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Political Financing Handbook for Nomination Contestants and Financial Agents (EC 20182) – June 2016

Chapter 2 – Nomination Campaign Inflows

This chapter covers the following topics:

Introduction

Before the campaign begins to receive inflows, the financial agent and the nomination contestant should understand the types of inflows that can be received. The Canada Elections Act imposes limits on individual contributions, loans and loan guarantees. The contribution limits apply to: total contributions, the unpaid balance of loans made during the year and the amount of any loan guarantees made during the year that an individual is still liable for. The sum of these three amounts cannot at any time exceed the contribution limit.

This chapter explains the rules and procedures for accepting and administering contributions, loans, transfers and other monetary inflows that the campaign may receive.

Limits on contributions, loans and loan guarantees to a nomination contestant
Political entity 2016 annual limit
In total to all the registered associations, nomination contestants and candidates of each registered party $1,525*
  • The contribution limits apply to: total contributions, the unpaid balance of loans made during the contribution period and the amount of any loan guarantees made during the contribution period that an individual is still liable for.
  • The sum of these three amounts cannot at any time exceed the contribution limit.

There are some exceptions to the limits on contributions:

  • A nomination contestant is permitted to give an additional $1,000 in total per contest in contributions, loans and loan guarantees to his or her own campaign.
  • A candidate is permitted to give a total of $5,000 in contributions, loans and loan guarantees to his or her campaign.
  • A candidate is also permitted to give an additional $1,525* in total per year in contributions, loans and loan guarantees to other candidates, registered associations and nomination contestants of each party. (This includes contributions to the registered association in the candidate's electoral district and contributions to the candidate's own nomination campaign.)

* The limits will increase by $25 on January 1st in each subsequent year.

Note: Funds provided specifically to pay for expenses incurred outside the contest period are not subject to the controls on contributions and loans in the Canada Elections Act.

Example

Max decides to contribute $1,525 to the registered party he supports. In addition, he makes an $800 contribution to the party's registered association in his riding; and when a nomination contest is called in the same year, he lends $725 to one of the contestants to pay for nomination campaign expenses. With that, Max reaches the annual limit for contributions to the registered party as well as the annual limit for contributions, loans and loan guarantees to any combination of candidates, registered associations and nomination contestants of the registered party.

Note: This example uses the limits in effect for 2016.

2.1 Contributions

This section provides details and practical examples about contributions: Who can contribute what and how much? Is volunteer labour a contribution? What are the rules about anonymous contributions and ticketed fundraising events?

In addition, this section provides basic information about how to administer contributions.

Definitions

What is a contribution?

A contribution is donated money (monetary contribution) or donated property or services (non-monetary contribution).

Who can contribute?

Only individuals who are Canadian citizens or permanent residents can make a contribution to a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant.

Note: The term "individual" used in the Nomination Campaign Inflows chapter refers to a Canadian citizen or permanent resident.

Any money that is used out of the contestant's own funds to pay expenses incurred during the contest is a contribution.

Note: Corporations, trade unions, associations and groups cannot make contributions.

Monetary contribution

A monetary contribution is an amount of money provided that is not repayable.

Monetary contributions include cash, cheques or money orders, credit card or debit card payments, and contributions made using online payment services.

Note: Funds provided specifically to pay for expenses incurred outside the contest period are not subject to the controls on contributions in the Canada Elections Act.

Non-monetary contribution

The amount of a non-monetary contribution is the commercial value of a service (other than volunteer labour) or of property, or the use of property or money, to the extent that they are provided without charge or at less than commercial value. This includes forgone interest on loans.

Note: Non-monetary contributions accepted outside the contest period are not subject to the controls on contributions in the Canada Elections Act.

What is commercial value?

Non-monetary contributions are recorded at commercial value. The commercial value is the lowest amount charged at the time that it was provided for the same kind and quantity of property or service, or for the same use of property or money, by:

Note: If the commercial value of a non-monetary contribution is $200 or less, and it is from an individual not in that business, the contribution amount is deemed to be nil.

Examples
  1. An individual who is not in the business of renting office supplies lends a photocopier to the campaign office for the duration of the nomination contest. The financial agent has to determine the commercial value of this non-monetary contribution by checking with local suppliers to see how much they would charge for renting similar equipment for the same period. If that amount is greater than $200, and the photocopier is accepted during the contest period, a non-monetary contribution must be reported.
  2. A self-employed individual in the business of providing information technology services offers to set up the computers in the campaign office during the contest period and does not charge for the service. This is a non-monetary contribution from that person. The commercial value is equal to the lowest amount charged by that individual for the same kind of service.
Volunteer labour

Volunteer labour is any service provided free of charge by a person outside of their working hours. Volunteer labour is not a contribution.

Note: A service provided by a self-employed person who normally charges a fee for that service is a non-monetary contribution and is not volunteer labour. The person providing the service has to be eligible under the contribution rules.

Examples
  1. A person who is employed as a teacher offers to work in the evenings in the campaign office to answer the phone and help with general office duties. This is volunteer labour and therefore is not a contribution.
  2. A self-employed graphic designer offers to design a pamphlet for the nomination contestant during the contest period free of charge. Because the person is self-employed and normally charges for that service, the pamphlet design is not volunteer labour. The commercial value of the service has to be recorded as a non-monetary contribution. In this case, the commercial value is the lowest amount the graphic designer normally charges for that service.

2.2 Loans

This section discusses how loans that were obtained to pay for nomination campaign expenses are received, reported and repaid.

Note: Loans, including overdrafts and lines of credit, obtained specifically to pay for expenses incurred outside the contest period are not subject to the controls on loans in the Canada Elections Act. They are not to be deposited in the campaign bank account, are not reported, and do not form part of the campaign surplus.

Getting a loan

A nomination contestant's campaign may receive loans, including overdrafts and lines of credit, from either a financial institution or an individual who is a Canadian citizen or permanent resident. 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 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 nomination campaigns. Any forgone interest resulting from the financial institution charging a lower interest rate would constitute a non-monetary contribution from an inadmissible contributor.

Example

The campaign is planning to borrow $15,250 to pay nomination campaign expenses and the bank requires a guarantor for the loan. Because individual guarantees are subject to the contribution limit, the campaign needs at least 10 individuals to guarantee the requested amount. Each guarantor is limited to guaranteeing $1,525 of the total loan amount.

Note: This example uses the limits in effect for 2016.

Loans from individuals

If an individual obtains a personal loan from a financial institution and lends those funds to a nomination 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 nomination campaign if the loan is made possible by money, property or the services of any person or entity that provided it to the individual for that purpose.

Example

Paul made a $525 contribution to Christine's nomination campaign. In addition, he takes out a $1,000 personal loan from his bank and lends it to the campaign to pay nomination campaign expenses. 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 2016.

Demand loan

A demand loan is a loan with no specific payment deadline. It is due whenever the lender demands to be repaid. A loan agreement has to be submitted with the contestant's return. It is recommended that the agreement include a maximum term for the repayment.

Note: If the demand loan is from an individual, it is subject to the contribution limit.

Overdraft and line of credit

If overdraft protection or a line of credit is obtained for the nomination campaign and is used to pay nomination campaign expenses, it has to be recorded as a loan at the maximum amount used. Note that if the financial institution requires a guarantee, only 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.

Example

The campaign bank account has overdraft protection of $1,000. The overdraft is used to pay nomination campaign expenses and the account is overdrafted by $200. The financial agent pays back $100 within the same day. Later on that day, the financial agent withdraws another $400 from the same account, bringing the highest amount overdrawn during the contest period to $500.

The overdraft amount to be reported is $500. The financial agent has to report this amount in the Details of operating loans section of the contestant's return.

2.3 Administering contributions and loans

This section discusses how contributions and loans that were received or obtained to pay for nomination campaign expenses are administered.

Note: This section does not apply to contributions and loans obtained specifically to pay for expenses incurred outside the contest period.

Contribution rules

Contributor identification

Depending on the amount and type of the contribution, the contributor's personal information has to be recorded as follows:

Note: When recording a contributor's personal information, the full first and last name (initials are not acceptable) and the home address have to be recorded.

Ineligible contributions

The financial agent is responsible for ensuring that contributions are in accordance with the rules set out in the Canada Elections Act. The following contributions are ineligible:

Returning ineligible contributions

The financial agent must not knowingly accept a contribution that exceeds the limit. It is also advisable not to accept any other type of ineligible contribution.

If the campaign receives an ineligible contribution and it has been deposited into the campaign bank account, the financial agent has to return the unused contribution to the contributor within 30 days of becoming aware that it is ineligible. If that is not possible, the financial agent has to send a cheque for the amount of the ineligible contribution to Elections Canada, payable to the Receiver General for Canada.

If the campaign receives an ineligible contribution and it has not been deposited into the campaign bank account, the financial agent has to return the contribution to the contributor and no reporting is required.

A contribution is considered used if the campaign bank account balance was below the contribution amount at some point after the contribution date. In this case, the financial agent has to send a cheque for the amount of the ineligible contribution to Elections Canada, payable to the Receiver General for Canada.

In the case of an ineligible non-monetary contribution that has been used, the financial agent has to send an amount equal to the commercial value of the property or service to Elections Canada, payable to the Receiver General for Canada.

Examples
  1. The financial agent deposits a cheque for $600 from a contributor into the campaign bank account. The financial agent, however, becomes aware that the same person has already contributed $1,000 to the registered association in that year. He sends a cheque in the amount of $75 to the contributor.
  2. The financial agent receives a cheque for $2,000 from a contributor. As this is obviously an over-contribution, the financial agent does not deposit the cheque, but sends it back to the contributor.

Note: These examples use the limits in effect for 2016.

Anonymous contributions

If the financial agent receives a contribution that is:

the financial agent has to send a cheque for the amount without delay to Elections Canada, payable to the Receiver General for Canada.

Ticketed fundraising

If a fundraising activity is held for the primary purpose of soliciting monetary contributions through the sale of tickets, the amount of a ticket purchaser's monetary contribution is the difference between the price of the ticket and the fair market value of the benefit that the ticket entitles the purchaser to receive. The benefit received includes the fair market value of using a rented venue, the cost of dinner and entertainment, etc.

Note: The fair market value of the production and distribution of materials promoting the event is not included in the benefit received because persons who attend the event would not benefit from such activities.

Example

A ticketed fundraiser was expected to attract 50 attendees. On the assumption that this number would attend, the following expenses were incurred in an open and competitive market:

  • room rental $500
  • meal $2,500
  • decoration $300
  • entertainment $500
  • server staff and gratuities $200
  • mail-out promoting the event $500
  • total $4,500

The fair market value of the benefit for each ticket purchaser is $80, calculated by dividing $4,000 by 50 (the $500 expense related to the mail-out is excluded, because it is not part of the benefit received by the attendee). The fair market value remains the same regardless of the number of individuals who actually attend the event.

Forty tickets were sold at $200 each for the event. The amount of each monetary contribution is therefore $120, calculated by subtracting $80 (the fair market value) from the ticket price ($200).

Note: The contribution rules apply to contributions made through ticketed fundraising.

Sponsorship or advertising

A transaction involving the receipt of money by a political entity in exchange for advertising or promotional opportunities directed at members or supporters of the political entity is not recognized as a commercial transaction. Any money received as part of such arrangement is to be treated as a contribution that is subject to the contribution limit and eligibility rules.

Administering contributions

Accepting contributions

Only the financial agent can accept contributions to the nomination contestant's campaign.

Recording anonymous contributions

If anonymous contributions of $20 or less are collected during an event related to the campaign or contest, the financial agent has to record:

Anonymous contributions of $20 or less may also be received outside the context of a particular function. In that case the financial agent has to keep track of the total amount plus the number of contributors.

Example

Campaign volunteers organize a wine and cheese event one evening in the campaign office, and invite local residents. Approximately 40 people show up. During the evening, a volunteer passes a basket around to collect cash contributions from the attendees. She informs the guests about the contribution rules: a maximum of $20 can be accepted from any one individual as an anonymous cash contribution. At the end of the evening there is $326 in the basket.

After the event, the financial agent has to record the following: the date and a description of the event, the approximate number of people who attended (40), and the amount collected in anonymous contributions ($326). The financial agent has to deposit the amount into the campaign bank account.

Issuing contribution receipts

The financial agent has to issue receipts for each contribution over $20.

Note: Contributions made to the nomination contestant's campaign are not eligible for tax receipts.

What to keep in mind when administering contributions

As a best practice, it is recommended to only accept contributions made by way of a traceable instrument such as a cheque or money order that links the contributor to the contribution. Here are some important points to keep in mind when recording contributions or issuing receipts:

Administering loans

Loan principal and interest

When it comes to paying the principal and the interest on loans, three scenarios may occur, depending on when the loan agreement was signed and what the loan was obtained for:

  1. If the loan agreement was signed during the contest period and the loan was obtained to pay for nomination campaign expenses, the interest is a nomination campaign expense and the loan is subject to the controls on loans in the Canada Elections Act. Campaign funds must be used to repay the principal and the interest.
  2. If the loan agreement was signed outside the contest period and the loan was obtained to pay for nomination campaign expenses, the interest is not a nomination campaign expense, but the loan is subject to the controls on loans in the Canada Elections Act. Campaign funds must be used to repay the principal but cannot be used to pay the interest.
  3. Irrespective of when the loan agreement was signed, if a loan was obtained specifically to pay for expenses incurred outside the contest period, the interest and the loan are not subject to the controls on loans in the Canada Elections Act. Campaign funds cannot be used to repay the principal or the interest.

Note: Signing loan agreements only during the contest period will reduce the complexity of administering loans in accordance with this regulatory framework.

Interest on loans from individuals

If the interest rate charged is lower than the market interest rate on a loan that is obtained from an individual, and the loan agreement is signed during the contest period, the financial agent will need to report 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

Note: Loans, including overdrafts and lines of credit, obtained specifically to pay for expenses incurred outside the contest period are not subject to the controls on loans in the Canada Elections Act. They are not to be deposited in the campaign bank account, are not reported, and do not form part of the campaign surplus.

Loan repayments may be made any time up to 36 months after the selection date (or after election day, if the selection date was during or within 30 days of the election period). Authorization is not required from Elections Canada or a judge before making these payments.

If a loan is paid in full after the contestant's return is filed, but before 36 months from the selection date (or from election day, if the selection date was during or within 30 days of the election period), the campaign must file an updated return within 30 days of the payment. The updated return must also indicate the source of funds used to pay the loan.

Loan repayments made more than 36 months after the selection date (or after election day, if the selection date was during or within 30 days of the election period) require authorization from Elections Canada or a judge. The requests to pay should be accompanied by evidence in the form of a campaign bank account statement, showing that the campaign has sufficient funds to make the requested payment. The authorization to pay a loan may be subject to additional terms and conditions considered appropriate by Elections Canada.

2.4 Transfers received

Definition

A transfer is a provision of funds, property or services between specified political entities of the same political affiliation. Where specifically permitted under the Canada Elections Act, a transfer is not considered to be a contribution, and contribution rules therefore do not apply.

Transfers are permitted only between related political entities (registered party, electoral district association, candidate, leadership or nomination contestant) of the same political affiliation.

However, not all types of entities are authorized to provide all types of transfers. For a quick reference guide to eligible and ineligible transfers, see the Transfers types and rules table in the Tables and Reminders section.

Transfer types

A monetary transfer is a transfer of funds. A non-monetary transfer is a transfer of property or services.

Transfers to the nomination contestant

The following transfers may be accepted by the nomination contestant's campaign:

Monetary transfers accepted by the nomination contestant's campaign are subject to the controls on transfers in the Canada Elections Act and must be reported, irrespective of when they were received.

Non-monetary transfers accepted by the nomination contestant's campaign are subject to the controls on transfers in the Canada Elections Act and can only be accepted during the contest period.

Note: If an invoice requiring payment is prepared by one political entity and sent to its related political entity, together with a third party vendor invoice representing the commercial value of the goods or services provided, this is not a transfer but a sale of goods or services from one entity to another.

2.5 Regulated and unregulated inflows

Contributions and loans

Monetary contributions and loans accepted by a nomination campaign for the purposes of the campaign are subject to the controls on contributions and loans in the Canada Elections Act and must be reported, irrespective of when they were received.

Any money given or loans obtained specifically to pay for expenses incurred outside the contest period are not subject to the controls on contributions and loans in the Canada Elections Act. Accordingly, such funds must not be deposited in the campaign bank account, are not reported, and do not form part of the campaign surplus.

Non-monetary contributions

Non-monetary contributions accepted by a nomination campaign during the contest period are subject to the controls on contributions in the Canada Elections Act and must be reported.

Non-monetary contributions accepted outside the contest period are not subject to the controls on contributions in the Canada Elections Act and are not reported.

2.6 Other cash inflows

All monies flowing through the campaign bank account have to be reported. In addition to contributions, loans and transfers (described in the previous sections), a campaign may receive the following cash inflows: the non-contribution portion of fundraising revenue, bank interest, refunds from suppliers, the returned portion of any cash advances, the proceeds from the sale of assets, and all other sources of cash inflows.

Inflow type Description Example
Non- contribution portion of fundraising revenue The inflows recorded for fundraising activities are:
  • the contribution portion (see Section 2.1, Contributions), recorded as a contribution
  • the difference between the selling price and the contribution, recorded as other inflow
John Smith holds a ticketed fundraiser during the contest period in support of his campaign. The ticket price for the fundraiser is $200, and the fair market value of the benefit received is $75. The contribution made by each ticket purchaser is $125.

The amount to be recorded as other inflow is the fair market value of the benefit received that is, $75.
Bank interest earned Interest earned on the campaign bank account must be recorded as other inflow, along with the date received. At the end of the month, the bank deposits $1.50 of interest into the campaign bank account. The financial agent has to record this amount as other inflow.
Refunds from suppliers If a refund is received from suppliers, the financial agent has to record the refunded amount as other inflow. During the contest period the financial agent purchases 20 reams of paper for use in the campaign office, at a cost of $60. Near the end of the campaign, the financial agent returns 5 unused reams of paper and receives a $15 refund from the supplier. The financial agent has to record this amount as other inflow.

The $15 is also offset from the original expense in the expenses section and classified as an amount not included in nomination campaign expenses.
Returned cash advances If the campaign advanced funds for travel or other expenses, the unused returned portions have to be recorded as other inflow. The financial agent gives $200 to an authorized person for travel expenses during the contest period. At the end of the campaign, there is $50 left over and the financial agent deposits this amount into the campaign bank account. The financial agent records the $50 as other inflow.
Sale of assets If the campaign sells any of its assets, the amount received has to be recorded as other inflow.

The sale proceeds do not reduce the commercial value of the asset, which is reported at the lower of the purchase price or the cost to rent a similar asset.
At the beginning of the campaign, the financial agent purchases two new computers at a cost of $2,000. After the selection date, the financial agent sells the two computers for the amount of $1,500. This amount is recorded as other inflow.