, it must meet specific tax and regulatory obligations, including applying for Deductible Gift Recipient (DGR) status and complying with ATO guidelines relevant to ancillary funds.
To maintain its registration and tax concessions, the foundation is also required to meet ongoing annual reporting obligations to the ACNC and, in some cases, to the ATO.
What’s the difference between a Private Ancillary Fund (PAF) and a Public Ancillary Fund (PuAF)?
A Private Ancillary Fund (PAF) is typically established by an individual, family, or business to create a structured, long-term model for charitable giving. It cannot raise funds from the public and must rely solely on private contributions. PAFs are required to distribute at least 5% of their assets each year to eligible charities — specifically those with Deductible Gift Recipient (DGR1) Item 1 status.
In contrast, a Public Ancillary Fund (PuAF) is designed to raise money from the general public. These foundations can advertise and promote themselves to attract donations, which are then distributed to end-user charitable organisations (also DGR 1 charities). PuAFs are usually overseen by a board of independent responsible persons and are required to distribute at least 4% of their assets annually.
Legal Structures for Private Ancillary Fund (PAF)
In Australia, foundations are most commonly set up as charitable trusts, often with a corporate trustee. In these cases, one of the directors of the corporate trustee must be an independent responsible person (this is a defined type of person) but in short someone with a degree of responsibility, professional independence and experience. This individual is responsible for overseeing the foundation’s decisions and has a duty to report any unethical or unusual activity.
Unlike a standard trust, a charitable trust is not required to distribute profits to beneficiaries. Instead, it must use its funds to pursue its stated charitable purpose — often by distributing grants to other charities.
Foundations can also be established as a company limited by guarantee, which is different from a standard company in that it has members instead of shareholders. This structure is commonly used for not-for-profits and is subject to corporate governance standards under the Corporations Act.
Registering with the ACNC (Australian Foundations and Not-for-profits Commission)
The first step in setting up a foundation is to choose the appropriate legal structure, typically either a charitable trust or a company limited by guarantee. If establishing a trust (common for Private Ancillary Funds), you’ll need to work with your accountant and legal adviser to draft a trust deed that complies with relevant ACNC and ATO requirements. You’ll also need to determine who the trustee will be — either individuals or a corporate trustee.
Next, apply for an Australian Business Number (ABN) for the foundation. You’ll then define the foundation’s charitable purpose, outline how it will be funded, and include examples of the types of charities it may support, along with estimated donation levels or grant activity.
A compliant governing document (trust deed or constitution) must be submitted as part of your application to the ACNC, which is done via their online portal. The ACNC will review your application and may request clarification or additional information during the process.
Once the ACNC has approved the registration, you’ll then apply to the ATO for charitable tax concessions, including income tax exemption and, where eligible, Deductible Gift Recipient (DGR) status. After this is granted, you can proceed to set up the bank accounts or investment platforms that will hold the foundation’s assets and begin operating.
Applying for Tax Concessions and Deductible Gift Recipient (DGR) Status
To access the full range of tax benefits available to a foundation, you must apply for Deductible Gift Recipient (DGR) status through the ATO. This is a critical step, as only foundations with DGR endorsement are eligible to receive tax-deductible donations.
If approved, any contributions made to the foundation may be fully tax-deductible, potentially saving you up to 47% in tax, depending on your marginal tax rate. In addition, investment earnings within the foundation are tax-exempt, allowing for long-term, tax-free growth of the fund.
This structure can be especially attractive if you:
- Regularly donate to charities,
- Are facing a large one-off tax bill, or
- Are impacted by the Division 296 tax on super balances over $3 million.
In such cases, setting up a foundation with DGR status may be a strategic way to both manage your tax position and support causes you care about. But remember, once you put money into a foundation you can’t get it back out. It needs to eventually be given to a registered charity.
Creating a Foundation Constitution or Governing Document
Creating a strong, compliant governing document or foundation constitution is one of the most important steps. The document sets out the rules by which your foundation operates including its charitable purpose, how decisions are made, who is responsible for governance, and how funds must be used. Whether you’re establishing a Private Ancillary Fund (PAF), a Public Ancillary Fund (PuAF), or a company limited by guarantee, the constitution or trust deed must be carefully drafted to meet the requirements of the Australian Charities and Not-for-profits Commission (ACNC) and the ATO.
For high-net-wealth individuals looking to leave a lasting impact, the quality and clarity of this document matters. It not only ensures that your philanthropic goals are protected well into the future, but also provides the legal structure needed to access the tax concessions, including Deductible Gift Recipient (DGR) status and income tax exemptions. Working with an experienced legal adviser is essential to tailor the document to your values and objectives, while also keeping it flexible enough to evolve over time.
Opening a Bank Account for Your Foundation
Once your foundation has been established and approved by both the ACNC and the ATO, the next step is to set up a dedicated bank account. This account should be able to handle transactions efficiently, provide clear reporting for your accountant and auditor, and ideally offer a competitive interest rate. It’s also important to ensure the account is structured correctly in the name of the foundation, not in your personal name.
In addition to holding cash, you may choose to invest part of the foundation’s capital in higher-growth assets, such as managed funds or Australian shares, to support long-term giving. However, keep in mind that if you’ve set up a Private Ancillary Fund (PAF), you’re required to distribute at least 5% of the fund’s net assets each year to eligible charities. For that reason, it’s essential to maintain enough liquidity in the foundation to meet your annual distribution obligations without having to prematurely sell long-term investments.
Setting Up Transparent Financial Reporting and Governance
Transparent financial reporting and governance isn’t just about ticking compliance boxes. For those contributing significant capital, especially in a family or private setting, it’s about having clarity and confidence around how funds are being used, tracked, and distributed. You want systems that allow you to see at a glance what’s been donated, what’s invested, and what’s been granted and just as importantly, you want those records to stand up to external scrutiny, including from your auditor and the ACNC.
Governance matters just as much. That means putting in place regular board meetings, keeping minutes of key decisions, and ensuring someone with independence and experience — like an external adviser — is involved where required. For ancillary funds, this includes appointing an Independent Responsible Person and arranging an annual audit. These steps might seem administrative at first, but they lay the foundation (no pun intended) for something far more lasting: a structure that’s trusted, effective, and capable of making a genuine long-term impact.
Funding and Fundraising Considerations
When it comes to funding a foundation, the rules differ depending on the structure. For a Private Ancillary Fund (PAF), all contributions must come from private sources — usually an individual, family, or business. This can take the form of a one-off lump sum, or contributions can be made annually or as needed, depending on your tax position or philanthropic goals. Many people choose to top up their foundation in years when they have a larger tax bill or feel strongly about supporting a particular cause.
In contrast, a Public Ancillary Fund (PuAF) is designed to accept donations from the wider public. That might be through a fundraising campaign, ongoing community support, or workplace giving programs. But with that flexibility comes additional complexity. Every dollar raised needs to be properly accounted for, and you’ll need to maintain clear records and supporting documentation for each donation. Because of the heightened compliance requirements, PuAFs are typically more expensive and time-consuming to manage so it’s important to weigh up the administrative commitment alongside the fundraising potential.
Ongoing Compliance and Reporting Obligations
Once your foundation is up and running, there’s a responsibility to maintain its good standing both legally and ethically. This means staying on top of your ongoing compliance and reporting obligations, which vary slightly depending on the structure you’ve chosen.
At a minimum, you’ll need to lodge an Annual Information Statement (AIS) with the ACNC, and if your foundation is audited, a copy of the audited financials will also need to be submitted. For Private and Public Ancillary Funds, additional reporting is required by the ATO, including confirmation that minimum annual distribution requirements have been met (5% for PAFs and 4% for PuAFs).
You’ll also need to ensure the foundation’s governance arrangements remain up to date that includes maintaining a compliant board structure, holding regular meetings, documenting key decisions, and reviewing investment strategies where applicable. Staying proactive with compliance doesn’t just avoid issues down the line it reinforces the integrity and credibility of your giving, ensuring your foundation is well-placed to make an enduring impact.
Below is an example table, calendar or checklist of what you can expect to do from running a Private Ancillary Fund during the year.
| Month | Task | Notes |
| January | Review foundation’s investment portfolio | Ensure alignment with distribution plans and risk profile |
| February | Prepare for annual distribution planning | Calculate the 5% minimum distribution requirement |
| March | Hold first board meeting of the year | Confirm strategy, budgets, grant pipeline |
| June | Finalise all charitable distributions for the financial year | Must meet the 5% rule by 30 June |
| July | Begin financial year-end processes | Gather transaction records, statements, receipts |
| August | Audit begins (if required) | Ensure accounts are prepared and accurate |
| September | Submit ACNC Annual Information Statement (AIS) | Due within 6 months of EOFY (by 31 December) |
| October | Submit ATO PAF Annual Return | Ensure compliance with ATO ancillary fund guidelines |
| November | Review governing document and policies | Update as needed (especially if board changes) |
| December | Hold end-of-year board meeting | Reflect on grant outcomes and plan for next year |
How a Financial Adviser Can Help You Set Up and Run a Foundation
Setting up a foundation can be complex but with the right support, it doesn’t need to be overwhelming. That’s where we come in. As experienced financial advisers with a strong track record in philanthropy, we act as the link between you and the various professionals involved in the setup and ongoing management of your foundation. We work closely with and can recommend trusted legal and accounting specialists to ensure the structure is compliant, and we break down the process in simple terms so you always feel clear and in control.
Beyond setup, we assist with investment strategy, grant planning, and day-to-day administration. We prepare transactions for approval, help distribute funds to charities, and ensure all documentation is correctly recorded for your accountant and auditor. So you can concentrate on enjoying the positive impact that your foundation makes. We also coordinate directly with your accounting and audit team, so they receive everything they need. For individuals who are new to running a foundation, we offer a steady hand to guide the process and ensure nothing falls through the cracks. Our support is provided on both an upfront and ongoing basis.
Book a free consultation with an experienced financial adviser
If you’re considering starting a private foundation or want to explore your philanthropic options, we’re here to help. Schedule a no-obligation consultation with myself and my team of experienced financial advisers and admin staff to get expert guidance on structure, tax benefits, compliance, and long-term impact.
Frequently Asked Questions
What’s the difference between a not-for-profit and a foundation?
A foundation is a specific type of not for profit. They are setup to support other charities rather than delivery the services to the end user.
Do I need an ABN to start a foundation?
Yes
How long does it take to register a foundation with the ACNC?
I’ve seen it take 4 weeks for the application to be processed. This is a government agency and the processing time can vary.
You should budget about 4 months from giving the go ahead to setting up a foundation to it being completed, approved and you’re ready to distribute funds.
What is DGR status and why is it important?
DGR stands for Deductible Gift Recipient. A tax status granted by the ATO that allows eligible charities and foundations to receive tax-deductible donations and enjoy tax-free investment earnings. It’s one of the most important registrations a philanthropic entity can obtain in Australia.
There are different types of DGR endorsement depending on the nature of your organisation. For example, most service-based charities seek DGR Item 1 status, while grant-making entities like Private Ancillary Funds (PAFs) or Public Ancillary Funds (PuAFs) are typically endorsed under DGR Item 2. Having DGR status is essential if you want donors to claim tax deductions and can significantly enhance your foundation’s credibility, fundraising potential, and long-term impact.
Can a foundation pay its board members or staff?
Yes it can. But there are rules and expectations around this. The payments must be reasonable, well documented and in the best interest of the foundation.
Do foundations pay tax in Australia?
In most cases they do not pay tax.
What kind of financial records do I need to keep?
Bank statements, reconciliations, donations records, grant and distribution records, expenses, income, investment records, board meeting mins and resolutions, audit reports, Annual information Statement, tax filing. To name a few.
Can I fundraise before my foundation is registered?
No.
Do I need a financial adviser or accountant to start a foundation?
If I was starting a foundation for myself I would. And I do this for a living.
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