New disbursement quota is now law and in force

New disbursement quota is now law and in force – what you need to know

Sara Krynitzki

Policy Advisories

4 mins read

January 24, 2023

In the Federal Budget 2022 released last April, the increase to the disbursement quota was announced. It is now law. Bill C-32, the Fall Economic Statement Implementation Act 2022, incorporated elements reflecting the promises in Budget 2022 on the DQ, and it received royal assent on December 15, 2022.

The DQ remains 3.5% on the portion of property not used in charitable activities and administration up to $1 million, and increases to 5% on property exceeding $1 million. The new DQ applies to charities’ financial periods starting on or after January 1, 2023. (The DQ calculations remain the same, including a two year window to meet the DQ rate of each year. This means charities have until the end of 2024 to meet their disbursement rate for 2023 and 2024).

In Budget 2022, the government committed to a review of the DQ after 5 years. To date there have been no policy announcements on the exact timing and methodology of the review activities. PFC has engaged the government to begin planning on implementing this budget promise. PFC will continue to advocate for a periodic review of the disbursement quota, according to a data-driven formula that promotes philanthropic impact and takes fully into account the eroding impact of inflation and actual returns for responsible and balanced investment portfolios.

Bill C-32 included an amendment regarding expenditures on administration and management and how they are not considered qualifying expenditures toward a charity’s DQ. Budget 2022 frames this change as a clarification to what has always been the rules on this. However, in its guide ‘Completing Form T3010 Registered Charity Information Return’, CRA states that “some expenditures can be considered partly charitable and partly management and administration, such as salaries and occupancy costs.” We are expecting more guidance from the government on this issue in the coming months. PFC will be involved in consultations with leaders in the sector to help inform the government on the issue and ensure it is grounded in the experiences of the sector. We will continue to recommend that guidance documents clearly explain how expenditures on administration and management of charities are defined by the government to ensure that they are properly accounted by charities.

Bill C-32 also removed the accumulation of property rule from the Income Tax Act, which exempted charities from including certain property in the calculation of their DQ. In lieu, Bill C-32 introduced changes that provide CRA the discretion to reduce a charity’s DQ obligation for a particular year, upon request.

The government also introduced a new regulatory regime to allow granting to non-qualified donees which was enacted as part of its first Budget Implementation Bill (to learn more see PFC’s January 12 update on the issue). We fully expect that this change will mean that these disbursements can be included as part of a charity’s DQ. As part of their consultation on their draft guidance for these rules, we will be asking the CRA to confirm our understanding of the law in its guidance.

PFC has also been informed verbally by CRA officials that there will be changes to the T3010, the annual return all charities must complete, to incorporate new DQ rules, new rules related to granting to non-qualified donees and other policy measures such as tracking investments. However, we have not seen any policy or administrative announcements on this. We are expecting these changes to take significant time and they may not be in place until 2024 or 2025. We will continue to encourage the government to overhaul the T3010 and engage the sector in its re-design so that data can be more usefully and equitably captured. Changes to the T3010 present a low-cost way to improve compliance and accountability.

PFC members should be making plans to ensure their activities comply with the new rules. Updates to our grantmaking guide, co-authored with Community Foundations of Canada, and other peer learning events and resources are planned for 2023 to help ensure our network understands the new policy framework.