(May 6, 2021) Imagine Canada responded to calls for increasing the disbursement quota (DQ) in a quiet statement issued on March 16 that almost went without notice.
“Our current position on this file is that there is a lack of sufficient evidence to inform a particular legislative adjustment to the disbursement quota,” the statement noted. “Some advocates of a targeted increase to the DQ have cited the average annual rates of asset appreciation being 12%. The majority of foundations have, however, not seen that level of growth.”
The position is particularly worrisome to advocates of an increased DQ because of Imagine Canada’s outsize influence on the sector. It has been lobbying for $10 billion in taxpayer funds to support charities since the pandemic began but has not made any similar effort among public or private foundations who are holding onto tens of billions of tax-credited assets.
Charity lawyer Mark Blumberg said in a tweet on May 5 that he thinks Imagine Canada’s position reflects the view of a few foundations and not the sector as a whole. “The voluntary sector really needs representation,” he tweeted.
And right now, appropriate representation is key because in April’s budget, Section 6.3: Building Stronger Communities, the federal government announced a decision to launch “public consultations with charities over the coming months on potentially increasing the disbursement quota and updating the tools at the Canada Revenue Agency’s disposal, beginning in 2022. This could potentially increase support for the charitable sector and those that rely on its services by between $1 billion and $2 billion annually.”
The federal budget included a graph indicating asset growth, and growth in qualifying disbursements, information that appears to belie Imagine Canada’s claim of limited asset growth among foundations, in particular private foundations.
“While most charities meet or exceed their disbursement quotas, a gap of at least $1 billion in charitable expenditures in our communities exists today,” according to the budget document. "Furthermore, growth in the investment assets of foundations has increased significantly in recent years. In 2019, charitable foundations held over $85 billion in long-term investments. But grant-making and other charitable activities have not kept pace.”
One concern about the DQ consultation is the amount of power foundations wield over charitable organizations, and whether people who support raising the DQ will go on record to say so.
“There is a huge power differential between foundations and the charitable organizations who may be the beneficiaries of their largesse,” says John Hallward, who heads up the Increasing the Grants campaign. “I know of many people in the sector—influential people—who want to see an increase in the DQ, but who don’t want to risk losing revenue for their charity, so are not willing to say so publicly.”
Imagine Canada, which styles itself as the representative of the charity sector is an organization that relies heavily on foundation funding. In the past 10 years, it received about 20% of its revenue from foundations every year.
And it is situated in a position of influence with CRA. Imagine Canada CEO Bruce MacDonald co-chairs—alongside veteran foundation lobbyist, Hilary Pearson—the CRA’s Advisory Committee on the Charitable Sector (ACCS). The ACCS is mandated to provide “recommendations to the Minister of National Revenue and the Commissioner of the CRA on important and emerging issues facing registered charities and other qualified donees on an ongoing basis.”
None of the recommendations coming out of the ACCS has so far addressed the DQ, and they have no intention of doing so, according to committee members.
The percentage of assets a Canadian foundation is required to disburse on grants to qualified donees and on its own charitable programs is 3.5% which, after foundation lobbying, was decreased from 4.5% in 2004. The disbursement quota in the US is currently 4.5% and there have been calls from philanthropists and charities alike in that country to raise the DQ up to 20%.
The calls are growing here in Canada too.
“It was a mistake to lower it because of a couple of bad years in the market. And because it was a mistake that was made 16 years ago, foundations got years of windfall. Now it’s time to redress the mistake, to fix it. A concern for me is that an increase now is too little too late. I worry about rumours of raising the DQ to 4.5%. That’s too little. It wouldn’t be effective.”
“In no context should 3.5% be the floor,” said Andrew Chunilall, CEO, Community Foundations of Canada. “The annual rate of return for the last decade is 10% for a regular investor. The idea that we can’t erode capital is a false choice when capital is being produced in abundance.”
“Pandemic or not, the DQ is bad public policy,” says Bill Young founder of Social Capital Partners (SCP).
“And it’s an issue that should have been fixed a long time ago. When you break it down, Canadian taxpayers give up to 50 cents on the dollar for every dollar that goes into a foundation. What we get back for that is the 3.5% spent annually by a foundation, plus the foundation pays no tax on the earnings it makes off its investments, investments which don’t have to be used for any beneficial social impact, whatsoever. That doesn’t sound like a good deal for taxpayers to me.”
The Charity Report is in touch with the Canada Revenue Agency to determine what the disbursement quota consultations will look like, and when they will begin.
Watch this space.
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