Note: Prior to amendments introduced in the 2010 Budget, extensive and complex rules were in place to mandate that most spending by charities needed to be on charitable activities (the so-called 80% rules). These rules were eliminated in 2010, and only these far more limited requirements remain.
CRA wants to prevent the accumulation of investment earnings and ensure that they are spent on charitable activities. It ensures this by establishing the disbursement quota, the minimum amount (calculated each year) that a charity must spend on its own charitable activities.
The disbursement quota is determined, annually, as 3.5% of a charity's investment assets.
The value of investment assets in this regard is based on the average value of the charity's assets that are not used directly in its charitable activities or administration in the 24 months immediately preceding the taxation year.
Charitable organizations with less than $100,000 in investment assets (based on the above calculation) do not have to comply with this spending requirement. The exemption threshold for charitable foundations is $25,000.
