By Terrance S. Carter, Jacqueline M. Demczur and Theresa L.M. Man

As anticipated, the Department of Finance Canada (“Finance Canada”) launched a public consultation on August 6, 2021 (the “Consultation”) in order to consider a potential increase of the annual disbursement quota (“DQ”). The DQ is the minimum amount that a charity must spend on its charitable activities or gifts to qualified donees to ensure that charitable funds are used for charitable purposes and are not accumulated indefinitely. It is determined based on the value of a charity’s property (e.g., real estate, investments) that is not used for charitable activities or administration. A potential increase to the DQ was first proposed in the 2021 Federal Budget released on April 19, 2021. The Consultation, first announced on August 6, 2021, closes on September 30, 2021.

The Budget 2021 initiative comes at a time when there has been increased public discussion about the DQ. Much of that discussion revolves around if and by how much the DQ should be increased. These two questions, among others, have also been raised in the Consultation. 

Finance Canada’s Backgrounder to the Consultation includes comparisons to the United States and Australia where private foundations and funds have a minimum 5% disbursement requirement, while the Conservative election platform proposes a DQ of 7.5%. Other proposals have ranged as high as 10%. However, a thoughtful consultation about the DQ involves more than simply picking a number. It also requires consideration of the complex legislative and policy environment in which the DQ exists and the impact that any change in the DQ rate might have on registered charities. 

For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 498.

Read the August 2021 Charity & NFP Law Update