Opinion: The disbursement quota should increase to 5 percent — but an increase alone isn’t good enough.

Canada’s non-profit and charitable sector has been a steadfast beacon of hope on the frontlines of the pandemic since day one, providing vital supports in communities all across the country, often by leaders from the very communities most affected. Demands for services have skyrocketed, and organizations have had to pivot hard to meet needs in very restrictive and unstable circumstances, all the while facing major risks to personal health, high levels of staff and volunteer burnout, and sharp declines in revenues. 

In addition to the critical social impact of our sector, 8.4 percent of Canada’s national GDP is attributable to our sector, contributing about as much as the transportation sector, and more than fisheries and oceans, or agriculture, while employing well over 2 million people in Canada. 

It’s no wonder that many leaders in our sector are strongly calling out for the government to pay greater attention, and for those with power to step up and to do so in meaningful ways to improve this dire situation. With the start of a new parliament on the horizon, we have the opportunity to advance change and improve the role our sector plays in Canada’s socio-economic fortunes, as we consider policy pitches that address a long-term strategy for post-pandemic recovery. 

In August, the government launched its consultation process on the disbursement quota (DQ), or the minimum percentage of assets charities are required to grant out or spend on charitable programs each year. This signalled their intent to determine an increase to the quota in an effort to boost charitable spending. Consultations are wrapping up this week, with submissions due September 30. 

While the disbursement quota applies to all charities, the conversation really centres on charitable foundations, whose typical operating models are designed to endow charitable assets, with a portion of the earnings from those invested assets granted out each year.

Increasing the quota, which is currently at 3.5 percent, would be a good public policy measure, as it would put more money into communities and at the same time help to improve timely and accessible delivery of services and programs. Philanthropic Foundations Canada (PFC) is recommending an increase to 5 percent, and that this increase be reviewed every five years to ensure philanthropic impact while precluding wealth build-up in endowments. 

This would unquestionably inject more funding into the sector each year. But the DQ is far from being the answer to the serious challenges we are facing as a sector. 

Why? The disbursement quota is simply a floor. We know that most foundations already as a matter of course grant out more, and many have stepped up in major ways even further during the pandemic. The current DQ average for our 135 members is at 4.2 percent, with many giving far above that. As a national charity with a mandate to strengthen philanthropy in pursuit of environmental sustainability, justice and equity, our work includes a range of activities aimed at encouraging and supporting our membership and the other 10,000+ foundations in Canada to grant generously and equitably. But we need to recognize that the financial contributions of foundation granting in Canada to the non-profit and charitable sector is dwarfed by those of government and individual donors.

Where foundations do play a major and unique role however, is in focusing as funders on advancing charitable objectives of non-profit and charitable organizations, including equity-seeking groups, oftentimes and increasingly providing social risk capital. More than government or individual donors, they support long-term engagement on key social, environmental and cultural issues. Foundations are, after all, charities too. And they are uniquely positioned to be able to tackle the harder, longer term challenges that many other funding entities cannot or will not.  

The bigger issue is that the old operating models governing the sector are not adequately meeting needs. This is why PFC challenges the underlying premise in this conversation that foundations’ granting minimum alone should be the focus. Foundations, in partnership with the broader sector and government, must explore and advocate for new, innovative policy levers that allow us to not just address immediate demands but to confront systemic, complex and long term challenges. To continue supporting communities now and after this pandemic, we must also engage in a bigger discussion that evaluates the key policy tools that will truly strengthen and modernize the non-profit and charitable sector, and in turn get more resources into communities, where they are needed most, now and in the future.

To do this, we need to address policy roadblocks impeding modernization and opportunities to ensure greater, more equitable impact. In addition to raising the disbursement quota — this must include policy changes to: 

• Create more access and equitable funding relationships between non-qualified donees and foundations. The current ‘’direction and control’’ rules imposed by the Income Tax Act hamper genuine partnerships and inflict significant administrative and resource-intensive burdens. Removing this barrier will help to better ensure organizations that serve those experiencing social exclusion, injustice and inequity don’t continue to go under-represented and under-funded by philanthropy. 
• Encourage foundations to deploy more of their assets toward the common good through more responsible and impact investing. Even with an increase in the disbursement quota, grants will only constitute a fraction of the economic clout and social impact that results from the use of foundations’ capital. Their endowed assets and investments, like all investments, have massive social and environmental impacts — which can be positive, neutral or even negative. As such, it’s important that our regulatory policies are set up to further encourage foundations to actively and intentionally put them to use for beneficial social as well as financial returns. 
• Address the data deficit within and about the charitable sector. Our collective understanding of our sector is actually very limited, due to unavailable, untracked or poor quality critical publicly available sector data. Overhauling the T3010, the government’s annual information return required for the charity sector, and mandating online reporting and reporting on investments as well as diversity at the leadership level in particular, are necessary to support greater transparency and public accountability. 

Foundations are increasingly showing up, but PFC’s view is that they must do a lot more. Raising the disbursement quota is important to be sure, but it must be paired with broader reform. Frankly, if reform focuses narrowly on the disbursement quota alone, the outcome is likely to just maintain the status quo, boosting funding mostly to well-established donees that already get the bulk of philanthropy’s donations, and which are led by and focused on the most privileged in our society. This is not good enough. 

The non-profit and charitable sector is a critical pillar of civil society and, with a modernized regulatory framework, its foundations can play an even more effective role supporting more organizations working in more communities as we advance towards pandemic recovery together. We invite the broader sector to work together with us in engaging government policymakers in a stronger renewal process. The Canada of today and the Canada of tomorrow need a dynamic and well supported civil society to build a country that is more just, equitable and sustainable.

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