Squeezing the Golden Goose: Why Higher Distribution Rates Won’t Lift Giving

by David Knowles, Head of Philanthropy & Social Capital, Partner, Koda Capital

Introduction

On 26 February 2026, the Albanese Government announced that the minimum annual distribution rate for both Private Ancillary Funds and Public Ancillary Funds, now collectively renamed ‘Giving Funds’, will rise to 6% of net assets per year. The current minimums are 5% for Private Ancillary Funds and 4% for Public Ancillary Funds. Koda believes this change is well-intentioned and poorly designed and that, over time, it will deliver less to Australian charities than the policy it replaces.

There are genuine positives in the announcement: the introduction of a three-year distribution smoothing mechanism is a long-advocated and sensible reform, and the expansion of the Community Charity Deductible Gift Recipient category is welcome. But on the central question of mandatory distribution rates, Koda believes the Government has reached the wrong conclusion and that the consequences will be felt not just by Australia’s charities and existing Giving Funds, but by a generation of potential philanthropists who may reconsider their commitments.

Treasury is right to say this change will boost support for Australian charities – but drawing on money already donated to charity is not the same thing as growing giving or increasing the value of distributions over the long-term. Koda’s concern is that this policy decision may in fact retard the growth of structured philanthropy and stunt the growth of Giving Funds – vehicles that have driven growth in Australian giving levels for the last 25 years. In short, this policy change seems likely to curtail the growth of giving in Australia.

The policy that looks most generous today is the policy that delivers the least giving over a generation.

What Giving Funds Are Used For

To understand why the rate increase matters, it helps to be clear about what a Giving Fund is and why people establish them.

While some Giving Funds are intentionally established to act as an efficient way to raise and distribute funds quickly – say in response to a natural disaster – most are set up as long-term, endowment-style foundations that exist solely to benefit Australian charities. Founders cannot benefit personally from them or take back ownership of funds donated to them. Giving Funds are usually a vehicle for making a deliberate, long-term philanthropic commitment. One that allows a donor to make a substantial contribution at a moment of financial capacity, invest those funds prudently, and distribute grants to the causes they care about over many years. Thanks to the ability to invest funds in a tax-advantaged environment over an indefinite period, donors use Giving Funds to commit more money to charity than would otherwise be possible.

Consider the founder of a privately-held business who, upon selling that business, decides to commit a significant sum to philanthropy. They are highly unlikely to write a cheque for $5 million directly to a charity, or ten charities, in the year of sale. They may not yet know which causes will benefit most from their support. They may want to involve their children or grandchildren in the giving decisions. They may want to build relationships with grantees over time. They may simply want the rigour of a proper governance structure around their giving rather than making large, reactive donations at the time of a once-in-a-lifetime liquidity event.

The Giving Fund makes all of that possible. The donor commits the capital to philanthropy at the moment of capacity, but with the ability to invest it, rather than spend it all in one go. The invested corpus then grows over time, generating both the confidence to give generously and the financial capacity to do so at increasing scale. That is an enduring philanthropic structure: for the donor, for their family, and for the causes they care about.

The size of commitment donors make into a Giving Fund is determined, in significant part, by the understanding that the money will be invested and distributed over time rather than given away immediately. People commit at the scale they do precisely because the Giving Fund allows them to be generous now while remaining involved, thoughtful and strategic over time. Remove that appeal, or diminish it by reducing its potential and the scale of that initial commitment may shrink or disappear entirely.

Why the Rate Increase Is Short-Sighted

The logic behind increasing distribution rates is intuitive: money accumulating inside a Giving Fund is money not yet reaching charities, so better to fast-track more of it out into the community each year. What this reasoning misses is the compounding arithmetic of a growing corpus. Or, in simple terms, the ability to generate additional money for Australian charities through investment, rather like a form of philanthropic superannuation.

A Giving Fund that grows its real asset base over time, which history already shows many have done successfully with the minimum distribution set at 5%, does not merely preserve giving capacity, it expands it, as illustrated in the table below.

But what changes at 6% is not just arithmetic, it is the character of the Giving Fund itself. A Fund designed to maintain rather than grow its real value is no longer the high-potential ‘philanthropic superannuation’ that possibly motivated the original commitment. It is likely a managed drawdown. For donors who established their Giving Fund with the explicit intention of building a lasting philanthropic legacy for themselves, for their family and for the charities and communities they care about, that is a materially different proposition.

And that has consequences for future giving levels in Australia.

What the Numbers Show

The modelling below assumes a starting corpus of $1 million, a gross investment return of 8% per annum (a reasonable long-run assumption for a diversified growth-oriented portfolio seeking to generate some income), costs of 1.1% per annum (a reasonable estimate, taking into account annual investing, accounting, audit, administration and grant making costs), and an inflation rate of 3% per annum. All figures are nominal unless otherwise stated.

The cumulative distribution figures show part of the issue. The 6% Giving Fund distributes over $340,000 less in total, despite paying out more in its early years.

However, the issue is compounded once the draining effect of inflation is accounted for. Consider again a Giving Fund earning an annual return of 8%, paying costs of 1.1% and then distributing 6%. The Fund achieves a nominal surplus of 0.9%. However, after accounting for inflation (and again assuming 3%) the Fund is diminished in real terms by roughly 2.1% in a single year. Compounding, which is the very mechanism that allows Giving Funds to grow their way to becoming lasting community assets, works in reverse just as powerfully. A higher distribution rate that sounds modest in isolation can, when combined with costs and inflation, quietly hollow out the long-term capacity of a Giving Fund to serve the charities it was designed to support.

Again, the policy that delivers more today is the policy that slows giving over a generation. That is the Golden Goose problem in simple terms.

How Treasury Sees Giving Funds — And Why That Matters

To understand why this policy has found support, it helps to understand how Treasury may be inclined to view structured giving vehicles. From a fiscal perspective, Giving Funds represent lost or deferred taxation: donors receive an upfront tax deduction for their contributions, and the fund itself is exempt from income tax, capital gains tax, and is entitled to reclaim franking credits. The money inside a Giving Fund sits largely outside the tax system for as long as the fund exists.

Treasury is not wrong to note this and may believe that designing Giving Funds to act more like temporary funding vehicles than permanent philanthropic growth engines strikes a fair balance between encouraging philanthropy and ensuring a reasonable flow of money to charities. But Koda believes the policy conclusion they appear to draw; that faster distribution is preferable because it reduces the stockpile of tax-exempt capital accumulating in private hands, reflects a short-sighted view of what Giving Funds offer donors and charities financially and otherwise.

Koda believes Treasury’s policy reflects a philosophy in which Giving Funds at best maintain their real value rather than grow it. That may be a coherent policy position. But it is not a policy designed to grow philanthropy. It is a policy designed to manage a tax concession. The difference in approach has real consequences for how Giving Funds are perceived and operated, and this, in turn, has material consequences for future giving levels.

In making this point, the significance of Giving Funds in the context of Australian philanthropic growth should not be overlooked. Private Ancillary Funds alone hold over $11 billion in net assets, up from approximately $4 billion just over a decade ago – a remarkable compounding of the sector’s philanthropic capital base. More importantly they have distributed over $7 billion to Australian charities since their creation in 2001 and they now distribute over $800m per annum.

The Behaviour That Won’t Happen

Perhaps the most consequential and least visible effect of this change is not what it does to existing Giving Funds. It is the behaviour it prevents.

People considering establishing a Giving Fund are comparing it to the alternative: giving the same money directly to charities, in the year of their liquidity event, without the structure, the governance, the family involvement, or the long-term commitment that a Giving Fund enables. And the honest answer, one Koda has heard many times from prospective donors, is that they would not give nearly as much directly.

The scale of the initial commitment into a Giving Fund is determined, in significant part, by what that commitment enables. A donor who puts $5 million into a Giving Fund is not imagining $5 million flowing to charities in the next few years. They are imagining a vehicle that invests that capital, grows it over time, solely for the benefit of Australian charities, and which allows them and potentially their children and grandchildren, to make considered, strategic, enduring grants to organisations they understand and trust. The Giving Fund is the structure through which a family builds its philanthropic commitment.

When the mandatory distribution rate rises to the point where real corpus growth becomes difficult or impossible that vision changes, as already explained. Similarly, when rates rise, forcing would-be endowment builders to take more risk with their investment portfolios in order to try and achieve real capital growth after inflation and costs, the Giving Fund proposition changes fundamentally. Some donors will still establish them. But those who seek to establish a growing endowment or who value the intergenerational and legacy dimensions of structured giving will now have reason to pause and reconsider. Some may give less or later. Some not at all.

The Case for the Current Rate

The arguments for maintaining the existing distribution rates are substantial, and Koda believes they have not been adequately weighed in the policy process. Emphasising the points already made, we would argue that:

• Long-term giving grows with corpus size. As the modelling above shows, a Giving Fund distributing 5% from a growing corpus will, in absolute dollar terms, distribute more to charities over a thirty or fifty-year period than a fund distributing 6% from a corpus growing more slowly or not at all.
• The reported averages are somewhat misleading. Many Giving Funds already distribute well above the current minimums. Funds used as conduits, emergency vehicles, or funds intended to support charitable issues that demand urgent funding push the reported average up. Using that average to justify raising the mandatory floor creates a policy designed around behaviour that already occurs voluntarily, penalising the long-term, corpus-building funds that drive enduring, self-sustaining philanthropy.
• Charities benefit from Giving Fund growth. A growing corpus means growing distributions, offering charities an expanding and increasingly reliable income stream. While many fundraising charities may react positively to news that mandatory distribution rates are to increase, the existence of Funds that increase the level of their grant making year after year, across decades, is more valuable to the sector as a whole, given many causes will require funding for the foreseeable future or indefinitely.
• Potential donors may reconsider. The pool of potential Giving Fund donors is not fixed. A less attractive vehicle will deter some of the very people who might otherwise make Australia’s largest and most enduring philanthropic commitments. These are precisely the donors whose participation the Government should be working hardest to secure.
• Giving Funds encourage more significant donations. As they have functioned to date, Giving Funds encourage donors who might never write a $5 million cheque to a charity to irrevocably commit $5 million to benefit Australian charities. It is reasonable to claim that much of the money that flows to the community over the decades that follow is often money that would not otherwise have been donated.
• Legacy and intergenerational giving matter. One of the most powerful features of a Giving Fund is its capacity to become a family institution; a shared philanthropic identity that acts as a positive glue across generations. That vision requires a vehicle designed to grow and endure. A fund expected to maintain rather than grow its real value is harder to position as a legacy structure, and the intergenerational giving it would have inspired may not occur.

What Should Be Done Instead

There are better ways to increase the flow of capital from structured giving vehicles to the community. Ways that expand the system rather than constraining it.

The Government has stated its goal is to double philanthropic giving by 2030. Koda believes the path to that goal includes making structured giving more attractive to more Australians: better understood, more accessible, and more compelling as a long-term commitment. A policy that makes Giving Funds less attractive as enduring vehicles is not consistent with that ambition.

Philanthropy Australia’s position, that the priority should be reform of the Deductible Gift Recipient (DGR) framework, is a sound one. The Productivity Commission recently found that Australia’s DGR system is not fit for purpose. Expanding the categories of organisation eligible for DGR status would direct more giving to a broader set of causes and would do so by growing Australia’s pool of philanthropic capital.

Growing participation rates should be another focus for Government, given the proportion of Australian taxpayers claiming a deduction for a charitable donation has been in decline for decades. One segment of our population that demands particular attention because of its potential to meaningfully grow giving in dollar terms is the nearly half of Australian high-income earners who do not claim a charitable tax-deduction at all. It is reasonable to assume these taxpayers are not giving (as they are not claiming) even though they have the financial capacity to contribute.

Another initiative Government might consider is the addition of a Charitable Remainder Trust (CRT) to the Australian philanthropic toolkit. Used extensively in the United States, a CRT allows a donor to transfer assets into a trust, receive an income stream for life or a fixed term, and have the remaining corpus pass to nominated charities on termination, providing an immediate partial tax deduction and aligning the donor’s financial interests with their philanthropic intentions. For donors who might not otherwise make a substantial philanthropic commitment, the ability to give without fully surrendering current income is a powerful motivator.

Finally, one further reform the Government might consider is the introduction of targeted tax incentives to encourage impact investing; directing private capital towards social and environmental outcomes that the philanthropic and public sectors cannot fund alone. Australia has demonstrated a clear appetite for using the tax system to stimulate investment in areas of national priority. In addition to the example of our superannuation system, the Early Stage Venture Capital Limited Partnership (ESVCLP) regime, which offers investors tax exemptions on income and capital gains in exchange for backing early-stage innovation companies, is a well-established example of this principle at work. A suitably comparable framework applied to certified impact investments, in areas such as affordable housing, indigenous economic development, and environmental restoration, could unlock significant private capital, complementing rather than competing with Giving Funds.

Conclusion

The Government’s announcement contains genuine improvements, and its underlying intention – to ensure that more money flows to Australian charities – is entirely legitimate.

But the decision to raise mandatory distribution rates to 6% reflects a theory of philanthropy as a tax concession to be managed, rather than a pool of philanthropic capital to be grown. It will make Giving Funds less attractive as enduring engines for community support. It may cause some donors to give less, give later or give nothing. And it will, over the long run, deliver less to the causes the policy is designed to support.

Koda urges the Government to reconsider and to focus instead on reforms that will genuinely grow Australia’s philanthropic culture, like broadening DGR eligibility, reducing complexity, introducing incentives to encourage impact investment, introducing innovative new giving vehicles and making structured giving more accessible to more people. The goal should be more Australians giving more over a longer period.

Download the report here.