2022 Federal Budget Released – Implications for Charities and Non-Profit Organizations

The 2022 Federal Budget was introduced on April 7, 2022 and contained several new developments of interest to charities and non-profit organizations.

Allowing Charities to Fund Organizations that are not Qualified Donees

Canadian charities have been restricted in their ability to advance funds to non-profit organizations or organizations outside of Canada (i.e. non-charities). Canadian charities are expected to spend their resources on their own charitable activities, and if they decide to work with non-charities, they are required to maintain direction and control over the activities of the non-charities. These requirements are imposed by the CRA under the Income Tax Act.

The 2022 budget proposes amendments to the Income Tax Act that will allow Canadian charities to donate funds to non-charities without maintaining direction and control over their activities.

This change is intended to reflect the recommendations made under the proposed Bill S-216 – the Effective and Accountable Charities Act – which is currently being considered by Parliament. Bill S-216 recommends that Canadian charities be allowed to work with and donate to non-charities if they can show that reasonable steps were taken to ensure their resources were used exclusively for charitable purposes. The 2022 budget indicates that Canadian charities will still need to meet certain due diligence requirements when working with non-charities to ensure that they are held accountable for how their charitable resources are being used, but overall the
onerous existing requirements will be substantially lessened.

This change has been recommended for years by charity lawyers and charities who have found the direction and control requirements unworkable. Others have warned that lessening the control requirements may allow for inappropriate use of funds.

Increase to the Charitable Spending Disbursement Quota

Charities are required to spend a minimum amount on charitable donations each year – known as the disbursement quota. The calculation for determining a charity’s disbursement quota is based on the value of the charity’s property not actively being using in charitable activities. This requirement is intended to ensure that charities are spending a reasonable portion of their resources on their charitable programs and donations and therefore investing in their
communities.

Currently, charities with investment assets of more than $1 million have a minimum spending requirement of 3.5%. The 2022 budget proposes to increase that to 5% in 2023. This disbursement quota change is reflective of the scale of growth of the assets held by Canadian charities in recent years. The 2022 budget proposes that an increase in the disbursement quota will increase support for and benefits to charities and the causes that they serve.

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