Disbursement Quota Consultation

The Department of Finance has opened a consultation on increasing the disbursement quota (DQ) and updating Canada Revenue Agency (CRA)’s enforcement tools. It has also published a backgrounder paper to frame the issues. The consultation is open until September 30, 2021 and there are specific questions that Finance wants participants to answer.

What is Disbursement Quota?

Before we go too far, let’s define our terms. What is the DQ? CRA explains it as

“…the minimum amount a registered charity must spend on its own charitable activities, or on gifts to qualified donees. The disbursement quota calculation is based on the value of the charity’s property not used for charitable activities or administration.”

Property includes real estate, investments, and other assets such as cash, inventory, stocks, bonds, mutual funds, GICs, land, and buildings. Remember this is property not used in normal charitable activities. These amounts are reported on your charity’s annual T3010: line 5900 (for use in the current year) and line 5910 (for use in the following year).

It is currently set at 3.5% (see s.149.1(1) of the Income Tax Act).

There are differences in how the DQ is applied to charitable organizations and foundations. If the average value of a charitable organizations’ property not used for activities or administration during the 24 months before the start of the fiscal year is more than $100,000, the 3.5% applies to the value of that property. For foundations, the threshold is $25,000.

For more details on calculating the DQ, see Disbursement Quota in CCCC’s Knowledge Base and CRA’s Disbursement Quota Calculation.

Why is it Being Reviewed?

In Budget 2021, the federal government suggested that there is a $1B gap in charitable expenditures, pointing to $85B in long-term investments held by charitable foundations in 2019. Increasing the DQ is seen as a means to compel foundations to spend more.

How Can I Participate?

You can provide your feedback by email (preferred) to charity-bienfaisance@fin.gc.ca with the subject line “Charities Consultation” or snail mail, directed to the attention of the Tax Policy Branch.

Feedback on these specific questions is sought:

• Should the disbursement quota be raised to produce additional funding for charities, and to what extent?
• Would it be desirable to increase the disbursement quota to a level that causes foundations to gradually encroach on investment capital, and would it be sustainable in the long-term for the sector?
• What additional tools (e.g., monetary penalties or other intermediate sanctions) should be available to the CRA to enforce the disbursement quota rules?
• Do the relieving and accumulation of property provisions continue to be useful for charities?
• Do the existing carry-forward provisions strike the appropriate balance between ensuring the timely disbursement of funds and allowing foundations to make large gifts on a more infrequent basis?
• Are there any temporary changes to the disbursement quota that should be considered in the context of the COVID-19 recovery?

Remember, you have until September 30, 2021 to share your input with Finance.

We welcome your thoughts as well! Members can log in to The Green to share perspectives and connect with fellow ministry team members.