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Canada's 85,000 registered charities have been freed from severe fiscal handcuffs as a result of a budget measure that removes a requirement to pay out a large percentage of their revenue stream each year.

The measure eliminates the 80-20 rule, which basically required a charity to disburse at least 80 per cent of annual revenue in the following year for charitable activities.

"These new rules will enable charities by reducing absurd and unnecessary bureaucracy," said Malcolm Burrows, head of philanthropic advisory services at Bank of Nova Scotia. "It's a great gift for the charities and the communities that they serve."

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The end of this requirement "means a lot more flexibility and less red tape," said Marcel Lauzière, president of Imagine Canada, an umbrella group of 1,300 organizations that had been pushing for the change.

The old rules required charities to disburse a large amount of annual donations, even though it might not be the appropriate time, or they were accumulating funds for a major long-term project, he said.

The charitable sector had also been looking for Ottawa to change tax rules so that donors would have more of an incentive to donate property, from cottages to industrial land, to charities. That did not happen, but eliminating the quota is a more meaningful reform, Mr. Burrows said.

The quota had been particularly difficult for smaller charities that relied entirely on donations and had no government or foundation support, Mr. Lauzière said.

The quota was introduced in 1976 to help curtail excessive fundraising costs and limit the buildup of capital in charities. But the rule is no longer required to police the sector, the budget said, because the Canada Revenue Agency has acquired new compliance powers providing greater ability to monitor charities.

That means the quota added administrative complexity, with no increase in transparency, Mr. Lauzière said.

Mr. Lauzière had also been advocating a "stretch tax credit" that would give an enhanced tax break to individuals who gave more in donations than in the previous tax year. It was seen as a way to boost philanthropy at a time of economic constraint.

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It did not come but "we will keep on pushing for that," he said.

The end of the disbursement quota does not mean the termination of the requirement by a charity to annually disburse a minimum amount of investments not used directly in its operations.

The quota's death will apply to charities for fiscal years ending on or after March 4, 2010.

With a report from Tara Perkins

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