PFC’s Position on the Disbursement Quota
The pandemic has shown all of us that old operating models don’t always work effectively in a contemporary environment – including in philanthropy. As a sector, it is critical that we turn our attention to what the future holds for charities and nonprofits, renewing our social contract with Canadians and demonstrating that our sector is reflective of our times.
As part of these efforts, this year PFC engaged in its most extensive member and partner engagement process that it has ever organized in its history over the Disbursement Quota (DQ) and related issues. The input we received since March – through focus groups, interviews, surveys, CEO gatherings, webinars, and discussions with sector partners – provided invaluable insight for the board as it developed a position on the DQ.
On the heels of these network engagement sessions, the Government of Canada last month announced its stakeholder consultation on “boosting charitable spending in our communities”, with a stated objective of “potentially increasing the disbursement quota and updating the tools at the Canada Revenue Agency’s disposal to enforce the disbursement quota rules, beginning in 2022.”
We will have to await the results of the current federal election before we know if those timelines will be maintained, but as a result of our own engagement over the past several months, PFC looks forward to participating in these government consultations in a way we feel confident reflects the views of our membership overall, and the needs of our sector and the populations it serves.
We recognize that this is an extremely important topic for many. We welcome the fact that the contributions of philanthropic foundations to the common good is becoming an issue attracting public attention and note that the Conservative Party’s election platform is calling for an increase of the DQ to 7.5%.
Now more than ever it is critical that we explore and encourage new, innovative operating models that allow us not just to address immediate needs but to confront systemic challenges and avert future crises. Canadians need a regulatory framework for their philanthropic sector that advances generosity and equity, fosters more impact investing and allows for long-term engagement as well as shorter term action. Trust and relationship building takes time between sector partners, especially those from marginalized communities, and therefore philanthropy also needs to be able to take the long view. Moreover, we know short-term generosity as well as long-term philanthropic commitments are necessary to address many of the world’s complex issues, like mental health, Reconciliation or climate change.
For all of these reasons, PFC will be endorsing a DQ increase from 3.5% to 5% – an increase we emphasize is simply a floor, not a ceiling, for charitable donations. We recommend that this increase be reviewed every five years to ensure that the DQ remains widely sustainable for stakeholders and that it promotes philanthropic impact while precluding wealth build-up in endowments. There should be a reasonable transition period to adapt to the new DQ regime, especially for trusts.
We know modernization cannot be done in isolation, and it cannot be achieved without broad societal support. To harness this momentum for our sector and its future, PFC is recommending that the Government of Canada consider additional consultations following the federal election, with the goal of creating a more equitable, inclusive, and impactful sector that serves the needs of all people in Canada.
As a starting point for these conversations, PFC offers three foundational enabling conditions – or guiding principles:
- Encourage impact investing and other forms of investments that serve the needs of communities. Encourage foundations to align their capital with their respective missions, including through impact or program-related investing.
- Improve data collection. A fully functioning framework between governments and charities must be transparent, data-driven, and evidence-based to fully assess the magnitude, nature and diversity of initiatives supported by our sector. The current data reporting system falls short and needs significant improvement – without creating unnecessary administrative burden.
- Reach everyone in building an inclusive and just society. By making it easier for philanthropy to support the charitable activities of Non Qualified Donees (NQD), create a more equitable arena for nonprofits providing a public benefit to access charitable dollars, and ensure initiatives led by historically excluded groups no longer remain under-served, under-represented and under-funded.
These three enabling conditions already have broad sector support across PFC members and beyond and must be at the core of any public policy exercise aimed at strengthening the role of philanthropy in supporting the common good. Without these three critical conditions in place, increases to the DQ are likely to produce suboptimal, inequitable, and other unintended consequences.
In addition to the DQ and our call for consultation on sector modernization, PFC continues to work with many others in the sector to call for the creation of a ‘home in government,’ premised on a strong ministerial mandate for whole-of-government purview for coherent policies and strategic investments.
PFC believes that the charitable and nonprofit sector is at an exciting turning point, and we look forward to collaborating with our members and partners to encourage federal government consultations and ultimately policies that are inclusive, transparent, and future-focused. By working together, we can enhance our collective contributions in the pursuit of a just, equitable and sustainable world.