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|Author Gabe Oatley

A prominent Canadian charity lawyer says the time is now for foundations to push the federal government to allow impact investments to count toward a foundation’s disbursement quota.


Critics of this proposal say allowing impact investments to count toward a foundation’s disbursement quota would result in fewer granting dollars flowing to the charitable sector — at a time of high inflation when they are needed most.

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This journalism ​​is made possible by the Future of Good editorial fellowship covering the social impact world’s rapidly changing funding models, supported by Future of Good, Community Foundations of Canada, and United Way Centraide Canada. See our editorial ethics and standards here.

Last Monday, in a high-ceilinged conference room in Montreal, on the unceded territory of the Kanien’kehà:ka, a prominent charity lawyer made a pitch to a room full of the top brass of the country’s private foundations: Get in touch with the federal Department of Finance, and fast.

Terrance Carter, managing partner of law firm Carters Professional Corp., and a former member of the federal advisory committee on the charitable sector, made the appeal on a panel at the Philanthropic Foundations Canada annual conference, a gathering that drew more than 300 participants, including many staff and board members of the country’s private foundations.

Carter called on executives to write to the Department of Finance, as he has recently, to ask the government to make clear, in a soon-to-be-released charitable guidance document, that foundations should be allowed to count impact investments toward the satisfaction of their disbursement quota (DQ) obligation.

The disbursement quota is the minimum amount a foundation must grant out or spend on its charitable activities per year. After sustained advocacy over the past two years, the rate is set to be boosted from 3.5 percent to 5 percent for foundations with assets of over $1 million, beginning in 2023.

If the impact investment proposal is adopted, Carter says, Canadian foundations could claim the full amount of a socially or environmentally-focused investment, say, a $1 million loan to an affordable housing project, toward their DQ obligation.

For the long-time lawyer, this policy idea makes sense: If both a grant and a loan are made in line with a foundation’s charitable purpose, they should both count toward the DQ.

“A buck to buy a brick to build a school or a buck to make a loan to build the school, you’re still achieving what? A charitable purpose,” he says. “So, if it’s a qualifying disbursement then it should be credited towards meeting the disbursement quota.”

But several others who spoke with Future of Good disagree, arguing there’s a big difference between a grant and a loan — and say that the policy could exacerbate the inequity experienced between BIPOC-led and other equity-seeking charities and non-profits. 

Yonis Hassan, executive director of the Justice Fund, speaks to a small crowd assembled at a protest in front of Toronto’s city hall in Nov. 2021. Hassan argued that Canada’s charitable foundations are “hoarding” wealth and that a boost to the disbursement quota was needed. (Gabe Oatley)


The opening for this debate began more than two and a half years ago. At the onset of the pandemic, a vocal group of non-profits, charities and some foundations argued that foundations needed to boost their giving to help meet the heightened service needs experienced by communities across the country. The advocacy came in the form of op-eds in major Canadian newspapers, a flurry of submissions to a subsequent federal consultation on the DQ, and even a protest in downtown Toronto last fall.

Standing in front of a campaign tractor trailer, in Nov. 2021, Yonis Hassan, executive director of the Justice Fund, a Toronto-based non-profit, argued that Canada’s foundations need to “move the money” and must stop “hoarding” over $85 billion in assets.

Alongside this advocacy, many of the same groups also argued that the government needed to make it easier for foundations to provide donations to “non-qualified donees” — commonly, grassroots organizations or non-profits that do not have charitable status. Doing so, many said, could help grow the amount granting dollars available for Black and Indigenous-led initiatives.

Responding to the sustained pressure, the government promised in federal budget 2022 to both boost the disbursement quota (DQ) to five percent for foundations with assets of over $1 million, starting in 2023, and to make it easier for foundations to work with non-qualified donees.

Though the government has not yet passed legislation to finalize the DQ boost, on June 23, they made good on the second promise, legislating that foundations are now able to make “qualifying disbursements” to non-qualified donees, provided certain conditions are met.

In the way the text of the legislation is written, however, Carter says the government may have also opened the door on impact investments qualifying toward a foundation’s DQ.

In a public report he and several colleagues published two weeks ago, Carter argued that the new definition of a “qualifying disbursement” is “arguably broad enough to now potentially include impact investing.”

A spokesperson for the Department of Finance, however, disagrees with the interpretation that the new legislation presently allows impact investments to count toward a foundation’s DQ. “Only actual expenditures by a charity on charitable activities or as gifts that are qualifying disbursements count towards meeting the disbursement quota,” said Caroline Thériault, a department spokesperson, by email. 

“Investment activities of charities, including making loans or impact investments, do not qualify as these are not gifts and the charity generally expects to have these funds returned in the future,” she said.

In his brief report, Carter allowed that he felt the language in the new legislation “could be more precise” on the issue, and encouraged the government, in a forthcoming Canada Revenue Agency “guidance” document or in forthcoming legislation to specify that impact investments could count.

In the PFC session Oct. 3, flanked by Senator Ratna Omidvar and two foundation executives, Carter repeated the call, encouraging fellow attendees to get in touch with the Department of Finance, pronto.

Not all session attendees, however, were receptive to the pitch.

Neria Aylward, executive director of the Jimmy Pratt Foundation, at the Philanthropic Foundations Canada conference on Oct. 3 in Montreal, Q.C. Aylward says that donations and investments aren’t “interchangeable.”


Neria Aylward rejects the idea that grants and investments should both count toward the DQ. Aylward is the executive director of the Jimmy Pratt Foundation, a charity that provides support for early-childhood education in Newfoundland and Labrador.

Speaking from her personal opinion, rather than as a spokesperson for her organization, Aylward said she was not in favour of impact investments counting toward the disbursement quota because investments and donations are fundamentally “different things.”

“Impact investment is great. I think we should strive to do more of it,” she says. “[But] there is a reason for [donations] being an important thing. It’s actually giving power back to the communities that are doing the work…I think it’s about a power shift.” 

Todd Jaques, director of strategy and research for MakeWay, a public foundation, agrees with Aylward. “Impact investing should be used to transform investment practices at foundations, not to replace grantmaking,” he says, by email.

“The DQ increase is a step in the right direction, but incentivizing foundations to reduce their grantmaking budgets, even with the best of intentions, is the wrong approach. There are many important and impactful charities and community-led initiatives that need grant dollars not investments, especially now.”

Janine Manning, a fundraiser with Anishnawbe Health Foundation and board president of the Laidlaw Foundation, is also not supportive of the policy idea, suggesting that in fact others should advocate against the proposal and encourage the government to legislatively clarify that foundations should not be able to count impact investments toward their DQ.

Manning’s position is driven by a concern, in part, that counting impact investments toward a foundation’s DQ could exacerbate existing funding inequities.

“Not all charities, and definitely not all non-qualified donees have had access to creating social impact investment opportunities,” she says, specifically referencing the under-resourcing of Black and Indigenous-led charitable initiatives to develop investment-ready projects.  

“I feel it would hinder equity and the disbursement of wealth through the philanthropic sector more than support it, and further create this divide between the haves and the have nots,” she says.

Future of Good asked the Department of Finance whether the government is allowing impact investments to count toward the DQ, but did not receive an answer to this question.


Andrea Nemtin, executive director of Social Innovation Canada and former president of the Inspirit Foundation, agrees with her colleagues that grants and investments are different, but says many social purpose organizations are hungry, too, for debt and equity.

“The granting process…is needed for many organizations, but there are also a lot of social purpose organizations, non-profits and charities that don’t have access to decent financial tools,” she says. “They don’t have access to affordable capital — and we could change a lot.”

Nemtin attended the PFC session where Carter spoke on Oct. 3, and says she’s “not opposed” to foundations counting impact investments toward their DQ. She adds that beyond this policy, she believes more federal incentives are needed to encourage foundations to engage in impact investing — “in fact, I would hope that we can get to the point where it’s required,” she says.  

Kelly Gauthier, president of Rally Assets, a Canadian impact investment advisory firm, too, is more optimistic than some about linking the DQ and impact investing, believing that it could act as a “trigger” to spur more foundations to make their first impact investments. “[It] might encourage some more folks to do it, to learn by doing so, and [to] realize that it’s not so hard or so scary,” she says. “From the seat I sit, that’s a good thing.”

Gauthier notes however, that even without the DQ link many Canadian public and private foundations are already making socially and environmentally-focused investments; with some putting as much as 40 percent of their endowments into impact investments and “generating excellent returns as well as generating impact.”

Janine Manning agrees that boosting impact investing is a necessary and urgent challenge, but says trying to do so through DQ is inappropriate, especially given the context of the DQ advocacy over the past two years.

“The intention behind the advocacy for the increase in the disbursement quota was to increase granting in the sector based on the need that we’ve been seeing,” she says. “It doesn’t seem in [the] spirit of the initial advocacy for the increase. It seems like an entirely different issue.”

Aylward, too, worries that some foundations could take advantage of the policy, given the evolving terminology of the impact and socially responsible investment fields.

“Impact investing is a spectrum and it’s contestable. It means very different things to different actors,” she says. “Money getting out for communities shouldn’t be contingent on foundations figuring out what they mean by impact investing.” 

Carter says there would be things to work out, for certain, but notes they’ve already done so in the United States. There, “program-related investments” (PRIs), allow private foundations to count investments that accomplish the foundation’s charitable purpose, toward their DQ.

“[The] same treatment south of the border should apply here in Canada with regards to impact investing,” Carter says.

He also notes, by email, that several other groups offered support for impact investments counting toward the DQ during the federal consultation on the DQ last winter, including the Canadian Bar Association, the Canadian Association of Gift Planners, and the advisory committee on the charitable sector.

While Manning agrees with Carter on the importance of driving impact investing in the philanthropic sector, she does not believe it should be done at the expense of grants.

“Right now people need support,” she says. “And, for many, the increase in the disbursement quota can’t come soon enough.”

“[Let’s] not piggyback off of the existing work to increase the DQ and go against that spirit of increasing more money out to communities,” she says. “And [let’s] start thinking from the ground up [about] how we promote or encourage Canadian [foundations] into the social impact investing space.”

Gabe (they/them) is the Future of Good editorial fellow on transforming funding models and Masters of Journalism student at Ryerson University. Their work has also been published in the National Observer, The Star and The Nation.

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