The 6% Question

Australia’s new giving fund distribution dules and what they mean for your investment strategy

On 26 February 2026, Assistant Minister for Charities Dr Andrew Leigh announced that the minimum amount giving funds must distribute to charities each year will increase to 6% of the fund’s value. For private giving funds, this is an increase from 5%. For public giving funds, minimum annual distributions increase by 50%, from 4% to the new 6%.

The change is part of the Government’s goal to double philanthropic giving by 2030. But it raises an important question for anyone who manages philanthropic capital: can you give away 6% every year, cover your running costs, and still keep the fund’s value growing over time?

At a glance: What has changed?

Why the increase?

The Government’s argument is simple: charities need money now, and giving funds are holding billions in invested capital. Treasury analysis suggests a fund earning typical long-term market returns at a 6% distribution rate could last for decades without receiving additional contributions.

The three-year smoothing rule is a genuine concession. Rather than being required to distribute exactly 6% every year, funds can average their distributions over three years. This means that in a difficult year, say after a market downturn, a fund does not have to sell assets at a low point just to meet the annual requirement.

It is worth noting that Treasury’s own analysis found that long-term total giving to charities is actually maximised at the previous 5% rate for private giving funds, not at 6%. The higher rate increases giving now, but gradually reduces the pool from which future grants are drawn.

Source: Treasury, Giving Fund Reforms Discussion Paper, June 2025.

What returns does a fund need?

To distribute 6% annually and cover typical administration costs of around 0.75%, a fund needs to generate investment returns of at least 6.75% per year, just to stay at the same dollar value. That extra 1-2% matters more than it sounds, because the impact compounds over time.

If we factor in inflation at the RBA’s midpoint target of 2.5%, the required investment return increases to 9.25% if the trustee intends to provide the same level of financial support every year, noting that $1 today will have the purchasing power of only 60 cents in 20 years’ time.

One important advantage: giving funds pay no income tax or capital gains tax on their investments. This is different from other investment vehicles including superannuation, trusts or personal portfolios. This tax-free compounding adds meaningfully to effective returns, estimated typically 1 to 2 percentage points, and partially offsets the higher distribution requirement.

A worked example: $5 million over 20 years

The table below models three different investment approaches under the new 6% rule, after accounting for administration costs, and compares each portfolio’s value and giving over time.

Illustrative only. Assumes constant annual returns, 6% distribution of beginning-year net assets, 0.75% costs. Actual results will vary.

The defensive portfolio is shrinking. It distributes the least to charities over the 20-year period and ends up worth only two thirds of its starting value. Under the assumed return scenario, the growth portfolio does the most good on both fronts: it distributes more over the period and retains significantly more capital to continue providing future grants.

Rethinking portfolio strategy

The practical takeaway is that most giving funds will need a meaningful commitment to growth assets, including Australian and international shares and, where appropriate, alternative assets, to sustainably meet the new requirement. Interestingly, even in the case of a shorter timeframe with capital spend down in a single generation, say 20 or 30 years, meaningful allocations to growth assets are still likely to significantly increase total charitable giving and impact.

Higher growth allocations do, however, bring greater short-term volatility. While the distribution smoothing will assist in managing short-term volatility, no single approach is suitable for all funds. An appropriate investment and giving strategy should be developed with alongside an Adviser who has considered your broader risk, return and impact objectives.

Based on the modelling above, a balanced or growth-oriented approach, with roughly 60 to 75% in growth assets and the remainder in more stable assets such as bonds and cash, is likely to deliver better long-term outcomes for most funds than a purely defensive allocation. This reflects the fund’s long time horizon (potentially decades) and the fact that, unlike a retiree drawing down savings, a giving fund is not trying to empty itself; it is trying to maximise grants to support the charitable sector.

Looking ahead

Existing funds have a two-year transition period before the new rate applies. Trustees should use this time to review investment strategy, stress-test portfolios against the new requirement, and assess whether the current mix of assets is right for the fund.

How can we help?

If your family manages a philanthropic trust, or you serve on the board of a charitable foundation, we would welcome the opportunity to discuss how these changes may affect your fund’s investment strategy and long-term giving objectives. Whether you are reviewing an existing portfolio or establishing a new giving fund, we can help you navigate the evolving landscape with confidence.