25 May Federal Budget Commentary: Charities Measures
Annual Disbursement Quota for Registered Charities
Registered charities are generally required to expend a minimum amount each year for charitable purposes, referred to as the disbursement quota (DQ). Presently, the DQ is set at 3.5% of property not used directly in charitable activities or administration.
Budget 2022 proposes to increase the DQ rate from 3.5% to 5% for the portion of property not used in charitable activities or administration that exceeds $1 million. Budget 2022 also proposes to clarify that expenditures for administration and management are not considered qualifying expenditures to satisfy a charity’s DQ.
Where a charity cannot meet its DQ, it may apply to CRA and request relief. Budget 2022 proposes to amend the existing rule such that CRA will have the discretion to reduce a charity’s DQ obligation for any particular tax year. It also proposes to allow CRA to publicly disclose information relating to such a decision to provide relief.
These measures would apply to charities in respect of their fiscal periods beginning on or after January 1, 2023.
Budget 2022 proposes to allow a charity to provide its resources to organizations that are not qualified donees, provided that these disbursements further the charity’s charitable purposes and the charity ensures that the funds are applied to charitable activities by the grantee.
To be considered a qualifying disbursement, the charity will need to meet mandatory accountability requirements, including, for example:
- conducting a pre-grant inquiry sufficient to provide reasonable assurances that the charity’s resources will be used for the purposes set out in the written agreement, including a review of the identity, past history, practices, activities and areas of expertise of the grantee;
- monitoring the grantee, which would include receiving periodic reports on the use of the charity’s resources, at least annually and taking remedial action as required; and
- publicly disclosing on its annual information return information relating to grants above $5,000.
In addition, Budget 2022 proposes to require charities to, upon request by CRA, take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.
Finally, Budget 2022 proposes to prohibit registered charities from accepting gifts, the granting of which was expressly or implicitly conditional on making a gift to a person other than a qualified donee.
These changes would apply as of Royal Assent.