Every year, charities are required to spend a minimum amount on their charitable programs or on gifts to qualified donees. This is known as the “disbursement quota” and it ensures that charitable donations are being invested into our communities. Budget 2021 announced the government’s intention to potentially increase the disbursement quota, which could boost support for the charitable sector, benefitting those that rely on its services.

Through a new consultation process, the Department of Finance is seeking feedback on potentially increasing the disbursement quota and updating the tools at the Canada Revenue Agency (CRA)‘s disposal in order to enforce the disbursement quota rules, beginning in 2022.

To inform discussions, the government is issuing a background paper that outlines the existing approach and raises points for consideration on whether it continues to be appropriate. Specifically, feedback is being sought on the following:

  • 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?

The department is seeking the views of stakeholders in the charitable sector. Tax practitioners, legal experts, researchers/academics and interested members of the public are also invited to provide input. The consultation period will close on September 30, 2021.