The “disbursement quota” for charities is under review by the CRA. The “disbursement quota” rule, contained in the Income Tax Act, has been applied since 1976 to the assets of charities not used for charitable activities or administration, which are most often endowments. It requires charities to spend a minimum amount each year on their own charitable programs or on gifts to qualified recipients.

The purpose of the quota is to prevent undue accumulation of these assets and to ensure that assets are disbursed for charitable purposes and activities. The current quota applies mostly to charities that are foundations, which follow a model of annual distribution of grants to other charities, in amounts ranging from the mandated minimum 3.5 per cent of capital assets set by the disbursement quota to four per cent or more, depending on a foundation’s approach. The current minimum was set in 2004 and has not been reviewed publicly since then. Most foundations, both private and public, have met or exceeded the minimum and the flow of charitable giving has steadily increased over the last 15 years as more donors create foundations or donor-advised funds.

Finance Canada stated, in a background paper released this summer, that an “effective disbursement quota should also ensure that adequate funding is available to support the current needs of the charitable sector”.

_{Legal Notice: Opinions in this blog post do not reflect the opinion or endorsement of Charity Exchange or its affiliates. The opinions in this post should not be used as legal or financial advice for any financial decision. The advice or opinions shared in this blog post are solely those of the author and are not the opinion of Charity Exchange or its affiliates. For legal or financial advice, always consult with your financial advisor or legal council.}

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Many donors and individuals are turning to donor-advised funds (DAFs) to assist with their charitable efforts. There has been an explosion in the use of DAFs, which are funds set up for charitable purposes that can facilitate large donations.

Donor-advised funds are registered charitable foundations that are funded with cash, securities, or other assets. All the contributions are put into an account in the donor’s name, which is held by a DAF sponsor and eventually donated to a charity of the donor’s choosing.

Donors can take a current tax deduction for contributions made to the fund. This is an important feature because it allows a donor to take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later. This incentivizes donors who need a tax deduction to donate now and then decide where the money will go at a later time when it’s convenient.

DAF’s are very well-equipped to convert appreciated securities or other tangible assets into cash.

The ability to do this can enable many folks to give a larger amount than they would otherwise. For example, a donor with 10,000 shares of Google with a very low-cost basis can hand this over to a DAF and take an immediate deduction for the full value of the donation (subject tax law limitations).

If they wanted to do the same for a local woman’s shelter, they would have to sell the stock and pay the capital gains tax on the sale.

Donor-advised funds can provide donors with an immediate tax deduction for funds that may not actually be distributed to a charity until months or years later.

Charity Exchange is a charitable foundation that operates as donor advised fund. To learn more visit our DAF FAQ page.

_{Legal Notice: Opinions in this blog post do not reflect the opinion or endorsement of Charity Exchange or its affiliates. The opinions in this post should not be used as legal or financial advice for any financial decision. The advice or opinions shared in this blog post are solely those of the author and are not the opinion of Charity Exchange or its affiliates. For legal or financial advice, always consult with your financial advisor or legal council.}

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