2022 Federal Budget: Highlights for the Charitable and NPO sector

April 7, 2022


On April 7, 2022, the Honourable Chrystia Freeland tabled a new federal budget (the “2022 Budget”). This is only the second federal budget since the beginning of the COVID-19 pandemic and a lot has happened since the 2021 federal budget. Canadians have witnessed new waves of COVID-19 with the Delta and Omicron variants, record-breaking inflation, discoveries of mass unmarked graves at residential schools, a snap federal election, the fall of Afghanistan, the first ever invocation of the Emergencies Act, the Russian invasion of Ukraine, surging energy prices and a Liberal-NDP confidence deal.

The 2022 Budget reflects the government’s spending priorities in response to both this past year’s events and the last federal election. It focuses on affordability, growing the economy and includes targeted spending. The government is attempting to rein in its spending during the pandemic, while also laying the ground work for continued recovery and resiliency for Canadians. For the charitable sector, this means new measures designed to increase flexibility to encourage charitable spending (increasing the disbursement quota) and to carry out their charitable activities (permitting qualifying disbursements to non-qualified donees). There is also significant proposed spending and investments in new funding opportunities for charities and non-profit organizations working in almost every sector.

Below, we provide our highlights of the 2022 Budget affecting the charitable and non-profit sector:

Boosting Charitable Spending in Our Communities: the Disbursement Quota

The 2022 Budget proposes a number of changes to the Disbursement Quota (“DQ”) rules for registered charities. While draft legislation has not yet been released, the proposed changes are described as follows:

  • increasing the DQ rate from 3.5% to 5% for the portion of a registered charity’s property not used in charitable activities or administration that exceeds $1 million;
  • clarifying that expenditures for administration and management are not considered qualifying expenditures for the purpose of satisfying a charity’s DQ;
  • giving the Canada Revenue Agency (“CRA”) the discretion to reduce a charity’s DQ obligation for any particular tax year, and allowing CRA to publicly disclose these decisions; and
  • removing the accumulation of property rule, which exempts charities from including certain property in its calculation of its DQ.

Increase to DQ

In a technical briefing following the 2022 Budget presentation, the Department of Finance confirmed that the new DQ rate would be applied as a graduated rate, with the current rate of 3.5% applying to a charity’s property not used in charitable activities or administration up to $1 million, and the rate of 5% applying to any such property exceeding the $1 million threshold. The proposed changes will apply to charities in respect of their fiscal periods starting on or after January 1, 2023.

The DQ is the minimum calculated amount that a registered charity must spend or devote in a year to furthering its charitable purposes or on making grants to qualified donees. Currently, the DQ rate is equal to 3.5% of a registered charity’s property not used directly in charitable activities or administration. The DQ is intended to ensure that registered charities deploy their tax-assisted investment assets for charitable purposes in a timely manner while allowing these charities to continue to grow those assets at reasonable rates to support future charitable activities.

It should be noted that administrative and management expenditures have never been considered qualifying expenditures for the purposes of calculating the DQ. However, this has often been a point of confusion as there may be administrative-like expenses that are properly categorized as expenditures on charitable activities (e.g. occupancy costs for buildings, or portions thereof, used to carry out charitable activities). Budget 2022 indicates that the Income Tax Act (the “Act”) will be amended to make it clear that expenditures categorized as “management and administration” do not count towards the DQ.

An increase to the DQ rate was widely expected by sector observers, particularly after the government held a public consultation on the DQ at the end of last year. Proponents of an increase suggested that the investment assets of many foundations have grown at a rate that has outpaced their charitable spending over the past few years, while many charities have struggled with heightened demand and strained revenue streams arising from the COVID-19 pandemic. Opponents of an increase have noted that not all foundations are alike in assets holdings and capital accumulation rates, and many are hampered from spending more on charitable activities due to donor restrictions.

The government’s proposals with the 2022 Budget reflect concerns and wishes from all sides. Raising the DQ rate to 5% for investment assets exceeding $1 million would increase spending by charities overall, while accommodating smaller grant-making charities that do not have the same investment returns as larger charities.

The proposed DQ rate of 5% for investment assets over $1 million exceeds the previous pre-2004 level, when the DQ rate was 4.5%. However, the new DQ rate is comparable with the current 5% distributable amount requirement in the United States and the current 4% and 5% distribution requirements for public and private foundations in Australia, respectively.

Going forward, the increase in the DQ rate for investment assets over $1 million will not affect the many charities that already spend in excess of 5% of their assets on charitable activities and grant-making annually. However, the many charities that rely mostly on capital to fund their charitable spending might struggle to meet the new target. In anticipation of the changes effective January 1, 2023, these charities should consider reviewing their trust portfolios and endowment funds this year, with the help of a member of our Social Impact Group, and determine whether they might need to approach CRA for relief.

Enforcement of DQ Rules

In response to the government’s consultation on the DQ, many stakeholders expressed that more should be done to enforce compliance with the current DQ regime. They also called for improved data collection and reporting standards. Budget 2022 indicates that CRA will improve its collection of information from charities, including information about whether charities are meeting their DQ obligations, and information related to investments and donor-advised funds held by charities.

Charities that are unable to meet their DQs may continue to apply to the CRA and request relief. The government is also proposing to amend the existing rules so CRA will have the discretion to grant a reduction in a charity’s DQ obligation for any particular tax year, to better reflect actual expenditures on charitable activities. For transparency, CRA will be permitted to publicly disclose information about charities that have been granted a reduction to their DQ.

Removal of the Accumulation of Property Rule

Currently, the Act allows charities to apply to CRA for permission to accumulate property for a particular purpose. If granted, any property accumulated in accordance with that permission, including any income earned, would not be included in the calculation of the charity’s DQ. This process has served as an alternative to excusing a charity from meeting the DQ.

Given the proposed provisions that provide relief from the DQ obligation, the government suggests that the accumulation of property rule is no longer necessary. Budget 2022 proposes to remove the accumulation of property rule from the Act. The government has indicated that removing this rule will not affect any approved property accumulations resulting from applications that were submitted by charities before January 1, 2023.

Stronger Partnerships in the Charitable Sector: Facilitating Disbursements to Non-Qualified Donees

The 2022 Budget includes new measures intended to facilitate disbursements by registered charities to organizations that are not qualified donees under the Act. This proposal follows longstanding advocacy efforts by the charitable sector for changes to enable more effective and practical means of providing funding to non-qualified donees.  The 2022 Budget also states that the proposal is intended to implement the spirit of Bill S-216, the Effective and Accountable Charities Act, which was championed by Senator Omidvar and supported widely by the sector. Bill S-216 is currently before Parliament and has a similar objective. Read our article on Bill S-216 for more details.

Currently, registered charities can only make gifts to entities that are “qualified donees” (a category that is largely limited to other Canadian registered charities and a few other limited categories of organizations). Funding to other organizations, including many grassroots and BIPOC organizations as well as most international organizations, can only be provided under structures that meet a highly artificial “own activities” test, and under which the charity maintains “direction and control”.  The rules are structured so any non-qualified donee that receives funding from a registered charity must understand that it is working on behalf of the charity, carrying out activities that are viewed as the charity’s own.

These rules have been criticized as artificial, impractical and highly paternalistic, making it difficult for registered charities to effectively achieve their charitable purposes when working with non-qualified donees.

Proposed Measures

The 2022 Budget proposes new measures intended to enable registered charities to fund non-qualified donees while ensuring accountability over the use of the funds. The new framework would allow registered charities to make “qualifying disbursements” to non-qualified donees (grantees) provided certain requirements are met. The disbursement must be in furtherance of the charity’s charitable purposes and the charity must ensure that the funds are applied to charitable activities by the grantee.

The 2022 Budget also proposes certain mandatory accountability requirements in order for a grant to be considered a “qualifying disbursement”.  The charity must:

  • conduct a pre-grant inquiry sufficient to provide reasonable assurances that its resources will be used for the purposes set out in the written agreement. This will include a review of the identity, past history, practices, activities and areas of expertise of the grantee;
  • have a written agreement with the grantee, the terms of which must include:
    • the terms and conditions of the funding provided;
    • a description of the charitable activities that the recipient will undertake;
    • a requirement that any funds not used for the purposes for which they were granted be returned to the charity; and
    • a requirement that records relating to the use of the charity’s resources be maintained and accessible for a minimum of six years following the end of the relevant taxation year;
  • monitor the grantee, including by receiving periodic reports on the use of the charity’s resources, at least annually (e.g., details on the use of the funds, compliance with the terms of the grant, and progress made toward the purposes of the grant), and take remedial action as required; and
  • receive full and detailed final reports from the grantee, including outlining the results achieved with the charity’s resources, detailing how the funds were spent, and providing sufficient documentary evidence to demonstrate that funds were used for the purposes for which they were granted. The charity is also required to demonstrate that these final reports and supporting documentation were reviewed and approved by the charity.

Charities will be required to disclose on their T3010 annual information return information relating to grants above $5,000.  The 2022 Budget did not provide details on the information that will have to be disclosed.

The 2022 Budget also proposes that, in order to enable CRA to verify that charitable resources have been applied to the purposes for which they were granted, charities will be required, upon request by CRA, to take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.

The 2022 Budget does not include draft legislative language for these new measures. As such, the actual specifics of the proposals are unknown and it is unclear when these proposals will come into force.


The 2022 Budget proposals are a positive step in that they recognize the need to address the difficulties that charities have in working with non-qualified donees within the existing rules.

The 2022 Budget, however, does raise a number of difficult questions.  These can only be touched upon briefly at this early stage, but include the following:

  • Status of “own activities” requirements?  Whereas Bill S-216 specifically proposes to remove the “own activities” language from the Act, the 2022 Budget does not address this issue. The implication is that charities that make “qualifying disbursements” to non-qualified donees will not be found offside the requirement to use resources exclusively for their own activities, but the retention of the “own activities” framework remains problematic.
  • What types of disbursements and resources are covered?  It is also unclear how this framework would apply to different types of disbursements that might be made.  In particular, the language refers specifically to “grants” and to accountability for “funds”.  It is unclear how other types of disbursements or provision of resources (including non-cash resources) will be treated. Will they still be subject to the “own activities” and direction and control requirements?  The charitable sector is constantly innovating and developing new ways of working with other organizations to address charitable needs.  One of the challenges with the existing “own activities” and “direction and control” requirements is their inflexibility in accommodating different modes of collaboration.  It is hoped that the legislative language will facilitate a wide range of different types of collaboration.
  • Too prescriptive?  While the approach proposed in the 2022 Budget would arguably provide clarity to charities on the requirements that must be met when making disbursements to non-qualified donees, the proposed approach appears quite prescriptive.  Given the different types of collaborations that may occur between a charity and a non-qualified donee, it would be preferable for the legislation to set out applicable principles at a higher level and leave the details to administrative policy, lest the rules become a straightjacket that cannot be easily adjusted.
  • Onerous requirements.  While accountability and transparency are of course legitimate objectives when a charity provides resources to a non-qualified donee, it must be acknowledged that the 2022 Budget proposals appear to impose highly onerous and inflexible requirements around record-keeping and reporting, some of which arguably go beyond what is currently required under the “direction and control” framework.  There is no recognition of materiality considerations, or the administrative burden in meeting these requirements.
  • Inclusion of outcomes reportingIt is noteworthy that the proposal make reference to requiring reporting on the results achieved. While charities do track charitable outcomes and frequently require different forms of outcome reporting from the organizations with which they work, this type of reporting has not typically been a subject of regulatory focus. Does this suggest that CRA will begin to review the effectiveness of charitable interventions, and use this as a criterion for determining whether the funds were properly spent? If so, this raises a number of difficult questions, including questions about the regulator’s competence in reviewing and evaluating charitable outcomes.
  • Too Patronizing?  One of the objections to the current direction and control rules is that they cause Canadian charities working with organizations that are not qualified donees (like foreign charities or indigenous non-profits) to demand control in a way that is disrespectful and colonialist.  The  BillS-216 approach to accountability was designed expressly to avoid being patronizing of organizations in other cultures.  The 2022 Budget proposal does not seem very concerned with that issue.

These questions and others will likely continue to be discussed as these proposals are translated into legislative language.  It must be acknowledged that there is a contrast between the approach proposed in the Budget and that proposed in Bill S-216, with the latter being endorsed widely by charity law experts.  It is hoped that the sector will be given the opportunity to provide comment before any legislative language is finalized.

Recognition of the issue represents a significant step forward for the sector. As proposed, it is possible that the changes could better enable charities to financially support non-qualified donees, and do so in a less artificial and more effective manner.  The question is whether the legislation will be drafted to do so or whether the regime will be less flexible than today. We will keep our readers apprised as this proposal moves forward.

Directed Donations: Anti-Avoidance

The government is concerned that the new framework for allowing disbursements to non-qualified donees may increase the risk that charities will be used as conduits (i.e. as a flow through for raising funds for other organizations that are non-charitable). Consequently, the 2022 Budget proposes to create a new anti-avoidance rule designed to address this concern. The Act already contains a prohibition on registered Canadian amateur athletic association and registered journalism organizations accepting gifts that are expressly or implicitly conditional on the association or organization making a gift to another person. The government intends to extend this rule to registered charities, by prohibiting registered charities from accepting similar gifts, unless the condition is to make a gift to another qualified donee.

This proposed anti-avoidance rule will make things very difficult for registered charities fundraising to do work outside of Canada.  Most development fundraising is done pursuant to appeals seeking gifts to be used to fund charitable work in a specific country.  The directed donation rules could prevent a charity from accepting a gift intended to be used by the Canadian charity to fund the activity of a specific foreign charity (including when the funding is made as a qualifying disbursement).

Revocation Tax Technical Fix

The government confirmed its intention to proceed with recently announced tax measures, including a technical fix to the revocation tax rules. The fix clarifies how the winding-up period is calculated for charities whose registration is revoked because they are listed terrorist entities. The winding-up period is the period that a charity has to wind-up its affairs and pay the revocation tax.

New Funding Opportunities

In the 2022 Budget, the government announced a number of multi-year funding proposals, which will be welcomed news to Canada’s diverse communities and its robust social impact sector.  In many cases, funding has been proposed for allocation to organizations and government departments and agencies that in-turn provide funding within their respective sectors.  As such, where applicable, we have provided links to all funded organizations and initiatives and encourage you to review the relevant websites for more specified funding opportunities.

All relevant funding proposals are organized by sector below.  In some cases certain funding can fit within a number of the listed sector subheadings.  We encourage you to review the entire list in detail.


  • $25M to provide access to reading and published works for Canadians with print disabilities

Affordable Housing and Homelessness

  • $1.5B to the Canada Mortgage and Housing Corporation (CMHC) to extend the Rapid Housing Initiative, which aims to create affordable housing for vulnerable people and populations. 25% of this funding is earmarked for women-focused housing projects.
  • $1B to provide loans in support of co-op housing projects.
  • $562.2M to Infrastructure Canada (IC) to continue providing doubled annual funding for Reaching Home, a program designed to provide funding to organizations with mandates to ensure that Canada’s communities have the support they need to continue to prevent and address homelessness.
  • $500M to launch a new Co-operative Housing Development Program aimed at expanding co-op housing in Canada.
  • $458.5M to CMHC to provide low-interest loans and grants to low-income housing providers.
  • $200M in dedicated support under the existing Affordable Housing Innovation Fund, which includes $100M earmarked to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.
  • $150M to support affordable housing and related infrastructure in the North ($60M to the Government of Nunavut; $60M to the Government of the Northwest Territories; and $30M to the Government of Yukon).
  • $62.2M to Infrastructure Canada to launch a new Veteran Homelessness Program designed to provide services and rent supplements to veterans experiencing homelessness in partnership with community organizations.
  • $TBD to support the redevelopment of the Jewish Community Centre of Greater Vancouver and to address affordability in Vancouver through the creation of hundreds of affordable rental units and child care spaces.


  • $50M to the Department of Canadian Heritage, the Canada Council for the Arts, and Telefilm Canada to compensate Canadian arts, culture, and heritage organizations for revenue losses due to public health restrictions and capacity limits.
  • $22.5M (over 5 years); $5M (ongoing) to the Canada Arts Training Fund to support the arts sector’s recovery from COVID-19 and to address historic inequities in funding levels for Indigenous and racialized arts training organizations.
  • $12.1M to the National Arts Centre to support the creation, co-production, promotion and touring of productions with Canadian commercial and not-for-profit performing arts companies.

People with Intellectual Disabilities

Education and Research

  • $625M to Employment and Social Development Canada for an Early Learning and Child Care Infrastructure Fund.
  • $40.9M (over 5 years); $9.7M ongoing to the federal granting councils to support targeted scholarships and fellowships for promising Black researches.
  • $38.3M to the federal granting councils to add new, internationally recruited Canada Excellence Research Chairs in the fields of science, technology engineering, and mathematics.
  • $14.5M (over 5 years); $2.5M ongoing to support the completion and operations of the Canadian High Arctic Research Station


Gender Equality

  • $539.3M to Women and Gender Equality Canada to enable provinces and territories to supplement and enhance services and supports within their jurisdictions to prevent gender-based violence.


  • $732M to Global Affairs Canada to support Access to COVID-19 Tools Accelerator, which provides global relief for COVID-19.
  • $296M to Global Affairs Canada to support efforts to address global health security priorities.
  • $100M to the Substance Use and Addictions Program to support harm reduction, treatment, and prevention at the community level in response to the opioid overdose crisis
  • $30M to expand the Coordinated Accessible National Health Network (CAN Health Network) to Quebec, the territories, and Indigenous communities. The CAN Health Network is designed to help deliver better care to Canadians by bringing together hospital networks and health authorities to procure innovative health care solutions.
  • $30M to the Centre of Brain Health and Innovation to help accelerate innovations in brain health and aging.
  • $25M to the Menstrual Equity Fund, to be established as a way to make menstrual products available to Canadians in need.
  • $20M to the Canadian Institutes of Health Research to support additional research on the long-term effects of COVID-19 infections, and the wider impacts of COVID-19 on health and health care systems.
  • $20M Canadian Institutes of Health Research to ramp up efforts to improve treatment and outcomes for persons living with dementia, and to evaluate and address mental health consequences for caregivers and different models of care.

Immigration and Settlement

  • $2.1B to support the processing and settlement of new permanent residents in Canada.
  • $111M to implement new immigration measures to assist Ukrainian nationals immigrating to Canada


  • $55M to supporting local and diverse journalism, including:
  • $40M to the Canada Periodical Fund to support the availability of journalistic content and to help publications adapt to evolving technological and media consumption habits of Canadians.
  • $10M to the Local Journalism Initiative to support the production of local journalism for underserved communities
  • $5M to launch a new Changing Narratives Fund, designed to break down systemic barriers in media and cultural sectors and to help racialized and religious minority journalists, creators, and organizations have the experiences and perspectives represented
  • $8.5M to the Canadian Radio-television and Telecommunications Commission to establish a new legislative and regulatory regime, requiring digital platforms that generate revenues from the publication of news content to share a portion of their revenues with Canadian news outlets with a view to ensuring that news media remain independent and reliable.

Legal Aid

  • $60M to increase the federal contribution to criminal legal aid services, recognizing that in Canada Indigenous peoples, Black and racialized Canadians, and those with mental health issues disproportionately appear before the criminal courts.
  • $43.5M to maintain federal support for immigration and refugee legal aid services.

Marginalized Communities


  • $10.6B toward Indigenous reconciliation efforts, which includes, but is not limited to:
  • $4.6B to fund programs designed to address past harms and discrimination against Indigenous children and families
  • $5.5B the support strong and healthy Indigenous communities (including addressing community mental health and wellness (ex. $190.5M to the Indigenous Community Support Fund and $227.6M to maintain trauma-informed, culturally-appropriate, Indigenous-led services to improve mental wellness), elementary and secondary education, access to clean drinking water, and investing in housing for Indigenous communities)
  • $503M for the advancement of self-determination and prosperity (including implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act)


  • $100M towards a Federal LGBTQ2 Action Plan aimed at supporting a fairer more equal Canada for LGBTQ2 Canadians (Initial Action Plan survey findings from the LGBT2Q survey that closed in February 2021 can be found here)



Combatting systemic racism, discrimination and hate

Diversity & Inclusion


  • $20M to expand the New Horizons for Seniors Program, which provides funding to projects that improve the quality of life for seniors and help them to continue to fully participate in their communities.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at privacy@millerthomson.com.

© 2022 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting newsletters@millerthomson.com.