The Federal budget of 2010 introduced changes to the disbursement quota rules for registered charities.
In order to retain their charitable status, registered charities have to meet their disbursement quota. Prior to the 2010 budget, the disbursement quota was set at 80% of the total amount for which charitable tax receipts were issued in the previous year. With the implementation of the new rules, the disbursement quota is set at 3.5% of the average value of the charity’s property that was not used in charitable activities in the previous 24 months.
The charity is allowed some flexibility in determining how to calculate the “average” and care must be taken in completing the initial calculation as the charity will have to request CRA’s permission to change their methodology in the future.
If a charity fails to spend sufficient funds to meet the disbursement quota for a particular year, it can draw upon disbursement excesses in the previous five fiscal periods. If there are no carry forward disbursement excess amounts, the charity can create an excess in the following year to cover the shortfall.
The change attempts to address the concerns of many stakeholders, that the previous disbursement quota was too restrictive and overly complex, particularly for small and rural charities.
The rules vary for private and public foundations. The CRA website at http://www.cra-arc.gc.ca/gncy/bdgt/2010/chrt-eng.html has numerous commentaries outlining the new rules and their implementation.