Client Case Study Katherine recently sold some investment properties for a $1,000,000 profit. The properties were regarded as trading stock. Katherine is already on the highest marginal tax rate of 46.5% including Medicare levy. This means the tax payable would be $465,000. She may choose to pay this tax and invest the remaining $535,000 personally. Katherine is a very strong supporter of disadvantaged children. She constantly donates $20,600 per annum to related charities. Currently age 51, her adviser points out that she would have effectively given $1 million in todayʼs 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 todayʼs dollars. As an alternative, Katherineʼs adviser suggests that she establishes a PAF and donate $1 million today. The effect of this is as follows: She gets 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 She donates upfront the $1 million that she intends to donate over her lifetime; and 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. Her adviser cautions that this is only appropriate if she is committed to gifting $1 million now and has sufficient funds elsewhere to meet her expenditure needs. By doing so, Katherineʼs adviser concludes that her PAF can effectively donate on average $75,000 p.a. in real terms compared with $20,600 p.a*. This means she can give more than three times the amount over her lifetime to causes that are important to her. * Investment return of 4% income (re-invested after donation & tax) and 5% growth Contact HSC & Company