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The disbursement quota: guidance for charities Stacey Corriveau www.centreforsocialenterprise.com. Production of this capacity building workshop for charities has been made possible by a financial contribution from the Canada Revenue Agency With the support of:. What is the DQ?.

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The disbursement quota:

guidance for charities

Stacey Corriveauwww.centreforsocialenterprise.com

Production of this capacity building workshop for charities has been made possible by a financial contribution from the Canada Revenue Agency

With the support of:


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What is the DQ?

‘The disbursement quota (DQ) is the minimum calculated amount that a registered charity is required to spend each year on its own charitable programs, or on gifts to qualified donees, such as other registered charities.’


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Why the DQ?

‘The purpose of the DQ is:

  • to ensure that most of a charity’s funds are used to further its charitable purposes and activities;

  • to discourage charities from accumulating excessive funds; and

  • to keep other expenses at a reasonable level.’


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Activities as disbursements

  • Only monies spent directly on charitable activities or on gifts to qualified donees are included in calculating the disbursement quota. This includes paying the salaries of persons performing actual charitable work (e.g., caring for the sick), buying equipment used in charitable activities.

  • It should not include amounts spent on activities that support charitable objectives, but do not directly accomplish them, such as management and administrative activities, fund-raising or political activities.


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Timing

‘The DQ is largely based on what happened in the previous fiscal period. Generally, at the end of the year, a registered charity should have a fair estimate of its DQ for the following year.’


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The DQ calculation

  • The DQ calculation can be quite complex. It is highly recommended that the documents noted at the end of this presentation be accessed for deeper information.

  • The calculation is essentially the sum of 5 different calculations. These are:


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The DQ calculation (con’t)

1. 80% of the amounts for which official tax receipts were issued in the prior fiscal period

2. 80% of enduring property (definition to follow) spent in the current fiscal period

3. 100% of enduring property transferred to qualified donees in the current fiscal period

4. 80% of the amounts received from other registered charities in the previous fiscal period, less any amounts that were received as enduring property (100% for private foundations)


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The DQ calculation (con’t)

5. 3.5% of the result of this calculation: the average value of assets owned over the previous 24 months that were not used directly in charitable activities or administration, less:

a. 100% of the amount for which official donation receipts were issued in the previous fiscal period;

b. 100% of enduring property spent in the current fiscal period;

c. 100% of enduring property transferred to qualified donees in the current fiscal period;

d. 100% of the amount received from other registered charities in the previous fiscal period.


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What is ‘enduring property’?

  • a gift received by way of bequest or inheritance;

  • a gift received by a charitable organization from another registered charity that is subject to a trust or direction that the property be held for not more than five years, and is to be expended in its entirety over that period to acquire capital property, and/or in the course of a program of charitable activities;

  • a ten-year gift (i.e. gifts to be held for at least ten years);

  • a gift received by a charity from another charity that was a ten-year gift or a bequest of the other charity.


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What is a ‘qualified donee’?

Qualified donees are organizations that can, under the Income Tax Act, issue official tax receipts for gifts that individuals or corporations make to them.

They include:

  • registered charities;

  • registered Canadian amateur athletic associations;

  • registered national arts service organizations;

  • housing corporations in Canada set up exclusively to provide low-cost housing for the aged;

  • municipalities in Canada;


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What is a ‘qualified donee’? (con’t)

  • municipal or public bodies performing a function of government in Canada;

  • the United Nations and its agencies;

  • universities outside Canada with a student body that ordinarily includes students from Canada;

  • charitable organizations outside Canada to which the Government of Canada has made a gift during the donor's taxation year, or in the 12 months immediately before that period; and

  • the Government of Canada, a province, or a territory.


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Spending too much…

  • ‘If a registered charity spends more on its charitable activities or by way of gifts to qualified donees than its DQ for the year, it has a disbursement excess.’

  • ‘Disbursement excesses can be carried forward for five years or carried back one year.’


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Spending too little…

  • ‘If a registered charity spends less on its charitable activities or by way of gifts to qualified donees than its DQ for that year, it has a disbursement shortfall.’

  • ‘A registered charity can draw on disbursement excesses from the five previous fiscal periods to help it meet a shortfall. If no excesses are available to draw on, the charity can try to spend enough the following year to create an excess that it can carryback to cover the shortfall.’

  • ‘Continuous shortfalls can lead to revocation of a charity’s registration.’


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For further reading:

See the documents at this CRA link:

www.cra-arc.gc.ca/tx/chrts/prtng/spndng/menu-eng.html


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