2022 Federal Budget Highlights for the Charitable and NPO Sector

The 2022 Federal Budget tabled April 7th, 2022 includes new measures designed to increase flexibility of, and encourage more, charitable spending. Most significantly, an increase to the disbursement quota (DQ) from 3.5% to 5.0% (for the portion of a registered charity’s property not used in charitable activities or administration that exceeds $1 million).  Plus, some changes to how charities carry out their charitable activities; namely permitting qualifying disbursements to non-qualified donees.

Benefaction believes both these measures are a good thing for our sector and we welcome these changes.

Disbursement Quota

The DQ is the minimum amount that a registered charity must spend or devote in a year to furthering its charitable purposes or making grants to qualified donees. Benefaction applies the DQ requirement to each of its underlying Donor Advised Funds.  Assuming the Budget receives royal assent, effective 2023 each of Benefaction’s Funds will be required to disburse this increased DQ of 5.0% annually.  The increase will result in more funds in the hands of the causes our donors hold most dear, which is a win for us all.

Facilitating disbursements to non-qualified donees

Currently, registered charities, such as Benefaction, can only make gifts to entities that are “qualified donees” (a category that is largely limited to other Canadian registered charities). Funding to other organizations, including many grassroots as well as most international organizations, can only be provided under structures that meet a highly artificial “own activities” test, and under which the charity maintains “direction and control”.  These rules make it difficult for registered charities to effectively achieve their charitable purposes when working with non-qualified donees. The 2022 Budget proposes new measures intended to enable registered charities to fund non-qualified donees while ensuring accountability over the use of the funds. The new framework would allow registered charities to make “qualifying disbursements” to non-qualified donees (grantees) provided certain requirements are met. The team at Benefaction is considering this change and how it will impact the granting rights of our Fund holders.

We will keep you updated as the Budget moves through the approval process and how the changes will impact our Donor Advised Funds.

Content courtesy of Miller Thompson LLP’s Social Impact Newsletter : April 7th 2022.