Unlocking opportunity: navigating the 2025 giving fund reforms

DATE PUBLISHED: August 18, 2025

key takeaways

More money to flow from giving funds: The Government is set to increase the minimum annual distribution rates for all giving funds (previously ancillary funds). This means that a greater proportion of a fund’s assets will need to be distributed to eligible charities each year, rather than accumulating in investment portfolios. The new “smoothing” mechanism (calculating minimums on a rolling three-year average) will give funds some flexibility to manage fluctuating income and investment returns, but giving funds still need to plan for higher and more consistent outflows.
Governance and compliance – new rule and higher accountability: Controllers (directors, trustees and managers) will have heightened legal and compliance obligations. There is a clear need to update investment strategies, governance documents and reporting systems to comply with the new rules. Failure to do so may risk penalties or loss of Deductible Gift Recipient (DGR) status.
Re-think strategy – prepare for change: Both not-for-profits (NFPs) and giving fund controllers should review their financial projections, grant-making timelines and stakeholder communications early, in anticipation of the changes. Boards and managers should engage in consultations, educate stakeholders and prepare contingency plans for operational, liquidity and reputational impacts well before the reforms are enacted.

Overview of changes

The Commonwealth Government is advancing reforms to philanthropy and charitable fund regulation, shaped by the Productivity Commission’s Future Foundations for Giving and the Not-for-profit Sector Development Blueprint. These reforms are now formalised through Treasury’s consultation paper and the public announcement of new “giving fund” rules.

Treasury’s feedback period is closed on 1 August 2025. Proposed distribution rate changes will not be imposed suddenly – a five-year grace period is proposed before any increase takes effect.

The changes for giving funds include:

Renaming ancillary funds: Ancillary funds (public and private) will be renamed “giving funds” to provide clarity of purpose and public recognition of their role in channelling philanthropy.
Changing the minimum distribution rate: The Commonwealth Government is consulting on increasing the minimum required annual distribution rate for both private and public giving funds, aiming to ensure more capital is deployed to charities, not retained in managed investment accounts.
Distribution smoothing: Distributions may be averaged over a three-year period. This grants funds flexibility to manage fluctuating income, investments and grants.
Alignment of public and private fund rules: The proposed alignment of the minimum distribution requirements between public and private giving funds has an intended benefit to improve clarity across the sector and reduce loopholes caused by the different rules.

NFPs and controllers (directors, officers, founders, trustees) of ancillary funds must proactively address changes, carefully considering new operational, legal and risk issues arising from these proposed changes.

Issues and risks for giving funds and their controllers

Liquidity and investment strategy

Increased or accelerated distributions may require a substantial shift in investment strategies with less emphasis on accumulating and growing a perpetual endowment and more on reliable liquidity.

There is a risk of capital erosion if distribution rates are set above long-term investment returns. Managing this risk will require giving funds to consider current investment strategies and forward plans to ensure the fund complies with its obligations while ensuring future viability.

Compliance risk

Giving funds must strictly comply with new distribution and reporting rules or face ATO penalties. Failure to comply could also jeopardise DGR status.

Smoothing rules may complicate year-on-year distribution decision-making and record-keeping and should be considered having regard to the investment strategy.

Operational and impact to mission

Funders may need to reconsider grant-making approaches – fewer multi-year pledges or lower-risk commitments may be possible if annual distribution targets must be met regardless of market conditions.

NFPs may need to demonstrate greater immediate impact or capacity for absorbing funds to attract giving fund support in a higher-distribution environment.

Strategic reputation risk

The reforms are designed to ensure that tax-advantaged capital is flowing to charities at an appropriate pace and not being “warehoused”. Giving funds failing to meet community expectations or the spirit of the reforms may be exposed to negative scrutiny from regulators, beneficiaries and the public.

Actions and steps for giving funds

Step	Action
Step 1: Review portfolio and investment strategy	Conduct scenario modelling on fund balance sheets to forecast the effects of higher annual distribution rates and smoothing over three-year periods.
Step 2: Board and trustee education	Educate directors, trustees and office holders on the detail and intention of the reforms and their personal legal obligations for compliance.
Step 3: Update giving fund policies	Prepare to update board governance charters, investment policies and grants policies to ensure alignment with new legislative requirements and the risk of enforcement.
Step 4: Stakeholder engagement	Liaise with fund donors and key charities to manage expectations about the quantum and timing of grants.
Step 5: Prepare for reporting and transparency	Strengthen systems for grant reporting, public disclosure and timely interaction with the ATO and ACNC.
Step 6: Legal review	Consider potential amendments to trust deeds or constitutions to accommodate the new naming, distribution and reporting requirements. Secure tailored tax and compliance advice regarding any transition plan, especially if the fund manages significant legacy endowments.

What next?

NFPs must stay informed of the proposed giving fund reforms – which, if enacted, will affect the volume, predictability and timing of available philanthropic grants. Directors should stress-test their funding pipelines, engage stakeholders early and consider capacity improvements to maximise new giving opportunities.

McInnes Wilson partners with giving funds and their leadership teams to manage regulatory change, reduce legal risks and optimise philanthropic impact. We can assist your organisation with:

Legal and regulatory compliance review: We will conduct a comprehensive audit of your giving fund’s current policies, trust deeds and governance frameworks against the proposed minimum distribution requirements and reporting obligations. We will help you close compliance gaps before the reforms take effect.
Governance and risk support: We can assist your board and trustees with upskilling sessions, clarifying their legal duties under the new rules and updating governance charters and policies to reflect heightened accountability standards.
Updating key documents: Whether you need amendments to trust deeds, constitutions or grant agreements, we provide compliant drafting and manage any necessary regulatory filings or submissions.
Stakeholder engagement and communication: Effective engagement with donors, beneficiaries and regulators is vital. We help develop clear and compliant messaging and to assist with engagement with stakeholders.

Taking these proactive steps now will help your organisation to mitigate risks associated with the coming reforms. Early and strategic engagement is the best way to safeguard your mission and ensure ongoing eligibility and effectiveness in Australia’s evolving philanthropic landscape.