The federal government has launched consultations on raising the minimum amount charitable foundations must grant to causes annually, the Department of Finance said on Friday.

The consultation would also look at providing the Canada Revenue Agency (CRA) with enhanced tools to enforce the disbursement quota beginning in 2022, a release said.

The disbursement quota (DQ), which is the minimum amount foundations must spend on charitable programs or gifts to qualified donees annually, has been set at 3.5% since 2004, when it was lowered from 4.5%. The DQ is determined based upon the value, averaged over a 24-month period, of a charity’s property not used for charitable activities or administration.

In the 2021 budget, the Liberal government said it was concerned that despite significant growth in investment property at charitable foundations in recent years, grant-making had not been keeping pace.

While most charities currently meet or exceed their DQ, “a gap of at least $1 billion in charitable expenditures,” exists, Finance’s release said: “An increase to the disbursement quota could significantly boost support for the charitable sector, benefitting those that rely on its services, including the most vulnerable members of Canadian society.”

In a background document accompanying the release, the government said it is asking interested parties about raising the DQ; the level at which it should be set; the desirability of increasing the DQ to an extent that causes foundations to gradually encroach on investment capital; and whether temporary changes to the DQ should be considered in the context of the Covid-19 recovery.

The government is also asking about the additional tools, such as “monetary penalties or other immediate sanctions,” that should be available to the CRA to enforce the disbursement quota. Currently, the CRA has the power to revoke the charitable status of a registered charity that fails to meet the DQ but it seldom takes this step, the government said, as “such an action is broadly considered disproportionate to the non-compliance involved.”

The government is asking stakeholders to provide comments by Sept. 30. It will also be consulting with representatives from the charitable sector through the Advisory Committee on the Charitable Sector, a government body. According to the release, there are more than 86,000 registered charities in Canada.