Canada’s 5% DQ: An Important Step to Unlocking Charitable Funds

Canadians want and need to see charitable funds put to work. Canada’s new 5 percent DQ is an important step forward. 

Recently, after public consultation, the Canadian government increased the federally-mandated annual charity disbursement quota (DQ) for some charities from 3.5 percent to 5 percent—a move that will unlock significant resources and move much-needed capital to nonprofit organizations, thus benefiting more Canadians, now. 

However, this common sense recommendation has met resistance from some philanthropic leaders who argue that a higher DQ will erode permanent endowed capital over time. Some have even voiced philosophical support for moving capital and increasing disbursements while advocating behind the scenes to retain the status quo.

As reported by Future of Good, many of those privately advocating to maintain the status quo are community foundations. These foundations’ assets represent over $5 billion dollars, mostly sitting in investment accounts, not serving our communities in need. The premise for their resistance is a desire for institutional perpetuity, despite the urgency of ongoing crises. This argument comes at a time when many Canadian voices have been encouraging the nonprofit sector to give communities more control and the agency to lead. 

It also stands in direct opposition to how the majority of Canadians feel about the way charitable funds, supported by taxpayer-funded charitable tax credits, are distributed. In a July 2022 poll conducted by GIV3 and Ipsos, two-thirds of Canadian adults said charitable funds should be distributed within 10-15 years of receiving tax credits, with 36 percent wanting to see those funds spent within 2.5 years. With support for timely expenditure consistent across geography, age group, and among high-income households, the report found that the DQ should be above 10 percent if it were fully aligned with public opinion.

Likewise, we at The Philanthropy Workshop (TPW) believe that maintaining philanthropic organizations in perpetuity is a far less important goal than addressing our most pressing local and global challenges, from fighting climate change to remedying the injustices still felt daily by Indigenous communities. Our global membership, which includes many Canadians, is committed to embracing better ways of giving, including making more funds available faster and consistently putting equity and justice at the heart of our strategies. 

While the Canadian philanthropic sector embraces a progressive reputation, we have much work to do to truly live those values. With 20 percent of Canada’s wealthiest citizens owning 67 percent of our wealth (up 20 percent since just 1999) and Canadian private philanthropy being just 0.77 percent of GDP (as compared to 1.44 percent in the U.S.), it is time to reimagine our philanthropic norms and systems to better support and reflect all who call Canada home. 

To realize the kind of progress the majority of Canadians support, we must:

• Push back against the fear and scarcity mindset that inform limiting conceptions of institutional perpetuity, and instead trust that the communities we serve, future generations, future wealth development, and future philanthropy, will carry the torch forward. (A recent Philanthropic Foundations Canada survey has shown that foundations are returning significantly more than 5 percent annually on their investments. Further, a 5 percent requirement has not stifled foundation sustainability in the U.S., where some major philanthropic organizations are pushing for the bar to be raised even higher.)
• Make endowment investment choices for impact, in addition to profit, such as by moving permanent capital to equity-seeking groups who have been starved of funding and agency—as the Laidlaw and Inspirit Foundations recently did through their exemplary commitment of $3.85 million dollars to the Foundation for Black Communities. 
• Face and release limiting views about traditional grantmaking by empowering communities through multi-year and operational funding that enables them to build the capacity and resilience that foundations themselves enjoy.
• Collaborate with and listen to those with lived experience, many of whom will attest to how investing in change now can support their communities indefinitely. Foundation Boards should represent the communities they serve and not be exclusive to the wealthy and privileged whose interest in perpetuity may be as much rooted in the social benefit of participating in philanthropy as its real-world, material impact.
• Demand real change. A philanthropic model that sets the bar so low as to only commit to 3.5 percent disbursements annually while the world grapples with existential crises is not meeting the need. If we are not in the business of moving capital, what business are we in? Given community need and public opinion, a 5 percent DQ should be the absolute floor in our charitable giving, and just one small step toward a bolder, more effective Canadian philanthropic sector. 

These principles are at the core of The Philanthropy Workshop’s methodology. And these are the principles championed by Community Foundations of Canada, Philanthropic Foundations Canada, and Imagine Canada as they stand in support of an increased DQ. 

By standing in solidarity as a philanthropic sector, we can significantly increase the capital deployed across asset classes on behalf of all Canadians. We must confront our historic belief that assets should sit in accounts instead of being put to work. Let’s proceed with trust, putting those with lived experience at the center of decision-making, and reducing the barriers to capital access for those working to solve the most pressing social issues of our time. 

The time is now. We must come together to reconsider and revise old ways of thinking, we must be bold in our drive to reject archaic philanthropic traditions. We must reject wealth protection and instead commit to investing in our shared future. The beauty of government policy is that we all have a voice in its formation. We hope you’ll raise yours in favor of progress. The increase to 5% is a great start and we still have a ways to go.

By: Lisa Wolverton, President of TPW Canada