I have been getting some client queries about the disbursement quota and whether it will be passed. Here is my understanding of the current situation:
Changes to the disbursement quota were announced/proposed in the April 7, 2022, Federal Budget. These changes were basically increasing the DQ from 3.5% on assets over $1 million dollars, and this will be a requirement for registered charities that have fiscal periods beginning after January 1, 2023. These changes were not included in the Budget Implementation Act No. 1 that was recently passed. That is not surprising as the proposed changes will only kick in in 2023, so probably Finance did not consider that it was urgent that they be passed. It is anticipated that they will be in the Budget Implementation Act No. 2 which will probably be tabled in September or October and will probably be passed before the end of the year.
Therefore, if a Canadian registered charity has a January 31, 2023 year-end, the new DQ would not apply to that fiscal period. It would first apply for the fiscal period beginning February 1, 2023, such that they need to have disbursed the increased amount in the 11 months of 2023 and the first month of 2024.
As we don’t have the actual language being proposed yet, it’s not possible to say too much about the change. It could be as simple as adding a higher disbursement quota of 5% on amounts over $1 million, but it could also be a reformulation of the calculation of the disbursement quota. Currently, the disbursement quota calculation is quite complicated, and Finance may choose to simplify the calculation.
Registered charities should plan for the changes to be coming into effect in 2023 as announced by the Budget. Although this change may really only have a real impact on less than 5% of Canadian charities, some of these charities will need to assess their current legal documents (such as articles, gift agreements, gifts acceptance policies, restricted gifts, etc.), adjust their investment policy statement, change their grantmaking budgets and, in some cases, enhance their grantmaking systems and capacity. For some groups, the change is not from 3.5% to 5%. They have not even been disbursing their 3.5% so the challenge will be greater. For some, they have only given to qualified donees but now wish to provide grants to non-qualified donees (eg. non-charities) and there are now two systems to provide grants to non-qualified donees.
We have been assisting registered charities in planning for these types of issues, and if your charity needs assistance and you wish to retain our law firm, you can contact us.