Portion of a 10-year gift
Note: As a result of Budget 2010, the information on this page applies only for fiscal periods ending before March 4, 2010.
August 24, 2001 (Revised November 23, 2005)
Disbursement quota – 10-year gift of shares disposed of in part or in whole after the terms of direction met – What portion is included in the registered charity's disbursement quota calculation
To clarify the Directorate's policy regarding Variable A.1 of the disbursement quota calculation.
1. Any encroachment on the capital of a 10-year gift is only permissible where the trust or direction permits the charity to expend such amount of the gift before the end of that term, to the extent necessary for the charity to meet its disbursement quota. Our guidelines to this issue relate only to gifts of shares no longer subject to the 10-year gift direction.
2. The disbursement quota pertaining to enduring property requires that gifts subject to a written trust or direction, that the property given, or property substituted therefore, is to be held for ten years or more, must be included in the disbursement quota calculation for the fiscal periods in which they are spent or transferred to a qualified donee.
3. The disbursement quota of a registered charity is determined by the calculation outlined in the definition of "disbursement quota" (DQ) in subsection 149.1(1) of the Income Tax Act. That definition stipulates at Variable A.1 that an enduring property (for example, 10-year gifts) that is now spent by the charity or transferred to a qualified donee is to be included in the DQ calculation.
4. Variables A. and A.1 of the definition of "disbursement quota" read in part:
A is 80% of the total of all amounts each of which is the eligible amount of a gift … other than a gift that is
a. an enduring property
b. received from another registered charity
A.1 is the amount, if any, by which
a. the sum of
(i) 80% of the total of all amounts, each of which is the amount of an enduring property of the charity (other than an enduring property described in subparagraph (ii), an enduring property received by the charity as a specified gift, or a bequest or an inheritance received by the charity in a taxation year that included any time before 1994) to the extent that it is expended in the year
(ii) the total of all amounts, each of which is the fair market value, when transferred, of an enduring property (other than an enduring property that was received by the charity as a specified gift) transferred by the charity in the taxation year by way of gift to a qualified donee
b. the amount, if any, claimed by the charity, that may not exceed the lesser of …
5. A.1(a)(i) requires that the DQ be increased by 80% of the amount of enduring property spent.
6. In each of the following examples, the gift of shares was originally valued at $100,000.
a. The gift increases in value and 100% of the gift is spent:
The proceeds realized from the disposition of the shares, and subsequently spent by the charity is $120,000. The charity must increase its disbursement quota by 80% of $120,000 since $120,000 is the amount of enduring property now spent as per A.1(a)(i).
b. The gift increases in value and the only amount spent is the amount in excess of the original gift:
The current value of the shares is $120,000. The charity chooses to dispose of all or a portion of the shares, and spends $20,000 of the proceeds. The charity should increase its disbursement quota by 80% of $20,000 since that is the portion of enduring property now spent as per A.1(a)(i). The portion that is not spent ($100,000) continues to be excluded from the DQ and will only be brought back into the DQ calculation when it is spent.
c. The gift decreases in value and 100% of the decreased value is spent:
The proceeds realized from the disposition of the shares, and subsequently spent by the charity, is $80,000. The charity must increase its disbursement quota by 80% of $80,000 since $80,000 is the amount of enduring property now spent as per A.1(a)(i).
d. The gift maintains its original value and the charity spends a portion of that value:
The proceeds realized from the disposition of half the shares, and subsequently spent by the charity is $50,000. The charity must increase its disbursement quota by 80% of $50,000 since $50,000 is the amount of enduring property now spent as per A.1(a)(i). The portion that is not expended remains excluded from the DQ.
- Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, ss. 149.1(1)
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