Philanthropy: a case study

The situation

Katherine, aged 51, recently sold some investment properties for a $1,000,000 profit. The properties were regarded as trading stock.    Already on the highest marginal tax rate of 46.5% including Medicare    levy, the tax payable would be $465,000. Katherine may choose to pay    this tax and invest the remaining $535,000 personally.

Katherine is a very strong supporter of disadvantaged children and    constantly donates $20,600 per annum to related charities, meaning she    would have effectively given $1 million in today’s dollars (discounted    at the inflation rate of 3%) from now until age 100. The accumulated tax   savings over the next 50 years from these donations would be valued at   $465,000 in today’s dollars.

The solution

Katherine wanted to continue to support disadvantaged children and    sought the guidance of Alman Partners. After analysing her financial    position and understanding her goals, Alman Partners drafted a financial    roadmap for Katherine. Below are some of its features:

  • As Katherine had sufficient funds elsewhere to meet her expenditure    needs, Alman Partners suggested establishing a Private Ancillary Fund    (PAF) and donate $1 million today
  • Receive a $1 million tax deduction for the donation. This will    offset her $1 million assessable income and therefore save her $465,000    in tax this year
  • Ability to donate upfront the $1 million that she intends to donate over her lifetime
  • The donation goes into a tax-exempt environment and she can donate    the income generated from this $1 million to the charities of her  choice   which have Deductible Gift Recipient status
  • Katherine’s PAF can effectively donate on average $75,000 p.a. in real terms compared with $20,600 p.a*.

Life now

Katherine is thrilled to be able to support her favourite charitable    causes throughout her lifetime. As she says, “Thanks to the advice I    received from Alman Partners, I can now give more than three times the    amount than I originally would have been able to, to causes that are    important to me”. Alman Partners will help you get your financial house    in order and keep it that way for the rest of your life.

* Investment return of 4% income (re-invested after donation & tax) and 5% growth.

^ Names have been changed to protect individual’s identity.