The CRA has reminded charitable organizations (not foundations) that these charitable organizations will beginning in 2009 have to in addition to other disbursement quota requirements need to spend 3.5% of the value of all of their property the charity has that is not used directly in charitable activities or administration.
Disbursement quota – registered charities designated as charitable organizations take note Under the Income Tax Act, all charities are subject to certain rules that require them to spend money on program activities. These are called the disbursement quota rules. One of these rules requires charities to spend 3.5% of the value of all of their property not used directly in charitable activities or administration. This rule ensures that charities do not merely accumulate funds without putting them to charitable use. This rule formerly applied only to those charities that were ‘foundations’. As of 2009, it will apply to all charities, including all charitable organizations. As a transitional measure, charitable organizations that were registered prior to March 23, 2004, were formerly exempt from this rule. The exemption no longer applies, commencing with fiscal periods that begin in 2009.
The year 2009 is fast approaching. All charitable organizations should be aware of the 3.5% disbursement quota. The calculation is based on the average value of property owned by the charity at any time in the 24 months before the beginning of the fiscal period, which was not used directly in charitable activities or administration. This means that charitable organizations must know that value for 2007 and 2008. The average value is recorded on a charity’s annual information return, Form T3010B, on line 5900.
If the average value of the charity’s property not used for charitable activities or administration is $25,000 or less, the charity does not have to calculate the 3.5% disbursement quota.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.