By: Lex Klombies
The federal government’s Budget 2021 was released earlier today. Much of the proposed spending is relevant to non-profit organizations and charities, such as a ten-fold increase in capacity building for Black-led not-for-profit organizations and an extension of existing covid-19 recovery benefits. One of the items in Budget 2021 that charities should be aware of is the proposal to launch public consultations with registered charities on the subject of increasing the disbursement quota.
For those who are unfamiliar, the 3.5% disbursement quota is the minimum amount a registered charity is required to spend, either on its own charitable activities or on gifts to other qualified donees (e.g registered charities, RCAAAs, QCJOs, etc). The purpose of the disbursement quota is to require public foundations, private foundations, and charitable organizations to disburse a minimum percentage of their funds each year, though the actual calculation can become a little complex. 
The proposal to launch public consultations on increasing the disbursement quota comes presumably comes in response to the Senate Special Committee on the Charitable Sector’s Recommendation #36 … which said:
That the Government of Canada direct the Advisory Committee on the Charitable Sector to examine the advantages and disadvantages of amending the disbursement quota for registered charities; and the advantages and disadvantages of setting the disbursement quota in regulation, rather than statute.
While we are pleased that the charitable sector will be consulted before the federal government acts to change the disbursement quota, Budget 2021’s focus is potentially problematic. Budget 2021 frames the public consultation strictly in terms of “increasing the disbursement quota and updating the tools at the Canada Revenue Agency’s disposal”, rather than “amending the disbursement quota” as recommended by the Senate Special Committee on the Charitable Sector. We wonder whether up is really the only way to go from here. While increasing the disbursement quota could potentially increase support for the charitable sector in the short term, it may also be problematic. The trouble with a mandatory minimum disbursement quota is that it does not account for considerations such as maintaining an endowment fund without dipping into the capital during economic downturns, or the complexity of deploying funds that are subject to a restricted purpose.
While Budget 2021 frames this as a reaction to the heightened need for support in the charitable sector fourteen months after the beginning of the Covid-19 pandemic, we wonder whether this measure will
 The Liberal minority government’s Budget 2021 will require backing from an opposition party. Given the presence of initiatives pharmacare and childcare, as well as previous commitments from the NDP, we expect to see the federal budget pass.
 The full equation in the definition of “disbursement quota” under subsection 149.1(1) of the Income Tax Act.
 For related reading, see “Managing Charitable Investments and Disbursements in the Face Of COVID-19” by Karen Cooper, published April 1, 2020: https://drache.ca/articles/managing-charitable-investment-covid-19%EF%BB%BF/