What is Canada’s charitable Disbursement Quota?
The Disbursement Quota (DQ) is the minimum annual amount a registered charity must spend or grant for charitable purposes. It is based in part on prescribed percentages of certain property not used directly in charitable activities or administration. In grant-making foundations, this property is mostly comprised of financial investments.
The stated intention of the DQ (per the Federal Government white papers) is to prevent the accumulation of capital in foundations (indefinitely) which otherwise would represent an indirect tax on Canadians (by way of charity tax credits taken from the public purse given to donors to charities/foundations).
The DQ rate is set by parliament and its elected officials.
How has the DQ changed over time? Why was it increased in 2023?
The DQ was originally 5% before being reduced two times, before being returned to 5% in 2023:
| Years | Mandated DQ |
|---|---|
| 1976–1983 | 5% |
| 1984–2004 | 4.5% |
| 2005–2022 | 3.5% |
| 2023–present | 5%3.5% of relevant property on the first $1 million and a 5% rate for the amounts above $1 million |
The rationale for the reductions was to preserve foundation endowments for long-term sustainability.
- Research shows that the reductions in the DQ triggered lower granting ratios from foundations. Source: Public Administration Review (Wiley)
The Minister of Finance acknowledged for the 2022 Budget that a higher rate was required in part because the rules had been “significantly relaxed over time”. The 2022 budget articulated that the higher rate (5%) would increase support flowing to charities while remaining at a level intended to be sustainable over the longer term. The government was explicitly reconsidering if the DQ served public policy, given asset accumulation and contemporary charitable needs.
In Budget 2022, the government committed to reviewing the measure after five years. This brings us to 2027, where “Increase the Grants” is examining what has happened since the change and what policymakers should consider next.
What was the impact of the higher DQ to 5% in 2023?
GIV3’s analysis estimates the increased DQ in 2023 triggered an incremental $1.8 billion in 2023, and $2.55 billion in 2024 (compared with the former flat 3.5% rate). – This $1.8 Billion was corroborated by staff of the CRA at The Association for Nonprofit and Social Economy Research (ANSER-ARES) conference, June 2024, Montreal.
However, the full $1.8 billion triggered by the increased 5% DQ was not fully realized. GIV3’s analysis of the T3010 data observes that about $1.1 billion of this incremental DQ requirement was offset through use of previously accumulated excess disbursements. Under Canada’s DQ rules, a foundation can carry forward excess amounts from prior years and apply them against future disbursement requirements to reduce what they need to disburse.
That is, for 2023, of the incremental $1.8 Billion triggered by the higher DQ, about $700 Million ($711 million reported by Imagine Canada) was applied/spent for charitable purposes.
A similar pattern was observed in 2024.
How does the DQ apply to donor advised funds (DAFs)?
Currently, DQ rules do not apply to each DAF account. The DQ only applies for the hosting foundation.
A DAF (Donor Advised Fund) is generally an account or fund within a sponsoring or host foundation. When a donor gives to a DAF, his or her donations are held in their designated account. The hosting foundation is the legally registered charity and may have hundreds of DAF accounts on behalf of many donors. The donor is receiving a charity tax credit for their donation to the foundation, into their DAF account. Over time, the donor can request distributions from their respective DAF accounts to qualified/registered charities they prefer.
In effect, DAFs are becoming an intermediary stage which slows the more immediate flow of funds from donors directly to operating charities.
Approximately $20 Billion exists in Canadian DAFs (estimated by GIV3, for 2026, based on financial market performance and recent trends in new donations to DAFs).
GIV3 argues that DAFs allow some donor-advised accounts to remain inactive with zero granting (despite the donor having received charity tax credits from the public purse).
GIV3 proposes that a minimum annual disbursement requirement apply at the level of each individual DAF account. (See GIV3’s proposed reforms.)