ON THE FEDERAL BUDGET 2010 RE: DISBURSEMENT QUOTA

(1) From Carter's Charity Law Bulletin, March 8th: Significant Benefit for Charities in 2010 Federal Budget (Source:  Karen J. Cooper and Terrance S. Carter in Charity Law Bulletin No. 197, March 8, 2010)  A significant measure in the Federal Government’s 2010 Budget will find strong support from across the charitable sector in Canada.  It is the provision eliminating the 80% disbursement quota (the “DQ”) for registered charities and increasing the exemption from the 3.5% disbursement quota. The DQ has created an unnecessarily onerous administrative burden on registered charities that few charities and their staff have had the ability to comply with, let alone understand. These burdensome complexities include having to wrestle with complicated concepts of enduring property, ten year gifts, capital gains pools and inter-charity transfers. Eliminating the 80% DQ will therefore be of particular help to small and rural charities, increased assistance for which has been a priority for the Canada Revenue Agency over the last few years. Read more by clicking here.

(2) Disbursement Quota - Proposed 2010 budget - Courtesy Association of Fundraising Professionals:

AFP Applauds Elimination of Charitable Disbursement Quota in Canadian Budget

"March 5, 2010 (Toronto, Ontario) - The Canadian federal government included in its 2010 proposed budget a provision to eliminate the disbursement quota for charitable organizations, a decision supported by the Association of Fundraising Professionals (AFP) and charities across the country.

The disbursement quota was intended to help ensure that charities spent a significant amount of their budget on their mission and services. However, as the budget noted, in practice, the quota disproportionately burdened smaller and rural charities, while larger charities with a wide range of revenue streams had a much easier time meeting the requirement.

Budget 2010 proposes to reform the disbursement quota for fiscal years that end on or after March 4, 2010. Specifically, Budget 2010 proposes to:

    * repeal the charitable expenditure rule;
    * modify the capital accumulation rule; and
    * strengthen related anti-avoidance rules for charities.

In its discussion of the disbursement quota, the government also noted that it will monitor the effectiveness of the Canada Revenue Agency's guidance on "Fundraising by Registered Charities", and take action if needed to ensure its stated objectives are achieved.

"It, of course, is vitally important that charities adequately fund and budget for their missions and services," said Paulette V. Maehara, CFRE, CAE, president and CEO. "However, the disbursement quota was simply not fair to smaller organizations, and in addition, the issue that the quota seeks to address-ensuring that charities focus on their missions-isn't a significant problem. The quota had become an administrative burden that was hurting charities, and AFP applauds the government for taking this action. We look forward to continuing to collaborate with the government on this issue and others. AFP is very fortunate to have a strong and effective group of Canadian volunteers helping us in this work and are always interested in hearing from any members who would like to join our efforts."

AFP, along with Imagine Canada and other fundraising and charity organizations, have supported the elimination of the disbursement quota for several years. AFP's comments and position regarding the disbursement quota can be found in its brief to the Standing Committee on Finance's Pre-Budget Consultations.

In its brief, AFP also supported the creation of a stretch tax credit for charitable giving and the elimination of the capital gains tax on gifts of land and real estate, which were not included in the budget. The proposed stretch credit would be based on an individual tax payer's best previous year of giving using 2008 as a baseline. It would provide a stretch tax credit of 39 per cent on these new donations - 10 percentage points higher than the current level of tax credit on donations above $200. To continue benefitting from the stretch tax credit in subsequent years, tax payers would need to continue to increase their levels of giving over their 2008 and previous year's baselines.

The elimination of the capital gains tax on gifts of land and real estate was proposed because these contributions are currently stymied by a tax system that makes such giving too burdensome and not attractive to most donors. Eliminating the capital gains tax would remove a huge barrier to these types of gifts and make it far more likely and appealing for donors to give land and real estate to charity.

"AFP will continue to work to educate Members of Parliament about the importance of the stretch tax credit and the elimination of the capital gains tax on gifts of land and real estate," said Maehara. "The government has been incredibly responsive to the charitable sector over the past several years, and we are so appreciative of their support and understanding. We look forward to working with the government to develop new innovative and cost-efficient proposals that will help the sector improve the quality of life for all Canadians."


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