The Canada Revenue Agency (“CRA”) recently made changes to Form T3010, the Registered Charity Information Return (Version 24). While the new form applies for all charities, due to the nature of the added disclosures, it appears the impact will affect foundations the most.
Schedule 8 – Disbursement Quota
The disbursement quota is an annual spending minimum that is applicable for all charities. In the Government’s effort to ensure these spending minimums are being met, the newest iteration of the T3010 has expanded reporting requirements on this quota. Previously, this information was largely tracked internally.
Charities will have to complete this new schedule if in the 24 months before the beginning of the fiscal period, the average value of your charity’s property not used directly in its charitable activities or administration exceeds:
- $100,000 (charities designated as charitable organizations), or
- $25,000 (charities designated as public or private foundations).
For the charities that exceed these thresholds, the schedule takes them through a series of calculations to determine if the current year’s disbursement quota was met.
The disbursement quota is based on the:
- Average value of property not used in charitable activities or administration (as calculated above); LESS
- The total amount accumulated, net of specific disbursements (if permission to accumulate property was granted).
If this value is below $1 million – it is multiplied by 3.5% to determine the minimum disbursement required for the year.
If the value is over $1 million – the amounts over this are multiplied by 5% and the resulting value is added to $35,000 to determine the minimum disbursement required for the year.
Example:
A charity determines the average property not used in activities or administration is $1,500,000 due to an investment portfolio it holds in conjunction with cash, and it has not received permission from CRA to accumulate property.
$1,500,000 less $1,000,000 = $500,000
$500,000 x 5% = $25,000
$25,000 + $35,000 = $60,000
The charity’s disbursement quota would be $60,000 for the year.
Amounts applied against this minimum spending requirement include:
- Total expenditures on charitable activities;
- Total amount of grants made to non-qualified donees; and
- Total amount of gifts made to qualified donees.
If the total of these eligible costs, net the disbursement quote previously calculated, is a positive value then the charity has a disbursement quota excess for the current fiscal period. If it is a negative value, your charity has a shortfall for the year.
If a shortfall exists, a charity can draw on disbursement excesses from the five previous fiscal periods to help it meet its shortfall. If no excesses are available to draw on, the charity can try to spend enough the following year to create an excess that it can carry back to cover the shortfall.
Note that continuous shortfalls can put the charities registered status at risk of revocation.
Donor Advised Funds
Additional questions within Section C of the return have been added to gather more information on Donor Advised Funds (“DAF”) managed by charities. In essence a DAF is a fund segregated into donor accounts; owned and controlled by a registered charity. Each account is comprised of contributions made by individual donors. Donors may provide ongoing non-binding suggestions on payouts from DAFs, but it is the charity’s sole responsibility to make such decisions.
If a charity holds any DAFs during the year, they must now report:
- The total number of accounts held at the end of the fiscal period;
- The value of all accounts held at the end of the fiscal period;
- The value of donations received in DAF accounts in the year; and
- The value of qualifying disbursements made from DAF accounts during the year.
For charities that hold multiple DAF accounts along with other funds, the process of aggregating this information may take a bit of time. Strong tracking and record keeping is an integral part of meeting this reporting obligation.
Reporting on Restricted Funds
While only couple of new questions have been added to Schedule 1 (applicable to foundations) of the new return, they may not be simple to answer if records are not up to date.
In Form T3010 (Version 24), new reporting is required for restricted funds held by charities. Restricted funds are those that are tied to a specific use. This means the funds are not available for the foundation to use at its sole discretion.
Additional information now required includes:
- The total value of all restricted funds held at the end of the fiscal period.
- Of that amount, what amount was the foundation not permitted to spend due to a funder’s written trust or direction. This means where a funder requires the foundation to preserve the capital (principal), and the foundation is only permitted to spend the income.
Determining Which Version Applies
Charities need to ensure they are using the correct version form when filing:
- Charities with a fiscal period ending on or before December 30, 2023, should file their T3010 using version 23.
- Charities with a fiscal period ending on or after December 31, 2023, must file their T3010 using version 24. If the charity completes an earlier version of the T3010, it will not be accepted.
If the return is not accepted, it will be seen as not being filed, which could put the charity’s registered status at risk of revocation.
Takeaways
It is imperative that charities identify which form is applicable for their upcoming filings, as well as familiarize themselves with the newest version of the return. Depending on each charity’s unique circumstances, the additional reporting could have a large impact on the information that needs to be gathered ahead of time.
For assistance preparing your organization’s registered charity information return or for more information on how the team at Armstrong Jones LLP can help your charity, speak to one of our expert advisors by calling (613) 695-9087 or contact us online and we will get back to you promptly.
