Thursday, June 12, 2008

Charitable foundation keeps on giving - The Sydney Morning Herald - 6th June 2008

A charitable foundation is the gift that keeps on giving and is a sought-after source of funding, one of Australia's leading charities says.

What makes it so attractive is the beauty of compound interest.

This allows an initial investment to grow and provide a regular income stream, while at the same time increasing the capital, which in turn provides for an even bigger amount to be earned in the following year.

Repeat that over the course of a decade, or more, and suddenly the amounts become very substantial, even from a small base.

The tax-friendly status of these funds, which don't incur income tax or capital gains tax, if set up correctly, is a further selling point.

The Smith Family, which is currently running its mid-year appeal, could use such an injection of funds.

Acting chief executive Paul Henderson said the appeal was slightly behind where it was last year, but he was hopeful things will turn around.

He said anything which allowed The Smith Family to devote more resources to helping people should be encouraged.

"They are incredibly valuable and if we had the opportunity to have more of them, we would be delighted," Mr Henderson said.

"Anything that we can do to try and shore up and give certainty to our income streams is very welcome."

But Mr Henderson said it was important not to rely too heavily on charitable foundations or Prescribed Private Funds (PPF) to run the organisation's programs.

He said The Smith Family wanted to have a mix of funding, all of which were equally important.

"We want everybody to support at worthwhile cause, whether it is mums and dads who can only donate $50 a year, whether it is business or whether its some of the more higher net-worth individuals," Mr Henderson said.

Mr Henderson said The Smith Family's focus on young children - particularly through its Learning for Life program - meant its current needs outweighed a desire to build a large income-generating fund.

The Clive and Vera Ramaciotti Foundations, which seeks to benefit biomedical research, is one example of how compound interest can make a big difference.

The fund, which started with $6.7 million in 1970, has grown to $67 million.

The foundation has donated about $43 million - almost six times the original investment - to biomedical research on topics such as cervical cancer, spinal chord regeneration and epilepsy.

Financial services company Perpetual manages the fund and its head of philanthropic services, David Knowles, said foundations would put charities in a much better position because "they would know that money was coming through to them every year".

"Most charities in Australia don't have many guaranteed sources of revenue, they have to keep going back to people and asking for more money," Mr Knowles said.

Mr Knowles said it would help reduce fundraising costs because charities would not be required to "chase donors continually".

"That's the power of a charitable foundation," Mr Knowles said.

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