With the record deficits and aggressive new program spending of the 2021 federal budget, most headlines focused on the fact that Ottawa chose not to increase income, capital gains or corporate taxes. But what got far less attention was the funding devoted to helping the non-profit sector weather (what we hope) is the final stage of the COVID-19 crisis.
There was another, very significant policy change floated in the budget regarding disbursement quotas in the charitable sector —more on that in a moment.
In terms of new spending for the non-profit sector, the government is proposing planned disbursements of the $755 million Social Finance Fund, along with committing $50 million over two years to renew the Investment Readiness Program that supports charities, non-profits, and social purpose organizations in areas such as business plan development and hiring.
Ottawa also proposed a boost for community service organizations with a $400 million commitment in 2021-22 to create a temporary Community Services Recovery Fund “to help charities and non-profits adapt and modernize so they can better support the economic recovery in our communities.” The funding could be put to good use in a sector that realized just how exposed it was to Black Swan events such as the coronavirus pandemic, in particular on the digital side when it came time to pivot to online platforms for fundraising or service delivery to vulnerable communities. The budget also earmarked $140 million to top up the Emergency Food Security Fund and the Local Food Infrastructure Fund to improve food security and nutrition across the country.
The government said that it will engage in consultations on a new Canadian Social Bond, presumably as a means to boost funding to charities. The verbiage around the proposed initiative is vague, so we’ll follow any developments on this front in the months ahead.
Perhaps the most significant news from the 2021 federal budget for Canada Gives Foundation account holders was the section on disbursement quotas—the minimum amount that charities are required to spend on charitable programs or gifts to qualified donees (as defined under Canada Revenue Agency rules) each year. The current disbursement quota is set at 3.5 per cent of a charity’s property that is not used for administrative purposes or to engage in charitable activities.
The budget called out what it says is a “gap of at least $1 billion in charitable expenditures in our communities that exists today,” before highlighting the $85 billion in long-term investments held by charitable foundations as of 2019. In other words, Ottawa is concerned that increasingly-sizeable foundation investment assets seem to be growing faster than the number of grants to charities. And then, this:
“Budget 2021 proposes launching public consultations with charities over the coming months on potentially increasing the disbursement quota and updating the tools at the Canada Revenue Agency’s disposal, beginning in 2022. This could potentially increase support for the charitable sector and those that rely on its services by between $1 billion and $2 billion annually.”
While the proposed measure suggests consultations, we can reasonably expect the government to increase the minimum disbursement quota from 3.5 per cent to a higher rate in the months ahead (assuming the current Liberal minority government survives and this budget eventually passes), while the CRA will likely conduct more audits of some foundations to ensure they are meeting their quotas and are being used as a vehicle to support non-profits as their mandates require.
Overall, we support the government’s intention to increase funding for the charitable sector—with a caveat. Long-term endowments can be a lifeline for charities in terms of providing stable, sustainable funding over time. Allowing foundations to grow funds in managed accounts can be an effective means to this end. But increasing minimum disbursement quotas also makes sense.
The verbiage in the budget seems to be directed towards commercial donor advised funds and even private foundations, which have raised the CRA’s ire in the past for sitting on funds and not disbursing them adequately to the charitable sector.
It’s important to note that most donor advised funds—Canada Gives included—disburse more funds annually than is required. In fact, our mandate is to channel a steady flow of funding to charities and non-profits, so we encourage our donor clients to give back as much as possible. We educate them on the process and provide the support necessary to not only vet qualified donees, but to develop a focus in their giving, engage more deeply with key charities or causes and also track the impact of their giving —all while maintaining their privacy if they prefer, and handling all administrative responsibilities and CRA reporting on their behalf.
Budget 2021committed significant funding to help our sector recover and rebuild from the COVID-19 crisis, while taking steps to unlock additional funding to help pandemic-battered charities across the country. Assuming the budget passes, those should be positive developments for the not-for-profit sector.
The Canada Gives Team