Disbursement quota calculation
The disbursement quota is the minimum amount a registered charity is required to spend each year on its:
- own charitable activities
- qualifying disbursements through gifts to qualified donees or grants to non-qualified donees
The disbursement quota calculation is based on the value of a charity's property not used for charitable activities or administration.
The disbursement quota is calculated as follows:
Charitable organizations
If the average value of a registered charity's property not used directly in charitable activities or administration during the 24 months before the beginning of the fiscal year exceeds $100,000, the charity's disbursement quota is:
- 3.5% of the average value of that property up to $1 million
- 5% on the amount that exceeds $1 million
Public and private foundations
If the average value of a registered charity's property not used directly in charitable activities or administration during the 24 months before the beginning of the fiscal year exceeds $25,000, the charity's disbursement quota is:
- 3.5% of the average value of that property up to $1 million
- 5% on the amount that exceeds $1 million
A registered charity can use line 5900 in Schedule 6 of that year's T3010 return to calculate its disbursement quota.
A registered charity’s disbursement quota for the next fiscal year will generally be calculated based on the amount from line 5910 in Schedule 6 (if completed) of the previous year’s return.
Do not use Line 4250 in Schedule 6 to calculate the disbursement quota.
Note
If the charity has received permission to accumulate property prior to January 1, 2023, it must subtract the amount accumulated plus any income earned from this amount from line 5900, before calculating the disbursement quota.
To determine the amount that should be subtracted from line 5900, the charity can use the amounts entered at line 5500 minus any amounts entered at line 5510 for all the returns to date covered by the permission to accumulate property.
What is "property not used directly in charitable activities or administration"?
For the purposes of calculating the disbursement quota, property includes any real estate, investments, or other assets that were not used directly in charitable activities or administration. This may include, for example, cash in bank accounts, inventory, stocks, bonds, mutual funds, GICs, land, and buildings.
Note
If you own a building that you use to carry out your charitable programs, for example a church building where regular services are held, you would not include this in the disbursement quota calculation. But if a portion of the building is being used for non-charitable activities, then that portion should be pro-rated and included in the calculation.
How is the average value of property calculated?
The average value of property is based on a specified number of periods (decided by the charity) over a 24-month span. The 24-month span can be divided into two to eight equal, consecutive periods. The number of periods is usually chosen when the charity files its first information return. Once chosen, the charity must get our written permission to change it.
For example, if a charity calculates the value of its property only once a year, it will use two 12-month periods to calculate an average value. If it values its property every six months, then it will use four six-month periods to calculate an average value.
To establish the average value, first determine the value of the charity's property that is not used directly in charitable activities or administration at the end of each period within the 24-months. Then add all of the values together and divide the total by the number of periods. The result is the charity's average value of property for the purpose of calculating the disbursement quota.
Example 1
ABC is a charitable organization that has two assets: a building not used directly in charitable activities or administration, and shares in a publicly traded company. The value of the building is the fair market value of the property. The value of the shares is set by the closing price on the stock exchange for the day on which the valuation period ended.
ABC calculates the value of its property not used directly in charitable activities or administration twice a year (every six months). Therefore, it uses four periods to establish the value of its assets. For the fiscal year ending December 31, 2023, it calculates the average value as follows:
| Valuation date | Value of building | Value of shares | Combined value |
|---|---|---|---|
| June 30, 2021 | $500,000 | $90,000 | $590,000 |
| Dec. 31, 2021 | $500,000 | $100,000 | $600,000 |
| June 30, 2022 | $510,000 | $110,000 | $620,000 |
| Dec. 31, 2022 | $510,000 | $120,000 | $630,000 |
The average value of property for the 24 months before the beginning of the fiscal year is $610,000 ($590,000 + $600,000 + $620,000 + $630,000 = $2,440,000, divided by four valuation periods). The charity reports $610,000 at line 5900 on the return.
ABC's disbursement quota for the fiscal year ending December 31, 2023 is calculated as follows:
For the average value of the property up to $1 million:
$610,000 * 3.5% = $21,350
Example 2
XYZ is a private foundation. It was incorporated in 2021 and was registered effective January 1, 2022. It received a gift of securities on February 2, 2022. XYZ calculates the value of its property not used directly in charitable activities or administration at the end of each fiscal year (every 12 months). For the return for the fiscal year ending December 31, 2023, it calculates the average value as follows:
| Valuation date | Value of shares |
|---|---|
| December 31, 2021 | $0 |
| December 31, 2022 | $500,000 |
The average value of property for the 24 months before the beginning of the fiscal year is $250,000 ($0 + $500,000 = $500,000 divided by two valuation periods.) The charity reports $250,000 at line 5900 on the return.
XYZ's disbursement quota for the fiscal year ending December 31, 2023 is calculated as follows:
For the average value of the property up to $1 million:
$250,000 * 3.5% = $8,750
Example 3
DEF is a charitable organization that has been registered for 10 years.
The average value of its property not used for charitable purposes for the 24 months before the beginning of the fiscal year is $1,500,000. The charity reports $1,500,000 at line 5900 on the return.
DEF's disbursement quota for the fiscal year is calculated as follows:
- For the average value of the property up to $1 million:
$1,000,000 * 3.5% = $35,000 - For the amount of the average value of that property that exceeds $1 million:
$500,000 * 5% = $25,000 - Therefore, the disbursement quota is:
$35,000 + $25,000 = $60,000
Note
A registered charity must continue to devote its resources (funds, personnel, and property) to its charitable purposes and activities even though the amount for its disbursement quota may be calculated as nil.
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