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Charity Spending Quota

The fictional charity Zizamis, whose purpose is to relieve poverty in Montreal’s disadvantaged neighbourhoods, has just received confirmation from the Canada Revenue Agency (“CRA”) of their registration as a Charitable Organization! Conscious of their obligations pertaining to this status, Zizamis’ administrators did not know where to start when the time came to begin spending the hard-earned funds.

A brief overview…

A Charitable Organization must use its resources (i) by carrying on its own charitable activities or (ii) making gifts to qualified donees. The following are prerequisites in order to maintain their status:

(i) A charity’s charitable activities are described in the governing documents and are critical when granting registered status.  It is paramount that a registered organisation ensures that all activities further the charity’s charitable purposes. If its mode of operation and/or its legal structure evolves with time, the organism must advise the Charities Directorate.

(ii) The list of qualified donees, available on the CRA website, lists the people who may receive donations without any other formality.  It is possible to gift to a non-qualified donee in specific circumstances with extremely strict criteria.  For more details, ask your legal counsel.

In order to comply with the legislation in force, Zizamis must respect the annual spending requirement (disbursement quota), for each fiscal year.  The quota is the minimum that a registered charity must spend each year. 

The quota is calculated on the average value of a registered charity’s property not used directly in charitable activities or administration.  For a charity with a value exceeding $100,000, the quota will be 3.5%.

For example: The AAA Foundation acquired a building with a fair market value of $500,000 and stocks whose closing value yesterday was $50,000. The Charity must declare $550,000 in property not used directly in charitable activities and administration, and must spend $19,250 this financial year to respect its quota.

Should there be a disbursement quota shortfall and excess in the same fiscal year, Zizamis will be able to carry forward the disbursement excess for five years or carry it back one year!

Be careful!! For the donations received from other charities are not at arm’s length; anti-avoidance rules oblige the donees to spend 100% of the fair market value of the gift. No capitalization or investment of any sort is permitted.

The sanction for not respecting the regulations regarding revenue and expenses: the revocation of the registered status and loss of the related privileges.  Be vigilant in the financial management of your charity and remember, the Board of directors are accountable for acts made by a charity.

There is no benefit without obligation, and no privilege without duty


George Sand 1846

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