Accountants can play vital role in philanthropy tax planning
Tax professionals can provide significant value to clients by providing guidance on the structures and tools they should be using for their philanthropic activities, says the chief executive of Australia Philanthropic Services.
The lead-up to 30 June is an ideal time for accountants to engage in conversations with clients around the best tax strategies for philanthropic giving, according to Australian Philanthropic Services (APS) chief executive Judith Fiander.
Speaking to Accounting Times’ sister brand Accountants Daily, Fiander said that clients are often thinking about making additional donations in the lead-up to the end of June, so it’s an ideal time to start conversations about what kind of tax planning they may be able to implement for those donations.
Fiander said while extremely wealthy families have long used family offices and private ancillary funds to structure their philanthropic activities, structures such as public ancillary funds have broadened the range of options available for other types of clients.
Unlike private ancillary funds, public ancillary funds operate as a retail offering and use a pooled investment approach. They can provide clients who regularly donate to charities taxation benefits, she explained.
These funds are registered charities and are therefore exempt from income tax, she said. They also provide continuity of funding for charities over many years.
“They are a tax tool that can potentially be used each and every year for clients,” she said.
Fiander said accountants can use the lead-up to 30 June to look at their client’s tax affairs and say, “Well, I know you consistently give every year to these particular charities. Let’s look at what tax management tools we can use to manage that.”
Accountants are often involved in many of the trigger events for giving, such as the sale of large assets, she explained. They are therefore in an ideal position to guide clients through the tax planning for their philanthropic activities.
“For example, where there’s a sale of a business or a large parcel of shares which has a large capital gains component, that will trigger a tax issue. At the same time, it also provides them with an opportunity for them to put money aside for a charitable cause,” she said.
People in their final years of retirement may also have increased interest in in making donations and claiming deductions where they’re still earning taxable income, she added.
Fiander said there are also important tax planning considerations when it comes to philanthropy and estate planning.
“Let’s say I died next week and I was fortunate to have a large pool of Commonwealth Bank shares that I got for very little many years ago and I’ve been hanging onto them because of the enormous capital gains that would be triggered from selling them,” she said.
“Upon my death those shares form part of my estate. I might state in my will that I would like to leave a proportion of my estate to charity. A sensible executor would distribute the shares to the ancillary fund because it’s a DGR charity and so there would be CGT relief. Conversely, if the executor cashed those shares to distribute to the beneficiaries, they would not receive that relief.
“Other assets that don’t have CGT attached to them can then be given to the other beneficiaries.”
Fiander said it is often accountants who are dealing with the tax affairs or the estate, and incorporating these sorts of tax strategies can bring enormous value to clients.
