What Every Charity Needs to Know about the Calculation of the Disbursement Quota

Posted on July 10th, 2024 in Not-for-Profit

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In January 2023, Canada Revenue Agency increased the required disbursement quota for charities from 3.5% to 5.0% on the portion of property over $1 million. Many charities however, do not know how the value of this property for the determination of the quota is calculated or how they meet the disbursement target.

As part of the annual Registered Charity Information Return, there is a question on the amount of property that the organization owns that is not used directly for charitable activities or administration. This could include excess cash or investments on hand or other capital property such as a building that is not used by the charity.

If this amount is more than $100,000 for charitable organizations (or $25,000 for public or private foundations) then you must calculate and enter the amount. Rather than take the amount at a specific date, it is instead determined based on the average over the prior 24 months.

Once this average value of property not used in charitable activities is computed, the next step is calculating the disbursement quota. It is determined at 3.5% of the value less than $1 million and 5% for any amount exceeding $1 million. For example, an average value of $1.5 million will result in a disbursement quota of $60,000.

To meet the disbursement quota, the organization must have total expenditures on charitable activities and gifts to qualified donees in the year more than the quota or be offside and have a shortfall.

If however, a shortfall exists the charity can draw on disbursement excesses from the previous five years to help meet the shortfall or if no excesses are available they have one year grace to create an excess the following year to cover the prior year shortfall.