Income Tax Act S. 149.1(8) — Accumulation of Property by a Charity

A registered charity may, with the approval in writing of the Minister, accumulate property for a particular purpose, on terms and conditions and over any period of time that the Minister specifies in the approval. Any property accumulated after receipt of and in accordance with the approval, including any income earned in respect of the accumulated property, is not to be included in calculating the prescribed amount in paragraph (a) of the description of B in the definition disbursement quota in subsection (1) for the portion of any taxation year in the period, except to the extent that the registered charity is not in compliance with the terms and conditions of the approval.

What This Means for Your Charity

Generally speaking, registered charities are required to spend a minimum amount each year on charitable activities — the disbursement quota. However, s. 149.1(8) provides an important exception: a charity can apply to the CRA for permission to accumulate funds for a specific purpose, such as saving up to build a new facility or fund a large capital project.

If the CRA approves the accumulation, the accumulated property is excluded from the disbursement quota calculation for the period of approval — meaning the charity is not penalized for building up reserves toward its approved purpose. The approval specifies the purpose, the terms, and the time period. Any deviation from the approved terms means the accumulated property is brought back into the disbursement quota calculation.

This provision is particularly valuable for charities planning capital campaigns. B.I.G. Charity Law Group advises charities on applying for accumulation approvals and structuring their finances for long-term projects. Contact us for a governance consultation.

Frequently Asked Questions

How does a charity apply to accumulate funds?

A charity applies in writing to the CRA Charities Directorate, explaining the specific purpose for accumulation, the amount required, and the proposed timeline. The CRA reviews the application and, if approved, specifies the conditions in writing.

What happens if a charity accumulates funds without CRA approval?

Unauthorized accumulation of property is included in the disbursement quota calculation and may result in the charity failing to meet its annual spending requirement, which can lead to penalties or revocation.