The current distribution guidelines for ancillary funds can result in sub optimal outcomes.  For example,

• Requirements for funds to make a minimum distribution each financial year might prevent ancillary funds working with type 1 deductible gift recipients (DGR1s) to support large projects, particularly capital-intensive projects; and 
• Limitations on moving assets between ancillary funds prevent private ancillary funds contributing to the work of public ancillary funds that are better placed to support particular types of DGR1s.

The consultation paper considers several regulatory solutions to these concerns. CA ANZ welcomes the acknowledgement of these limitations and questions the policy behind the regulations that require minimum annual distribution rates and limits the ability to transfer assets with the not for profit (NFP) sector.   Given the different economic environment that ancillary funds now operate in, CA ANZ feels there should be reconsideration of the 5% minimum distribution rate.  

In response to the proposal that the Commissioner’s discretion to lower the minimum annual distribution rate could be altered to zero (and the minimum distribution amount also lowered to zero) for up to 5 years, CA ANZ argues that:

• This should extend to both public and private ancillary funds.
• The ability to accumulate funds should occur at any time during an ancillary fund’s life cycle.
• No limitations should apply to the amount that can be accumulated.
• Five years may not be long enough for some projects and flexibility is required.

CA ANZ supports changing legislation to permit ancillary funds to transfer between themselves. CA ANZ also supports removal of the two-year restriction as this is considered artificial. However, CA ANZ questions whether there is a need to ensure that if the ability to transfer is implemented, that the total value of distributions made to DGR1s is broadly the same as if the transfer had not occurred.  CA ANZ argues that the funds are in the not-for-profit system and can only be used to either fund DGR1s or accumulate capital for a project that has received the ATO tick of approval. Both are appropriate uses of the transferred funds and requiring the same level of funding to occur at DGR1 level is irrelevant.