Charitable Donations: Giving As Part of Your Financial Plan
For many of our clients, the early and middle years of their financial journey were focused on building security, establishing careers and growing their own business. Over time, diligent saving, sensible risk‑taking, and long‑term planning can result in a level of wealth that goes well beyond personal needs.
It is often at this stage that a deeper question emerges.
What should this wealth ultimately be used for?
As we explored in Making Priceless Memories many clients prefer to see the impact of their generosity while they are still alive. Giving back to the community or causes they value becomes an important part of their financial thinking, such as regular, or one-off, donations to registered Deductible Gift Recipients (DGRs)
The real power of charitable giving lies in the meaningful difference it makes to the community. However, incorporating philanthropy into your financial plan allows you to support causes you care about while managing your tax position in a considered way. With thoughtful planning, the impact of your generosity can be enhanced.
Giving Now
The simplest and most common approach is making donations to registered charities. In Australia, donations of money of $2 or more to organisations endorsed as Deductible Gift Recipients (DGRs) are generally tax‑deductible.
This means the donation may reduce your taxable income with the tax benefit depending on your marginal tax rate.
To claim a tax deduction for a donation, it must meet the criteria:
You must keep receipts or written records of your donation to prove your claim.
The charity must be registered. Use the government website to find charities: https://www.acnc.gov.au/charity/charities
The donation must be made without receiving any material benefit or advantage in return. Raffle tickets and membership fees typically do not qualify (e.g. Prize Home etc.).
Other ways of charitable giving include making ‘indirect’ donations via a public ancillary fund (PuAF) or private ancillary fund (PAF).
A PuAF is a not-for-profit entity which is established by trust deed, is philanthropic in character and is open, transparent and accountable to the public (via ATO reporting). Its sole purpose must be to provide money, property or benefits to certain other DGRs. Gifting via a PuAF, rather than directly to charities, removes the pressure to choose a charity in the current income year. There are close to 25,000 charities in Australia which can accept tax deductible donations, so choosing a charity can be challenging. As a PuAF is in effect a feeder-fund, a large tax deductible gift can be made to the PuAF in one year, with the distribution of grants from the PuAF to charities occurring over several subsequent years. This means that the donor may have an ongoing involvement beyond making the initial donation.
A Private Ancillary Fund (PAF) is a type of charitable trust designed to provide individuals, families or associations with an investment structure for philanthropic purposes. A PAF may be suitable for someone where:
they wish to keep on giving after their death
they want a structured way to involve their children or family in giving
they have recently disposed of an asset and wish to obtain a tax deduction in the year of sale (note: keep in mind that once a gift is made to the trust it cannot be revoked), or
they wish to devote a considerable amount of time to philanthropy into the future.
There are costs in establishing and maintaining a PAF (e.g. costs relating to the preparation and audit of financial statements and the lodgment of an income tax return), so whether or not it is worthwhile establishing one of these funds can depend on the amount invested, often recommended to be over $500,000.
Integrating Giving Into Estate Planning
After ensuring family members are appropriately provided for, clients often wish to direct a portion of their estate toward causes that reflect their values and life experiences.
This is where careful advice and drafting are critical.
There are three common ways charitable intent can be incorporated into estate plans, each with different considerations.
1. A Direct Gift in the Will
This involves leaving a specific sum, percentage of the estate, or particular asset directly to an eligible organisation.
Key considerations:
· The organisation should be clearly named and properly identified with the charity’s ABN.
· Flexibility may be beneficial (for example, a percentage rather than a fixed dollar amount)
· Consider whether the organisation is likely to exist at the time the Will is administered
2. Guiding Beneficiaries to Give
Some clients prefer not to make direct gifts in their will, but instead express wishes that beneficiaries use a portion of their inheritance to give back.
While these directions are usually not legally binding, they can be powerful when accompanied by open communication and shared purpose.
This approach also allows beneficiaries to potentially claim tax deductions personally when they make donations (maximising your overall financial legacy) and reduce the chance of a direct gift leading to undesirable tax-positions of your Estate or beneficiaries.
Final word
In many ways, the desire to give back is a natural extension of successful wealth building. Clients who have benefited from opportunity, discipline, and good advice often want their success to mean something beyond themselves.
As advisers, our role is to help translate that intention into action, structuring giving in a way that is clear, effective, and integrated with the client’s broader financial and estate plans.
When done well, giving back becomes more than a transaction. It becomes a legacy. One that reflects both financial success and personal values, and one that can benefit families and communities long after you are gone.