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Imagine Canada’s position on an increase to the disbursement quota

Imagine Canada’s position on an increase to the disbursement quota

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This winter, calls have mounted for the Minister of Finance to increase the ‘disbursement quota’, the federally mandated amount that a registered charity must disburse annually. Charitable foundations are currently required by the Income Tax Act to spend 3.5% of their assets not currently being used in charitable activities over an average 24-month period. 

The energy and attention paid to this policy issue is a strong signal of the supportive voices out there for our organizations as the funding landscape continues to shift due to the COVID-19 pandemic. We strongly encourage private philanthropy to review granting practices in light of evidence showing that: unrestricted revenue lines are badly hit; staff are spread thin across many different operational areas; increased demand in communities and steadily decreasing organizational capacity (read more from our recent study).  

Our current position on this file is that there is a lack of sufficient evidence to inform a particular legislative adjustment to the disbursement quota. This lack of data leads us to a number of unknowns, including: the quantitative value to the sector of increasing the DQ according to percentage point, the effect (short term and long term) on sustainable endowment, and what we would support as a figure above the current 3.5%. Some advocates of a targeted increase to the DQ have cited the average annual rates of asset appreciation being 12%. The majority of foundations have, however, not seen that level of growth.

In addition to this lack of data, there are many charitable organizations with restricted endowments that, legally, would be put in an untenable position of deciding whether to breach their legal trust agreements by spending restricting capital, or risk non-compliance with the Income Tax Act. 
 
An added concern is whether this change to the ITA would absorb much needed political capital for other efforts that would carry more immediate, widespread benefit for organizations - including those that are not qualified donees.

Imagine Canada is supportive of efforts to address the nonprofit and charitable sector’s funding challenges, this includes encouraging private philanthropy to do more. An evidence-based examination of the benefits and costs of increasing the disbursement quota is a worthwhile pursuit. We recommend that decision makers consult with sector representatives to explore both intended and unintended consequences, and thoroughly review policy options. Innovative policy solutions beyond an increase might include a sliding scale approach relative to endowment size, government matching of disbursements to incent the direction of granting, and measuring increase at the collective level. We do not have sufficient data to endorse a particular targeted increase to the disbursement quota at this time. 
 
This is a time for innovative policy solutions and trust-based granting practices, robust and generous philanthropy and culture of giving among the public, and a strategic and mutually respectful relationship with the federal government. We are cautiously optimistic about the road to achieving these ends.

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