With the difficult economic times and many charities and foundations feeling the pinch CRA has probably received many more inquiries about disbursement quota issues.  This brief policy will clarify some of the concerns and explains when CRA may grant some relief from the disbursement quota requirement. The original policy can be found here.

Policy Commentary Release Date:  March 20, 2009
Reference Number CPC – 029
Subject:  Application for disbursement quota relief
Purpose: To clarify the Directorate’s policy regarding requests for disbursement quota relief.

Disbursement quota: the minimum amount that a registered charity must spend each year on charitable activities carried on by it or on gifts to qualified donees.

Subsection 149.1(5) of the Income Tax Act provides the Minister with the authority to specify an amount to have been expended in a tax year on charitable activities for purposes of the revocation provisions in paragraphs 149.1(2)(b), 149.1(3)(b), and 149.1(4)(b). A charity must apply in prescribed form and any relief granted applies only to the particular tax year.

Subsection 149.1(20) of the Act allows a charity to apply a disbursement excess from one year to offset a shortfall in the previous year and in the five immediately following tax years. Before relief under subsection 149.1(5) can be granted, a registered charity must use all disbursement excesses available from previous years. Further, the organization must demonstrate that it is incapable of making up any part of the shortfall in the following tax year. Accordingly, the CRA will not consider requests for relief until all information returns have been filed and processed, and relief will not be granted in advance or in anticipation of a shortfall.

The Charities Directorate only grants this relief in situations where the charity is unable to meet its disbursement quota due to unforeseen circumstances beyond the charity’s control.

In deciding whether to grant disbursement quota relief, the Charities Directorate will:

review the way the disbursement quota was calculated and confirm that the organization is not in a shortfall situation as a result of a miscalculation;
ensure that there are no available excesses;
look at whether the charity has disbursed all available income; and
look at whether the charity is doing everything in its power to meet its disbursement quota (e.g., the charity may have unrestricted funds that it can draw on to meet its disbursement quota).

A decision on each request is made only after all of the facts and circumstances of the charity’s situation have been reviewed.

To obtain relief under subsection 149.1(5), the registered charity must complete Form T2094, Registered Charities: Application to Reduce Disbursement Quota, and send it to the Charities Directorate. Note that a separate form must be filled out for each tax year for which relief is being requested.

The request for relief under subsection 149.1(5) is not intended as a means to accumulate funds for particular purposes. A request to accumulate property must be made under subsection 149.1(8) and is explained in Summary Policy CSP?A03, Accumulation.

Form T2094, Registered Charities: Application to Reduce Disbursement Quota
Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, ss. 149.1(5) and (20)