By Todd Jaques and Omar Elsharkawy, Policy and Research
The disbursement quota is the amount charities must spend annually on charitable activities, either through their own programs or by making grants to other charities or non-qualified donees. Basically, for foundations, the disbursement quota is the amount of money we must grant every year. In 2022, to increase support for the charitable sector, the federal government raised the disbursement quota from 3.5% to 5% and committed to reviewing the disbursement quota again by 2027. We expect that the government will announce its plans for this review sometime soon.
During any consultation and review process, certain types of information or participants can have an out-sized influence due to their subject matter expertise. In the case of the disbursement quota, it’s important to prioritize the voices of those who rely most on Canada’s charitable sector rather than just foundations and philanthropy experts.
An increase to the disbursement quota can improve the lives of millions of Canadians. Foundation dollars that are invested in foreign markets and private interests do not benefit most Canadians, and because these dollars accumulate tax-free, they come at the cost of reducing public funds for services we all depend on.
While some may advocate for the disbursement quota to remain at its current 5%, citing the long-term survival of foundations as rationale, the government should approach this consultation with the aim of improving the lives of Canadians and our communities. To this end, the consultation and review should focus on:
Addressing community needs
Faced with rising costs of living, a lack of affordable housing, unemployment, social isolation, and the impacts of climate change, Canadian communities need help. Decades of downloading costs to the provinces and cutting public services have eroded Canada’s social safety net, leaving local charities and nonprofits to fill the gaps. With stark increases in demand, Canadian charities are falling behind. Meanwhile, as of 2024, Canadian foundations held approximately $153 billion in tax-exempted money in long-term investments. This money is sitting in markets when it could be supporting the immediate and urgent needs of everyday Canadians.
Supporting good jobs
Canada’s charitable sector workforce is in crisis. Rising community needs and years of chronic underfunding have many organizations on the brink. Workers in the sector are underpaid and precarious, burnout is on the rise, and many are leaving the sector altogether. While an increased disbursement quota alone won’t fix all these issues, it could help strengthen the sector workforce by adding more stable funding and creating more jobs.
Respecting Indigenous rights
Canada’s UNDRIP commitment means the disbursement quota policy should align with Indigenous rights to self-determination. The consultation process must operate under free, prior, and informed consent (FPIC) principles with genuine Indigenous decision-making power. Given that the disbursement quota directly effects some Indigenous settlement corporations and could impact future agreements, the government must seek consent from all Indigenous communities affected by a change to the disbursement quota.
Ensuring transparency and accountability
The public doesn’t have much information about the disbursement quota and its effects. Most Canadians are unaware of the disbursement quota and would probably be surprised to learn that Canadian foundations are only required to spend 5% of their assets and collectively hold over $150 billion dollars. In other recent charitable sector policy discussions, such as those regarding changes to the Alternative Minimum Tax, accessible financial analysis and transparency on the government’s decision-making priorities were unavailable to the public. When sharing its disbursement quota recommendations, the government should provide the detailed and understandable analysis and its decision-making criteria to the public.
Grants, not investments
The central purpose of the disbursement quota is to ensure that charitable resources are used to generate public benefit within a reasonable timeframe. For this reason, grantmaking and charitable expenditures should remain the primary mechanisms through which organizations satisfy their disbursement quota obligations. Some foundations and other groups have been advocating for impact investments to count towards the disbursement quota. While impact investments have some merit, their role should be to improve investment practices—not to displace charitable grants. The consultation should maintain a clear distinction between investing and granting and affirm the central importance of charitable grants.
Conclusion
We welcome the Government of Canada’s review of the disbursement quota. The review is an important opportunity to examine the effectiveness of Canada’s charitable regulatory framework in serving the public interest and ensuring that foundations’ tax-exempted money is being used to address urgent and growing community needs.