Increase The Grants

A movement to require greater granting from Canadian charitable foundations

Canadian charities are struggling while foundations are quickly expanding their wealth

You can help improve the support of charities
We need your voice (not your money!)
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In the April 7th, 2022, presentation of the Federal Budget in the House of Commons, the government addressed the Disbursement Quota (DQ) for charities. This is the required minimum amount (expressed as a percentage of relevant assets) which registered charities and foundations must use or disburse for charitable purposes, annually.

Due to requests by many, including GIV3, the government agreed to review the current DQ of 3.5%, including public consultations conducted last Fall. The 2022 Budget outlines the following intentions:

  • Increase the DQ from 3.5% to 5.0% for charities with assets above $1 Million (which are not directly used for charitable activities),
  • Clarify that administration and management expenses are not considered qualifying expenditures for calculating the DQ, and
  • Remove the ‘Accumulation of Property’ rule.

These measures would apply to charities in respect of fiscal years beginning on or after January 1st, 2023.

On behalf of the tens of thousands of charities struggling to meet the increasing demands on their charitable services, the millions of Canadians in need, and the tens of millions of taxpayers who wish to see their taxes used in a timely manner, this increase is most welcome.

A 5% DQ should trigger over $500 Million (est.) for registered charities annually (with $0 cost to the public purse — as this money is already sitting in foundation investment accounts).

This is an excellent step forward: Updating a terrible old policy (which allowed Foundations to accumulate $100+ Billion in their investment accounts) - while charities struggled and Canadians suffered.

However, we continue to feel that this new DQ level is not high enough:

  • A 5% DQ does not ensure fair deployment of taxpayer money in a timely manner (certainly in their lifetime; say 20-25 years). Hoarding taxpayer money in perpetuity is simply unfair.
  • Delayed Good = Less Good. It allows current suffering to compound, it means more unnecessary cancer deaths, irreversible climate change, loss of animal species, etc. All of which cannot be recovered by holding back foundation assets for deployment 25+ years from now. One could argue that allowing funds to sit for decades in foundation investment accounts is simply not charitable.

To that end, a more ambitious 10% DQ would allow today’s donated capital to last for 20-25 years - a lifespan we feel is fair for taxpayers, while allowing foundations a reasonable timeline to apply and disperse their money wisely and strategically.

July 2022 Update

Explore the recent poll data showing that Canadians want charitable dollars used quickly and not accumulated in endowments in perpetuity

This is Urgent

“The pervasive and wide ranging effects of the global pandemic has put Canadian communities in crisis. Our ability to recover will be driven by the generosity and kindness of Canadians as we restore public health and engage in an inclusive economy. I am happy to support a well-informed sectoral conversation to increase the disbursement quota and advance community impact more holistically, recognizing the urgency of the moment.”

Andrew Chunilall, CPA, CA., Chief Executive Officer, Community Foundations of Canada

COVID-19 has exposed the growing “charity gap” between what is required to help those in need and the funding available to support them. Donations from individual Canadians are down, while demands on social services continue to rise.

Governments have already taken on significant deficits and accumulated debt throughout the COVID-19 crisis. Raising taxes is a sub-optimal approach to meet this additional need, as it would hurt the already struggling economy.

On the other hand, charitable foundations in Canada have doubled their financial assets over the past 6 years, from $40 Billion to over $80 Billion dollars. This represents an average of 12% growth per year, which is well above inflation and the growth of Canada’s GDP. Over the same period of time, the ratio of money granted from foundations to charities has decreased year-after-year. While wealth is accumulating in investment accounts, foundations are not voluntarily stepping up to put it to good use.

Foundation assets have grown substantially over the last decade, though charitable grants have not kept pace.

Many Canadians do not realize that for every dollar donated to a foundation, the donor receives a charity tax credit. These tax credits come out of our government public purse, which could otherwise have been directed towards other public benefits.

Given that foundations are partly funded by our tax dollars, we have the right to express how we want them to operate. It is against the best interest of Canadian taxpayers to have their money locked up in perpetuity in foundations. It is our right to expect stronger policies in the interest of the greater good. Delayed good is less good. We cannot undo the suffering of those in need or reverse damage to our environment after the fact. We need to address our struggles sooner before they compound.

A Very Reasonable Request

“The urgent needs facing thousands of charities and the people they help could be met with one simple policy change.”

Rudyard Griffiths, Senior Fellow, Munk School for Global Affairs and Public Policy

We need a federal policy to reduce the hoarding of money in foundations by requiring greater granting to struggling charities. This can be done by increasing the disbursement quota (DQ), which is the minimum percentage of assets that charitable foundations must disburse to charities and other programs each year in order to retain their non-profit status.

We propose starting with a 5-year pilot test requiring foundations to return to granting a minimum of 7-10% of their assets each year, and then measuring the impact that this change has on philanthropy.

A 7-10% disbursement quota is a very reasonable request:

  • The average level of granting by foundations has been about 7-8% of total assets in the last few years.
  • Foundations averaged above 10% as recently as 2008 and 2011.
  • Many foundations already meet or exceed this quota. Requiring a higher DQ is not a significant change for many. This stronger regulation is necessary for those that contribute closer to the minimum.
  • Since the financial markets average about 6-8% increase annually, a 7-10% DQ offers a nice balance between allowing foundations to maintain long-term planning while triggering billions more for charities.

There is a real urgency to act now! Many Canadians are struggling as a result of the COVID-19 pandemic. This is not the time for charitable foundations to sit back and accumulate wealth. We need to build awareness and turn up the pressure on our elected officials to significantly increase the disbursement quota. We need YOUR voice, today.

Please see the links in the panel above to learn more about how you can contribute:

  1. Add your voice to this initiative by signing our online petition.
  2. Using our simple tool, email to your federal representatives demanding better requirements for the use of your tax dollars.
  3. Help increase awareness by sharing this initiative with your contacts over social media.
  4. Consider making a small donation. 100% of proceeds will go towards marketing costs to further promote this initiative.
  5. Continue reading to learn more about charitable foundations in Canada.

On behalf of those in need, thank you!

“In this hour of need, all sectors of society must row together. Private foundations have been generous, but it is time to raise their annual disbursement quota so that they can participate more fully in the recovery from the COVID crisis.”

The Honourable Ratna Omidvar, Independent Senator for Ontario

A Coalition of the Caring

Based on Ipsos research, it is clear that Canadians have two fundamental perspectives about charitable foundations:

  1. Foundations play an important role and should exist, and
  2. Foundations should be more transparent, be more accountable, and be required to grant more money, sooner.

Several articles have been published in support of increasing the required “disbursement quota” of charitable foundations (Charity Report and Policy Options). Ottawa has heard the call to do so, but so far our federal government has been silent on this topic. Because this is an issue of taxpayer dollars and how they are being used, it is now the responsibility of engaged voters and taxpayers to make their expectations known to the government.

One might think that struggling charities should be leading this initiative, but they are in a precarious situation. The vast majority of charities receive funding from one or more foundations. In turn, they dare not bite the hand that feeds them, even if they agree with the initiative or desperately need the additional funding. As such, we need informed citizens to step up to demand more from our government and foundations on behalf of charities.

A small “coalition of the caring” has worked to launch this website and public campaign. We are a group of well-informed individual Canadian citizens who have explored the issue and wish to fight in support of struggling Canadians. We believe that we should all have a say in how our taxes are spent, and on the policies that govern the charities and foundations that are funded through our tax dollars. We understand the important role of foundations but feel that they should be held to a higher standard in exchange for the tax deductions and exemptions that they receive.

This initiative to #IncreaseTheGrants is simply a pursuit to do what is right to help struggling charities, and struggling Canadians in need. This website and the associated public campaign aim to raise awareness of the benefits of increasing the disbursement quota of foundations and to raise public support to make this a reality.

The Growing Charity Gap

“It is hard to stand by and observe the massive gaps in support for people locked in poverty, for newcomers to Canada - many of whom are racialized people. So much wealth is held by foundations, but they’re stopped by our laws from granting more to provide greater social services as they were designed to do.”

Hon. Marilou McPhedran, Independent Senator – Manitoba

For several years, Canada has been facing a growing ‘charity gap’. This is a financial gap between available funding and the growing costs of services that maintain civility and equity in our communities. These services support the elderly, the homeless, abuse victims, animal welfare, environmental health, medical research, and numerous other critical issues.

This gap is widening due to many reasons, including:

  • The expansion of the Canadian population, with the corresponding increase in demand for our social services. Simply stated, Canada has been growing.
  • The growing economic challenges on the middle- and lower-income levels, increasing demands on social services,
  • Declining charitable giving behaviour (on an inflation-adjusted, per capita basis).

In a recent Ipsos Canada poll (April 23-26, 2020):

  • 48% of Canadian adults were aware of this widening charity gap.
  • When made aware of this fact, 71% of Canadians felt that this widening charity gap was not acceptable.

Types of Non-Profit Organizations

The non-profit sector in Canada is large; it employs millions, and serves millions more. These organizations define our communities and the type of society we enjoy. They are key to our quality of life. Despite the simple idea of doing/being good, the sector is quite complex and confusing. Here is a quick summary:

  • (1) Registered Charities + Foundations

    Organizations approved by the Canada Revenue Agency to receive charitable donations and issue charity tax credit receipts. They all play a role in benefitting society. There are two types of Registered organizations:

    • (1a) Charities

      Charities tend to apply all of their annual funding towards helping deliver their services for public good.
      Notable charities include United Way, Salvation Army, Red Cross, Habitat for Humanity, food banks, etc.

      Many of these are struggling to help Canadians due to a lack of money, and an increase in need and demand.

    • (1b) Foundations

      Foundations tend to collect and hold funds in their investment accounts and distribute a small percentage of their assets each year to help registered charities or engage their own charitable programs. Foundations may be classified as either “public” or “private”, depending on the relationship of their board members and their sources of funding.
      Notable foundations include The Chagnon Foundation, The Azrieli Foundation, and The David Suzuki Foundation.

      Foundations are collectively sitting on $80+ Billion, and growing.

  • (2) Other non-profit organizations/ associations

    These tend to be community centers, clubs, union associations, etc. These organizations cannot offer charity tax receipts. They tend to charge fees for memberships, and/or sell products and services to support their operating costs.

Charities and Foundations Exist as an Extension of Government

“I believe that our current disbursement quota of only 3.5% is bad public policy. Our government gives donors a sizable tax break to start a foundation and then only requires that 3.5 cents of every dollar donated is actually put to use every year to benefit society. That seems like a bad deal for society to me particularly at a time like this when the needs are so great. It needs to be increased significantly.”

Bill Young, Social Capital Partners

Though our governments are ultimately responsible for the well-being of the nation, parts of this responsibility have been outsourced to charities and foundations which provide social services on the government’s behalf. To help ensure the success of charities and foundations, governments offer charity tax credits to donors to incentivize charitable giving to these organizations. Furthermore, policies allow investments to grow in these organizations exempt from income and capital gain taxes.

Foundations play an important role. They can act independently of government bureaucracy, make decisions free of the politics of elected officials, take risks government departments avoid, address problems which may not be politically popular, and think about longer-term solutions which extend beyond the next election cycle. Foundations’ endowments also help smooth out funding to charities across fluctuations in the economy and financial markets.

The use of the non-profit sector as a complement to government services appears to be a smart approach. It is more attractive than raising taxes. Philanthropy encourages voluntary charitable giving, which likely exceeds what taxes could extract from philanthropists. It is likewise much more rewarding for philanthropists to donate money willingly. We should be happy to accept their generosity.

In simple terms, charities and foundations exist, leveraging our taxes, because the electorate has chosen to accept this approach. In turn, these organizations are accountable to voters and taxpayers.

However, we need greater accountability. Since taxpayer money is being used to empower foundations, we need better requirements, transparency, and accountability from them. We need our governments to exercise stronger controls to ensure that these foundations are meeting the needs and wishes of the electorate and do so in a timely manner.

About the Disbursement Quota

“ It’s been 13 years since Canada’s disbursement quota was lowered to 3.5% and a review is absolutely necessary. With COVID and the extreme funding pressures faced by frontline charities, Canadian foundations and endowments should play a greater role in the Team Canada response.”

Kate Bahen, Managing Director, Charity Intelligence Canada

The Disbursement Quota (DQ) is defined as the amount that foundations must disburse annually from their assets to either qualified registered Canadian charities, or to their own charitable programs. The rest is usually invested in financial markets to grow the endowment over time.

The original purpose of the disbursement quota (as of 1950) was: (1) To prevent excessive capital accumulation, and (2) to help restrict fundraising costs. The original DQ called for foundations to disburse 90% of the donated funds from the previous year in the following year.

In the 1970s, the federal government was convinced to calculate the DQ as a basis of the foundation’s assets, originally set at 5.0% of assets. Over time, the government was encouraged to further reduce the DQ to 4.5%, and then again to reduce it to the current 3.5% of assets.

Note how the 1976 Budget Paper setting the new DQ at 5% recognized the impact of charitable giving on taxpayers:

The purposes of the proposed changes were to ensure that tax-exempt monies flowing to charities are used as intended, as efficiently as possible, […] Because revenue forgone as a result of deductions or exemptions […] impose an equivalent extra tax burden on all other taxpayers.

… Every dollar of tax relief represents a cost to the Canadian taxpayer, and the government therefore believes that it is appropriate that the rules of taxation ensure that the people of Canada obtain maximum benefit from the charities.

Many of the arguments for further reducing the DQ seem to have been based on the need to preserve capital in the foundations in order to benefit from the performance of the financial markets. This is where our policies lost sight of the purpose of foundations and their duty to taxpayers. Foundations do not exist to outperform the financial markets nor to accumulate money in perpetuity. They exist as ‘agents’ of the government to provide social services and charitable good, so that “the people of Canada obtain the maximum benefit” for our tax dollars.

In summary, the role of foundations is to distribute funds in the interest of public good. The DQ was designed to prevent the accumulation of wealth, and to respect the will of taxpayers. Tying the DQ to the average returns of financial markets is a red herring. It is the agenda of foundation boards to have this comparison, which does not reflect the purpose of the DQ policy nor the interest of taxpayers.

Impacts of a higher Disbursement Quota

“Unprecedented turbulence caused by racial and economic inequality on top of a global pandemic calls for an extraordinary response. Everyone has a part to play. A study by The Charity Report found that, over five years, an increase in the disbursement quota to 10% could generate an additional $14.4 billion for charities from Canada’s top 245 private foundations alone. It’s time to change the regulations that allow the accumulation of vast amounts of wealth meant for charitable purposes. Let’s get this done.”

Gail Picco, Editor in Chief, The Charity Report.

Raising the minimum disbursement requirement in Canada to 7-10% would offer a balance between accomplishing greater good, sooner, and allowing foundations to have enough longevity to serve their important role. An 7-10% DQ would:

  • Quickly redirect billions of additional dollars, annually, to the aid of charities without an additional cost to our government budgets. The money is already available (post-tax credits).
  • Minimally impact the majority of foundations that already grant near or above the suggested 7-10% DQ. This primarily encourages more generosity from foundations that grant amounts closer to the minimum (3.5%) and bring down the average.
  • Help alleviate the massive funding pressure which many charitable organizations are currently experiencing.
  • Ensure that current taxpayers see the benefits of the lost tax revenue within their own lifetimes.

More money, sooner, means greater good sooner. The quicker we can address social issues, accelerate medical research, improve our environment, etc. the sooner we will reap the benefits. Holding back charity grants for 25+ years allows problems to compound. Potential donors to such foundations would likely appreciate a greater portion of their dollars being used right away to make an impact. Donors give, in large part, because they want to see their gift make a difference. An 8-10% DQ may be more motivational for many philanthropists.

Concerns for future philanthropy should not be a reason to delay a greater good now. Every generation creates both new wealth and new philanthropists (think Balsillie, Gates, Buffet, Zuckerberg, Bezos, and so on). The rapid accumulation of assets in foundations over the past decade is not due to the existence of old foundations, but a recent phenomenon of new and/or living philanthropists.

Furthermore, as Baby Boomers continue to age, there is a significant amount of money likely to be donated over the next 10 to 30 years. There is every reason to believe that new charitable dollars will be available to continue supporting the charities of future generations. And if there are no future philanthropists, then this is the shortcoming of future generations, not something that should disadvantage current taxpayers.

About This Initiative

“For the benefit of many Canadians struggling and in need of a helping hand, charitable foundations must be required to grant more of their expanding wealth. Delayed good is less good. I hope this initiative succeeds. So many Canadians need this to happen.”

John Hallward, Founder/Chairman, GIV3

#IncreaseTheGrants is a volunteer driven movement founded and supported largely by John Hallward, a retired entrepreneur, a public opinion researcher, and volunteer to several registered charities. After years of work to encourage Canadians to donate to charity - including bringing Giving Tuesday to Canada (with CanadaHelps) - John identified the systemic choke-point in our charitable system: the accumulation of cash by foundations and donor-advised funds. Working with friends, both new and old, John is building a movement to help fix this problem to better serve struggling Canadian charities, the millions of Canadians in need of help, and for the millions of Canadian taxpayers who want to see their tax dollars put to good use.

This effort is supported by this website and social engagement efforts to help bring greater awareness to these issues and to help encourage our elected officials to act. Other than the costs to the contractors who have helped to bring this initiative to life, neither John nor other supportive Canadians are receiving any money or financial gain. Instead, supporters volunteer their time, talent, and/or financial support to fight for better public policy for struggling charities and the millions of Canadians that depend on them.

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