Business Law, Taxation law

The “Percentages” in Charity Law

Apr 23rd, 2015

By Daniel Frajman

On the fifth anniversary of Federal Budget 2010, it is useful to recall the “percentages” that attracted so much attention either in that budget, or shortly before:

  1. The 80 percent disbursement quota, which had been the bane of so many charities (it basically had required charities to spend each year on charitable activities at least 80 percent of the previous year’s tax receipted donations), was repealed;
  2. The 3.5 percent disbursement quota, which essentially required charities to spend each year at least 3.5 percent of their assets not being used directly in charitable activities and administration, was retained; and
  3. The Canada Revenue Agency (CRA) issued a fundraising policy statement basically stating that a charity with a ratio of fundraising costs to fundraising revenue over a fiscal period of under 35 percent is unlikely to generate questions or concerns by the CRA.

Notwithstanding the repeal of the 80% disbursement quota, it is worth recalling that in the immediate aftermath of the 2010 Budget, the CRA did state that charities may not use their funds however they want.  In this regard, the CRA wrote the following on its website:

“Registered charities have always had to devote their resources to charitable programs to maintain their charitable registration, and this is still the case.  The disbursement quota requirement is just one part of the rule.”

More details on this can be found in my article titled Foundations and Disbursement Quota Reform, which originally appeared in the August 10, 2010 edition of The Canadian Taxpayer (published by Carswell).

Daniel Frajman, TEP, a shareholder of Spiegel Sohmer, a Montreal law firm, negotiates and drafts contracts for business and real estate sales and purchase transactions, leases, debt and equity financings, shareholders’ agreements, trusts, wills, and for non-taxable non-profit and charitable businesses.