ATO Clarifies Ancillary Fund Rules: What Trustees Need to Know in 2026

Jun 17

Summary:

Australia’s ancillary fund landscape has received an important update, with the ATO clarifying how “benefits” are defined and applied in practice. While this may seem like a technical shift, it has real implications for trustees and families using these structures to support their philanthropic goals. The new guidance broadens what can be considered a benefit—going beyond cash distributions to include indirect advantages and even certain inactions—reinforcing the need for strong governance and careful oversight. In this article, we break down what’s changed, why it matters, and how you can ensure your ancillary fund remains compliant while continuing to deliver meaningful impact.

What’s New: ATO Guidance on Ancillary Fund “Benefits” (TD 2026/3)

The ATO’s Taxation Determination TD 2026/3 provides updated guidance on when an ancillary fund is considered to be providing a “benefit”. Importantly, this clarification confirms that a “benefit” extends well beyond simply making cash distributions.

It may include:

Any form of advantage, profit or gain

Improving an entity’s position, either directly or indirectly
Granting rights or opportunities that may lead to a future benefit
In some cases, even inaction, where it allows another party to benefit

Why the New ATO Rules on Ancillary Funds Matter for Trustees and Families

For clients using ancillary funds as part of a structured philanthropic strategy, this update reinforces a key principle: compliance depends on the substance of arrangements, not just the form.

1. Distributions must deliver genuine charitable outcomes

To count towards minimum distribution requirements:

The benefit must be provided to a deductible gift recipient (DGR)
The fund must actively cause the DGR to receive the benefit
Non-cash benefits (such as services or rights) can qualify, provided they create real value.

However, arrangements conducted on commercial arm’s length terms will generally not be treated as a distribution.

2. Strict limits on benefits to related parties

The ATO has reinforced that ancillary funds must not provide any benefit—directly or indirectly—to related entities.

‍This includes:

Financial assistance or payments that improve a related party’s position
Allowing deferrals or favourable arrangements
Informal or undocumented dealings that result in an advantage
Situations where a liability is reduced or avoided.

In effect, trustees should consider whether any connected party is better off as a result of the fund’s actions (or inaction).

3. Inaction can still create compliance risk

‍A notable clarification is that a failure to act can constitute the provision of a benefit.

Examples may include:

Not enforcing repayment obligations
Allowing continued use of funds or assets without appropriate terms

This reinforces the importance of active governance and oversight, rather than relying on passive management.

What Trustees Should Do Next to Stay Compliant with Ancillary Fund Rules‍ ‍

This update presents a valuable opportunity to strengthen governance and ensure your ancillary fund remains compliant and effective.

Practical steps to consider:

Review all distributions: Confirm they clearly benefit eligible DGRs
Assess related-party interactions: Identify and address any potential indirect benefits
Document decisions thoroughly: Maintain clear records of trustee intent and actions
Evaluate non-cash support: Ensure it meets the ATO’s definition of a “benefit”
Strengthen governance processes: Implement regular oversight and review mechanisms

Structuring and Managing Ancillary Funds Effectively

‍Ancillary funds remain a powerful tool for structured giving and long-term impact. With the right governance and advice, they can continue to deliver both meaningful outcomes and compliance confidence.

At Mission Advisory, we work closely with clients to:

Review and optimise philanthropic structures
Navigate evolving ATO guidance
Align giving strategies with broader family and legacy objectives

Staying Compliant with ATO Ancillary Fund Obligations

While the ATO’s clarification introduces a broader interpretation of “benefits,” it ultimately supports the integrity and sustainability of Australia’s philanthropic framework.

‍With proactive management and the right support, ancillary funds can continue to operate as effective, compliant and purpose-driven vehicles for giving.

For further information, or to discuss how these changes may affect your ancillary fund, please contact the Mission Advisory team.

Michaela Rowlands