Buried deep in April’s 725-page federal budget document, in a section titled “Boosting Charitable Spending in Our Communities,” were two intriguing paragraphs.

“Every year, charities are required to spend a minimum amount on their charitable programs or on gifts to qualified donees,” the document reads. “This is known as the ‘disbursement quota’ and it ensures that charitable donations are being invested into our communities.” It goes on to say that while most charities meet this responsibility, a “gap” exists—that charitable giving by Canadian foundations has failed to keep pace with “significant” growth in their investment assets.

How many charities are failing to meet this responsibility? How big is that gap exactly? How quickly are foundations’ assets growing, and how quickly is their spending falling behind? Using a methodology developed in consultation with the research organization Charity Intelligence, The Logic set out to answer these questions.

Though the definition of the disbursement quota in the budget sounded simple, it quickly became clear it was anything but. First, we asked the Canada Revenue Agency for the full tax records of all Canadian charities from 2015–2019—more than 423,000 lines of data. We narrowed that down to about 33,000 charities with enough assets to be subject to the disbursement quota. Those asset minimums are $100,000 for operating charities—which primarily deliver their own programs—and $25,000 for foundations, which primarily make grants to others.

According to the disbursement quota, charities must spend money on doing what they’re supposed to do—run programs or make grants—at a minimum annual rate of 3.5 per cent. But 3.5 per cent of what? Figuring out that denominator involves going back in time two years.

The denominator of the disbursement quota is the average value of “property not used in charitable activities or administration” in the previous two fiscal periods. The CRA cites a church building where regular services are held as an example of an asset it would consider to be “used in charitable activities,” and therefore excluded from the denominator of the disbursement quota. Securities or real estate purchased purely as investments, on the other hand, should be included in the denominator.

Charities subject to the disbursement quota should report the denominator used to calculate it on their tax returns, but a significant percentage fail to do so. As submissions made as part of the disbursement consultations point out, tax-return data is of poor quality, and many charities simply fail to fill out relevant sections. We didn’t want to let them off the hook on that account, however. If they left that line blank, we calculated the sum of their cash and long-term investments in 2017 and 2018 as a proxy, and used the average of those two figures as the denominator.

That leaves the numerator: the amount the charities spend doing what they’re supposed to be doing. We calculated this by adding up the tax-return lines reporting spending on charitable programs and grants. That led us to identify another major error a significant share of charities are making on their tax returns: failing to fill out the section where they report those key figures. We eliminated those charities from consideration to avoid inflating the percentage that failed to meet a 3.5 per cent disbursement rate in 2019.

As the story notes, our findings—that 2,095 charities, or seven per cent of those that reported some charitable spending and had enough investable assets to be subject to the CRA’s charitable-payout requirements, failed to meet the minimum 3.5 per cent rate in 2019—simply tell us what those charities spent that year (assuming they reported it correctly), not whether they met their legal obligations. There are many loopholes to the disbursement quota, including a provision that allows charities to count spending in excess of it in the previous five years, or in the following year, against a shortfall. This analysis did not consider these loopholes.