An update on the CRA’s annual disbursement quota rule changes
The 2022 federal budget contained a proposed change that immediately caught the attention of Canada’s charitable sector—a long-discussed increase to the minimum annual disbursement quota (DQ) for charities. As we noted in a previous blog, the DQ is “the minimum calculated amount that a registered charity is required to spend each year on its own charitable programs or on gifts to qualified donees.” It is currently set at 3.5 per cent of a registered charity’s property not used directly in charitable activities or administration.
Recent draft legislation tabled by the Department of Finance has further clarified what the exact changes to the DQ will likely be once the final legislation is passed. Specifically, the minimum annual DQ will increase from 3.5 per cent to 5 per cent effective January 1st, 2023 for all charities with more than $1 million in assets.
So, what does this development mean for the Canada Gives family of philanthropists? We’ve highlighted in past communications that nearly all of our Foundation account holders exceed these minimum annual disbursement quota requirements. The reason, of course, is because they’re highly engaged and committed to supporting their preferred causes and charitable organizations. The DQ changes are ones that we’ve openly supported because our mission, like that of our donor advised fund (DAF) donor clients, is to provide as much funding into the charitable sector as possible.
The only notable impact is the greater complexity that will factor into calculations of a charity’s minimum annual DQ. But our Foundation account holders have the benefit of knowing that we track their individual disbursement quota surplus/deficit, so that when they give more generously one year than the regulators require, they also have the flexibility of giving less in other years. Fundamentally, however, by opting for a donor advised fund at Canada Gives to create their foundation, those DQ requirements are ours and not theirs. Our DAF donors can instead focus on choosing the charities they wish to support through grant requests from their Canada Gives Foundation account.
Just as Ottawa takes a step forward to increase the minimum DQ, we repeat our call for the Canada Revenue Agency to recognize that more than two-thirds of this country’s largest private foundations fail to meet their 3.5 per cent disbursement quota requirements each year.
There is certainly an opportunity for financial advisors and other charitable sector stakeholders to help educate philanthropists on how to give back. While it may seem like a fairly rudimentary endeavour, taking time to select a short-list of key charities to support every year in order to satisfy DQ obligations can be taxing; more so for diligent grant-makers who work to ensure that any gifts they disburse also align with their values and beliefs. This is often why private foundations fall short of compliance requirements.
We can be reasonably certain that the current draft legislation will support the increase to a 5 per cent minimum annual disbursement quota for charities. With that knowledge in hand, the Canada Gives community can continue doing what it does best: working to make a difference in the lives of those who need it most—both at home and abroad.
If you have further questions about the federal government’s proposed DQ rule changes, please contact a member of our Client Services team.
The Canada Gives Team