Political Financing Handbook for Candidates and Official Agents (EC 20155) – October 2017
This chapter explains what portion of an amount given during a fundraising activity is a contribution and clarifies when fundraising expenses are election expenses. It covers the following topics:
- Determining the contribution amount when contributors receive a benefit
- Fundraising expenses
- Typical fundraising activities (sale of branded goods, auctions, ticketed and non-ticketed events, and draws)
Determining the contribution amount when contributors receive a benefit
As part of fundraising, a candidate's campaign might provide a benefit (t-shirt, dinner, etc.) to a contributor in exchange for a contribution. It is important to determine what portion of the money given is a contribution.
Flowchart 2 shows the basic rules for determining the contribution amount. Two concepts need to be considered first: the fair market value of a benefit and whether it is significant.
What is a benefit's fair market value?
The fair market value of a benefit is generally the amount the candidate's campaign paid a commercial provider for the property or service (that is, the retail price). If the contributor receives multiple benefits, they are added together to determine whether the overall benefit is significant in relation to the full amount given.
If a benefit is not commercially available and its value cannot be determined, such as access to a party leader, it has no fair market value.
When is a benefit significant?
A benefit is considered significant only if its fair market value exceeds 10% of the amount given or $75, whichever is less. Note that this de minimis threshold (below which the benefit is deemed insignificant) does not apply to cash or near-cash benefits, such as gift certificates. Nor does it apply to the value of an activity that is central to a fundraising event, such as the meal provided at a ticketed fundraising dinner.
Note: The threshold of 10% of the amount given or $75 is aligned with the de minimis threshold used by the Canada Revenue Agency to determine the eligible amount and the amount of an advantage for both political and charitable contributions.
For a detailed discussion of this topic, please refer to Elections Canada's interpretation note 2016-01, Fundraising, on the Elections Canada website.
Flowchart 2: Basic rules for determining the contribution amount
- In exchange for making a $500 contribution, individuals are given access to the party leader or a prominent candidate. The full amount given is a contribution under the Canada Elections Act. Note: Under Canada Revenue Agency rules, this contribution is not eligible for a tax receipt because the value of the advantage cannot be determined.
- The candidate's campaign rents an inflatable castle as a fundraiser and charges families $30 for admission. The pro-rated cost of the castle per family, based on expected attendance, is $3. Since the castle is central to the fundraising activity, $3 is deducted from the amount given and the contribution is $27. This is true even though the fair market value does not exceed 10% of the amount given or $75.
- In exchange for making a $20 contribution, contributors receive a box of chocolates. The cost of the chocolates was $5. Since the value of the chocolates exceeds 10% of the amount given, $5 is deducted from the amount given and the contribution is $15. This is true even though the chocolates are not central to the fundraising activity.
- Contributors who make a $100 contribution receive a keychain with the party logo. The cost of the keychain was $5. Since the keychain is not central to the fundraising activity and its value does not exceed 10% of the amount given or $75, nothing is deducted from the amount given and the contribution is $100.
Expenses reasonably incurred by the candidate's campaign for property or services used during the election period are election expenses. Some fundraising expenses are exceptions to that rule:
- contribution processing fees
- expenses for a fundraising activity, other than promotional expenses
The term "processing fees" means the expenses for processing contributions, which may include bank charges, credit card processing fees, fees for other payment services (such as PayPal), salaries of fundraising staff and salaries for data entry when contributions are received.
While the above expenses related to a fundraising activity are not election expenses, any expense related to promoting the fundraising activity is. Examples include:
- producing and distributing invitations to a ticketed fundraiser
- procuring and distributing promotional items, such as pens or t-shirts
- producing and mailing a letter or pamphlet that solicits contributions
- producing and using a script for telephone calls that solicit contributions
Activities not directly linked to soliciting contributions
Expenses incurred by the candidate's campaign for activities conducted during an election period that are not directly linked to soliciting contributions are also election expenses. In these cases, incurring an expense and accepting a contribution are separate transactions.
Examples of such activities include:
- non-ticketed events held to promote a party, its leader or a candidate, where contributions are also solicited
- door-to-door promotion of a party, its leader or a candidate, where contributions are also solicited (in this case, salaries or other amounts paid to canvassers are election expenses)
- contacting electors by phone or by other means to promote a party, its leader or a candidate, where contributions are also solicited (in this case, salaries paid to staff are election expenses)
Typical fundraising activities
This section explains how to manage various fundraising activities.
Sale of branded goods
Candidates may sell branded goods in an effort to promote themselves and, in some cases, generate contribution revenue.
When a branded good is sold for more than its fair market value (that is, more than the amount the campaign paid a commercial provider for the item), the purchaser is making a political contribution. The de minimis threshold does not apply in this case because the branded good is central to the fundraising activity. Therefore, regardless of the value of the goods that are sold, the contribution amount is always the sale price less the fair market value of the item purchased.
Because campaigns only need to issue receipts for contributions over $20, the sale of a branded good will generate a receipt only when the sale price less the fair market value exceeds $20. If a purchaser buys multiple items, each unit sold is treated as a separate contribution from a separate contributor. The total amount of contributions of $20 or less and the total number of contributors are then reported under anonymous contributions of $20 or less.
- To raise funds, the campaign sells t-shirts with the candidate's name and party logo for $25. The t-shirts were purchased from a supplier for $10 each, so the contribution generated by each t-shirt is $15 ($25 – $10). An individual who supports the candidate buys two t-shirts. The official agent reports two anonymous contributions of $15. No receipt is required.
- The campaign sells laptop bags with the candidate's name for $75. The bags were purchased from a supplier for $50 each, so the contribution generated by each laptop bag is $25 ($75 – $50). An individual who supports the candidate buys a laptop bag from the candidate's booth in a mall. The salesperson records the contributor's name, address and purchase amount. The official agent later records the contribution and issues a receipt for $25.
The expenses incurred to produce and distribute branded goods (in other words, promotional materials) that are distributed during an election period are election expenses.
Campaigns may choose to raise funds through auctions, where property or services are sold to the highest bidder. An auction may lead to contributions from both the donor of the property or service that is auctioned and the winning bidder.
If the auctioned property or service is donated, its commercial value is a non-monetary contribution.
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.
An individual who buys an auctioned property or service makes a contribution if the bid amount exceeds the fair market value of the property or service. The fair market value is generally the amount that would be paid for the property or service in a commercial market.
Even if the fair market value of the item is $200 or less, its value is still deducted from the bid amount to arrive at the contribution amount. The de minimis threshold does not apply in this case because the sale of the property or service is the fundraising activity. Therefore, regardless of the value of the auctioned property or service, the contribution amount is always the winning bid amount less the fair market value of the item.
However, if the auctioned property or service is not available on a commercial basis, the entire amount of the winning bid is a contribution under the Canada Elections Act. Note that under Canada Revenue Agency rules, this type of contribution is not eligible for a tax receipt because the value of the advantage cannot be determined.
In most cases, when an auction is held during an election period, expenses incurred by the candidate to purchase property or services that will be auctioned are not election expenses, because fundraising expenses are excluded from that definition. However, because expenses for producing and distributing promotional materials are specifically included, if any of the auctioned items promote a party, its leader or a candidate (such as branded goods), the expenses incurred are election expenses.
- An individual donated a painting to a candidate's campaign for sale at an auction organized to raise funds for the campaign. A local art dealer appraised the painting at $450. During the auction, the winning bid for the painting was $600.
The contribution amounts are as follows:
- The donor of the painting made a $450 non-monetary contribution to the campaign.
- The winning bidder made a monetary contribution equal to the amount paid less the fair market value of the painting: $600 – $450 = $150.
In addition, $450 (the painting's commercial value) is an electoral campaign expense not subject to the election expenses limit.
- An individual (who is not in the business of selling office furniture) donated an office chair to a candidate's campaign for sale at an auction organized to raise funds for the campaign. The chair retails for $150. During the auction, the winning bid for the chair was $250.
The contribution amounts are as follows:
- The donor of the chair made a non-monetary contribution to the campaign that is deemed to be nil (since the commercial value is $200 or less, and the chair was provided by an individual not in the business of selling chairs).
- The winning bidder made a monetary contribution equal to the amount paid less the fair market value of the chair: $250 – $150 = $100.
Ticketed fundraising events
When a fundraising event such as a dinner or a golf tournament is held for the primary purpose of soliciting monetary contributions through ticket sales (including events with an entrance fee), the amount of a ticket purchaser's monetary contribution is the ticket price less the fair market value of the benefit that the bearer is entitled to receive. The de minimis threshold may apply to benefits that are not central to the event.
In the case of a ticketed fundraising dinner, the benefit received by each ticket purchaser includes the following:
- if the event is held in a rented venue, the fair market value of the room rental and catering, pro-rated on the basis of the expected number of attendees
- if the event is held in a restaurant, the amount the restaurant would normally charge for the meal
- if the event is held in a private venue, the fair market value of the meal; no value is attributed to the use of an individual's private residence
- door prizes, pro-rated on the basis of the expected number of attendees (de minimis threshold may apply)
- complimentary items such as pens or key chains (de minimis threshold may apply)
In the case of a ticketed golf tournament, the benefit received by each ticket purchaser includes the following:
- green fee (excluded for golf club members whose green fees are already paid)
- cart rental
- complimentary items (de minimis threshold may apply)
- door and achievement prizes, pro-rated on the basis of the expected number of attendees (de minimis threshold may apply)
In both cases, the fair market value of producing and distributing materials promoting the event, including ticket printing, is not included in the benefit received because attendees do not gain from such activities.
Note: Be sure to exclude sales taxes and gratuities from the cost of food and beverages when calculating the benefit received at a ticketed fundraiser. (This guidance is under review and is subject to change in the next release of the handbook.)
Calculation based on expected attendance
The fair market value of the benefit is determined based on the expected rather than the actual number of attendees. For example, an individual will receive the same dinner in the same venue regardless of the actual number who attend. This fixed value is important in terms of contribution limits: it is necessary to determine the amount of the ticket purchaser's contribution in advance of the event so that individuals do not unknowingly exceed their limit.
Note: The expected number of attendees used in the calculation has to be reasonably supported by evidence (size of room rented, number of meals ordered, etc.).
When a ticketed fundraising event is held during an election period, most expenses incurred by the candidate are not election expenses because fundraising expenses are excluded from that definition. However, because expenses for producing and distributing promotional materials are specifically included, any such expenses incurred before or during the fundraising event are election expenses.
This includes expenses for promoting the event, printing tickets, and producing and distributing promotional items.
- A candidate's campaign holds a ticketed fundraising dinner in a rented venue. Fifty attendees are expected, and tickets are sold at $150 each. The event includes dinner, a pen with a logo for each attendee, and hockey tickets as a door prize. The campaign incurs the following expenses:
- room rental: $500 ($500 / 50 = $10 per attendee)
- catering, excluding sales taxes and gratuities: $1,500 ($1,500 / 50 = $30 per attendee)
- hockey tickets: $400 ($400 / 50 = $8 per attendee)
- pen with logo: $10
The contribution amount for each ticket purchaser is determined as follows:
Ticket price $150 Less: Room rental $10 Catering $30 Hockey tickets* $8 Cost of pen with logo* $10 Contribution amount $92
*In this case, the total value of benefits received that are not central to the fundraising dinner (the hockey tickets and pen) exceeds 10% of the amount given ($18 / $150 = 12%). Therefore, the benefit is considered significant and the de minimis threshold does not apply. The fair market value of these benefits is deducted from the ticket price.
- A golf tournament is held during the election period to raise funds for the candidate's campaign. Participants are charged $300, and 100 individuals are expected to attend. The campaign incurs the following expenses:
- green fees: $5,000 ($5,000 / 100 = $50 per participant)
- cart rental: $4,000 ($4,000 / 100 = $40 per participant)
- golf shirt with party logo: $15
- door and achievement prizes: $300 ($300 / 100 = $3 per participant)
- mailing promoting the event: $800
The contribution amount for each participant is determined as follows:
Participation fee $300 Less: Green fee* $50 Cart rental $40 Golf shirt** – Prizes** – Contribution amount $210
*If a participant is a golf club member and would not be charged a green fee, the cost of that benefit is not deducted from the participation fee. The contribution amount is $260.
**In this case, the total value of benefits received that are not central to the golf tournament (the golf shirt and prizes) does not exceed 10% of the amount given ($18 / $300 = 6%) or $75. Therefore, the benefit is not considered significant and the de minimis threshold applies. The fair market value of these benefits is not deducted from the participation fee.
The $800 promotional cost is an election expense of the candidate, and the balance of the cost for the event is an electoral campaign expense not subject to the election expenses limit.
Note: If participants are given the opportunity to sponsor a hole at a golf tournament, rules and restrictions apply. See Sponsorship or advertising at a political event is a contribution in Chapter 2, Contributions.
Campaigns may hold an event for which no tickets are sold (and no entrance fee is charged at the door), but where contributions are solicited and received. In this case, the amount of an attendee's contribution is not reduced by the value of any benefit received (for example, food or drink) because attendees would have received the benefit whether or not they contributed. The giving of a contribution and the provision of a benefit by the candidate are separate transactions. Any contributions received at non-ticketed events are simply contributions at the amount provided.
When a candidate's campaign holds a non-ticketed event during an election period, the expenses incurred are election expenses because they are not directly linked to accepting contributions.
The official agent organizes an event one evening during the election period. Light refreshments and appetizers are served while Christine, the candidate, outlines her platform and answers questions. The participants have the opportunity to make a contribution to Christine's campaign. Any contributions received are recorded at the amount provided. The costs of the food, beverages, room rental, etc., are election expenses, together with the cost of flyers distributed during the evening.
An individual who purchases a ticket for a draw for the chance to win property or a service is making a contribution under the Canada Elections Act equal to the ticket price. A pro-rated portion of the prize value is not deducted from the ticket price because a value cannot be attached to the hope of winning.
Note: Under Canada Revenue Agency rules, this type of contribution is not eligible for a tax receipt because the value of the advantage cannot be determined.
Provincial or territorial regulations should be consulted prior to organizing draws or other lotteries. In jurisdictions where draws are permitted, a licence from the province or territory may be required.
For candidates promoting a draw during an election period, the expenses incurred to promote the draw are election expenses, regardless of when the draw occurs.