Political Financing Handbook for Candidates and Official Agents (EC 20155) – October 2017
This chapter discusses eligible sources of loans and how different loans and interest are reported. It covers the following topics:
- Getting a loan
- Types of loans
- Loan interest
- Repaying a loan
Getting a loan
Loans are used as a source of financing. Both the candidate and the official agent have to manage campaign finances properly to ensure that all loans are repaid.
A candidate's campaign may receive loans from either a financial institution or an individual who is a Canadian citizen or permanent resident. Candidates may also receive loans from their registered party or a registered association of their registered party. Loans from any other person or entity are not permitted.
A written loan agreement must accompany all loans.
Loans from financial institutions
There is no limit to the amount a campaign can borrow from a financial institution. Note however that if the financial institution requires a loan guarantee, only the registered party, a registered association of the party, or individuals who are Canadian citizens or permanent residents can guarantee the loan. The amount an individual guarantees is subject to the individual's contribution limit.
Note: A financial institution must charge a fair market rate of interest on loans made to candidates. Any forgone interest resulting from the financial institution charging a lower interest rate would constitute a non-monetary contribution from an ineligible contributor.
The campaign is planning to borrow $15,500 and the bank requires a guarantor for the loan. Because guarantees from individuals are subject to the contribution limit, the campaign needs at least 10 individuals to guarantee the requested amount. Each guarantor is limited to guaranteeing $1,550 of the total loan amount. Alternatively the candidate's registered party or a registered association of the same party may guarantee the whole amount.
Note: This example uses the limits in effect for 2017.
Loans from the registered party or the registered association
There is no limit to the amount a campaign can borrow from the registered party or from a registered association of the party. The registered party or a registered association of the party can also guarantee loans obtained from financial institutions. There is no limit to the amount the registered party or a registered association of the party can guarantee.
Loans from individuals
If an individual obtains a personal loan from a financial institution and lends those funds to a campaign, the lender is the individual and not the financial institution. The loan amount would be subject to the individual's contribution limit.
An individual can lend money to a campaign as long as the total of the individual's contributions, the unpaid balance of the loan and the amount of any outstanding loan guarantees does not at any time exceed the contribution limit in the calendar year that the loan was made.
Note: An individual cannot make a loan to a candidate if the loan is made possible by the money, property or services of any person or entity that provided it to the individual for that purpose.
Paul made a $550 contribution to Christine's campaign. In addition, he takes out a $1,000 personal loan from his bank and lends it to the campaign. With that, Paul has reached the annual limit for contributions to any combination of candidates, registered associations and nomination contestants of the registered party.
Note: This example uses the limits in effect for 2017.
Types of loans
A term loan is repaid in regular payments over a set period of time. It may be either a fixed rate loan, allowing the borrower to lock in at a specific interest rate, or it may be a variable rate loan, where the interest rate fluctuates with the bank's prime rate and is calculated monthly.
A demand loan is a loan with no specific payment deadline. It is due whenever the lender demands to be repaid. It is recommended that the written loan agreement for a demand loan include a maximum term for the repayment.
Overdraft and line of credit
If overdraft protection or a line of credit is used, the maximum amount used is reported as a loan. Note however that if the financial institution requires a guarantee, only the registered party, a registered association of the party, or individuals who are Canadian citizens or permanent residents can guarantee the overdraft or line of credit. The amount an individual guarantees is subject to the individual's contribution limit.
The official agent has to include the following information when reporting an overdraft or a line of credit:
- the maximum amount used
- the name and address of the financial institution
- the interest rate charged
- the dates and amounts of any repayments of principal and payments of interest
- the full name and address of any guarantors and the amounts they have guaranteed
- the unpaid balance at the end of each calendar year and as of the date of the return
The campaign bank account has overdraft protection of $1,000. The account goes into overdraft by $200 and the official agent pays back $100 within the same day. Later on that day, the official agent withdraws another $400 from the same account, bringing the highest amount overdrawn during the campaign to $500. The overdraft amount to be reported is $500.
Interest incurred on loans is an electoral campaign expense, whether it is paid or accrued.
If the interest rate on a loan from an individual is lower than the market interest rate, the official agent will need to record the forgone interest as a non-monetary contribution from the individual.
Note: If the loan is from an individual who is not in the business of lending money and the forgone interest on the loan is $200 or less, the non-monetary contribution is deemed to be nil.
Repaying a loan
Loan repayments may be made any time up to 36 months after election day. Authorization is not required from Elections Canada or a judge before making these payments.
See Chapter 14, Managing Unpaid Claims and Loans.