How is the disbursement quota calculated?

Before we get into any calculations, let’s clarify what the disbursement quota (DQ) even is. According to the Canada Revenue Agency (CRA), the DQ is “the minimum amount a registered charity is required to spend each year on its own charities activities, or on gifts to qualified donees (for example, other registered charities)”[1]. At Benefaction, this means we need to distribute the DQ amount, at a minimum, as grants to other charities from our Donor Advised Funds (DAFs). As an organization, we have chosen to apply the disbursement quota at the individual DAF level, even though the CRA applies it to Benefaction as a whole. We expect this will become mandatory in the future, and we think it’s the only fair way to ensure all donors are participating in disbursements.

At the time of this article, December 2022, the DQ is 3.5%. Beginning in January 2023, CRA will be increasing the annual DQ for charities across Canada to 5.0%. This increase will result in more funds in the hands of the charities our donors hold most dear, which is a win for us all.

So, how do we calculate the annual DQ amount for each Fund at Benefaction? 

The calculation uses the average of the Fund’s quarter-end asset values for the two prior calendar years (eight quarters in total). This means the required disbursement amount can be calculated once the prior year-end account balance is reconciled, and the amount reported on the donor’s quarterly statements will remain static throughout that year.

The disbursement requirement is subject to the current minimum grant amount of $250, as outlined in Benefaction’s Grants Policy.

The 2023 DQ calculation explained with the Perez Family Fund (inception date: November 13, 2019)

Calendar Quarter End	Date	Fund Asset Value
Two years prior - Q1	March 31, 2021	$309,204
Two years prior - Q2	June 30, 2021	$337,093
Two years prior - Q3	September 30, 2021	$334,356
Two years prior - Q4	December 31, 2021	$327,012
One year prior - Q1	March 31, 2022	$333,891
One year prior - Q2	June 30, 2022	$336,792
One year prior - Q3	September 30, 2022	$336,024
One year prior - Q4	December 31, 2022	$346,281

Average Quarter-End Asset Value (for prior two calendar years): $332,582.00

2023 Disbursement Quota (5% of Average Asset Value): $16,629.10

Now suppose the same Fund was opened more recently, for example May 13, 2022. The calculation would remain the same as above, but there would be several zero quarter-end asset values included in the calculation, resulting in a lower DQ than might be expected.

Calendar Quarter End	Date	Fund Asset Value
Two years prior - Q1	March 31, 2021	$0
Two years prior - Q2	June 30, 2021	$0
Two years prior - Q3	September 30, 2021	$0
Two years prior - Q4	December 31, 2021	$0
One year prior - Q1	March 31, 2022	$0
One year prior - Q2	June 30, 2022	$336,792
One year prior - Q3	September 30, 2022	$336,024
One year prior - Q4	December 31, 2022	$346,281

Average Quarter-End Asset value (for prior two calendar years): $127,387.13

2023 Disbursement Quota (5% of Average Asset Value): $6,369.36

Benefaction makes understanding and calculating the DQ simple. We calculate the value internally and share the required dollar amount on the individual Fund’s quarterly Statement of Activity as the “Annual Disbursement Quota”. We share the value on each quarterly statement to encourage our donors to make their grants earlier in the year. We strongly encourage our Fundholders to accelerate the timing of their grants as it gets the much-needed funds in the hands of their chosen charities sooner and helps to alleviate the year-end rush for all parties involved. We also send out reminders in October each year, for any Funds that have not yet met their DQ that year. Although Benefaction has measures in place to ensure each Fund meets its individual DQ, we as an organization are always well above the minimum disbursement quota thanks to the generosity of our donors.

If you have any questions about the DQ, or would like more information about opening a Fund with Benefaction, please contact our team at info@benefaction.ca and we would be happy to connect.

[1] https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/annual-spending-requirement-disbursement-quota/disbursement-quota-calculation.html