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Disbursement Quota Reform for Charities

March 5, 2010

The federal budget released on March 4, 2010, contained a significant reform which will affect all registered Canadian charities.

Highlights

Of greatest impact to the majority of charities is the elimination of the 80% disbursement quota (DQ).  This requirement imposed an obligation on charities to spend in the current year, 80% of the previous year’s receipted revenue plus gifts from other registered Canadian charities.

  • Charities will still be required to disburse a minimum of 3.5% of property held but not used in charitable activity or administration.
  • The capital accumulation threshold has been increased from $25,000 to $100,000 for charitable organizations.
  • The exemption remains at $25,000 for charitable foundations.

Effective Date of Change

The reformed disbursement quota rules apply to charities for fiscal years ending on or after March 4, 2010.  For example, a charity with a year end of March 31, 2010, will only be required to calculate the 3.5% disbursement quota, if applicable.  Whereas, a charity with a year end of December 31, 2009, will still be required to calculate and report the full disbursement quota requirements, including the 80% calculation.

CRA to Revise T3010B Form

In consultation with Charities Directorate officials today, CCCC has confirmed that a new T3010B will need to be released by CRA.  The Directorate is hopeful that only a portion of the form may need to be redrafted, rather than a whole new form being produced.  For now, charities should continue to use the existing T3010B.  CRA will continue to accept these forms until a new form, or portion of a new form, is available.

CRA to Provide Instructional Insert

A priority for the Directorate will be the production of an insert containing instructions on how to calculate the disbursement quota in light of the changes.  For example, the insert will direct charities to now ignore the concept of a specified gift, as specified gifts no longer exist.  The Charities Directorate has advised that a new question and answer release will be available later today on the “What’s New” section of the CRA website.

Compliance with CRA Guidance Still Required

CRA will continue to monitor and enforce appropriate and adequate spending by charities through several new administrative guidances which have recently been introduced or are anticipated, along with existing audit and enforcement measures.  For example,

Charities are reminded that the basic rule for spending on charitable activity has not changed.  In accordance with the Income Tax Act, charities are still required to spend all of their resources on charitable activity.  As long as charities adhere to CRA administrative guidance applicable to the activities of each specific charity, charities will remain in compliance.

CCCC will continue to monitor the development of this new announcement in order to provide information to members.