Since 1976, the Canadian federal government has imposed a
disbursement quota (DQ) on Canadian registered charities to ensure
that a registered charity's resources are devoted to its
mandated purposes. Through a major system reform in 2010, the DQ
has become much less complex for smaller charities, but it's
still something to be aware of for those with oversight
responsibilities within these charities.
The DQ is the minimum amount that a registered charity must
spend each year on its own charitable programs or on gifts to
qualified donees (other charities). However, many charities may not
need to worry about the quota at all.
A charity must only comply with the DQ if it has excess assets
that are not being used for charitable activities or
administration, which are normally in the form of investments.
What's key is that it is only charities with more than $100,000
of excess or unused assets (or $25,000 for charitable
foundations), who are subject to the DQ.
Here's where it gets technical; – the DQ calculation
is based on an average of the excess assets over the 24 months
before the beginning of the year, and is calculated as 3.5% of that
average value. For example, if on average a charity had $500,000 of
excess assets in 2013; $700,000 in 2014; and $1,000,000 in 2015,
the 2015 disbursement quota is 3.5% of the 2013 and 2014 average.
As the 2013 and 2014 average is $600,000, the 2015 disbursement
quota would be $21,000.
Luckily, the 3.5% quota is not generally a stringent test to
meet (remember is it only 3.5% of any excess assets – not
total assets). In our example, the charity would only have to spend
$21,000 during the year on activities related to their purpose
– likely not a stretch for most active charities.
There may be, however, many valid reasons why a charity
accumulates excess assets, and could be in danger of not meeting
their quota. They may be saving for a building or an expensive
piece of equipment, or perhaps there are large endowments with
restrictions on how the funds can be spent. If this is the case,
then relief may also be available – the charity can request
permission to accumulate assets or for a reduction in the quota if
there were circumstances beyond their control which resulted in
them not meeting their spending requirements.
Another stipulation that makes the DQ less worrisome is that if
a charity's spending exceeds their DQ, that excess can be
carried forward for five years or carried back one year to cover a
shortfall. In a year with a shortfall, if there are no excesses
available to draw on, the charity can try to spend enough the
following year to create an excess that it can carryback. It's
only troublesome if there are continuous shortfalls as this could
lead to revocation of a charity's registration.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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