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Political Financing Handbook for Third Parties, Financial Agents and Auditors (EC 20227) – August 2019

3. Financial Administration Overview

This chapter describes how political financing rules apply to regulated activities. It discusses resources such as contributions and explains how to administer expenses for regulated activities, which are subject to separate limits for the pre-election period and the election period.

It covers the following topics:

Resources used for regulated activities

A third party may fund its expenses for regulated activities from one of three sources: its own funds, loans obtained for that purpose, or monetary and non-monetary contributions given to the third party for that purpose. The third party can also conduct activities using volunteer labour.

Use of own funds

The third party can use its own funds to pay for regulated activities that take place during the pre election period or election period. The funds must be deposited into the campaign bank account, and the expenses must be reported in the financial returns. There is no limit on the amount of its own funds that a third party can deposit into its campaign account to pay for regulated activities.

For details, see Separate bank account for regulated activities in Chapter 3, Financial Administration Overview.

Loans

If a third party obtains a loan to finance pre-election period or election period regulated activities, the third party must report it in its financial returns. The funds must be deposited into the campaign bank account

Individuals who are Canadian citizens or permanent residents, and businesses or other organizations that operate in Canada, can lend funds to a third party for regulated activities. There is no limit to the amount a third party can borrow.

Contributions

What is a contribution?

A contribution is donated money (monetary contribution) or donated property or services (non monetary contribution). In the case of registered third parties, the Canada Elections Act only regulates contributions provided for the purpose of regulated activities.

Monetary contributions must be deposited into the campaign bank account.

Monetary contribution Non-monetary contribution
A monetary contribution is an amount of money provided for regulated activities that is not repayable.
Monetary contributions include cash, cheques or money orders, credit card or debit card payments, and online payments (other than contributions of cryptocurrency).
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 it is provided for regulated activities without charge or at less than commercial value. This includes contributions of cryptocurrency and forgone interest on loans.
What is commercial value?

Non-monetary contributions are recorded at commercial value.

Commercial value, in relation to property or a service, 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:

  • the person who provided the property or service (if the person who provided it is in that business), or
  • another person who provides that property or service on a commercial basis in the area (if the person who provided the property or service is not in that business)

In other words, commercial value is generally the amount charged in a store for an item or a service.

Example

A self-employed graphic designer who is a Canadian citizen offers to design an advertising pamphlet for the third party free of charge. The commercial value of this service has to be recorded as a non monetary contribution from the graphic designer. In this case, the commercial value is the lowest amount the graphic designer normally charges for the service.

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.

Who can accept contributions?

Contributions provided for regulated activities must be accepted by the third party's financial agent or a person authorized in writing by the financial agent.

Note: Delegating a person to accept contributions for regulated activities does not limit the responsibility of the financial agent.

Who can contribute to a third party?

Individuals who are Canadian citizens or permanent residents, and businesses or other organizations that operate in Canada, can make contributions to a third party for regulated activities. A third party must not use funds from a foreign entity to pay for regulated activities.

There is no limit on the amount of contributions that may be made by eligible contributors. Contributor types must be reported in the third party's financial return, as follows:

  • individuals
  • businesses and commercial organizations
  • governments
  • trade unions
  • corporations without share capital other than trade unions
  • unincorporated organizations or associations other than trade unions
Prohibition on using foreign funds

A third party must not use funds from a foreign entity to pay for regulated activities. It must not circumvent, or attempt to circumvent, the prohibition or collude with any other person or entity for that purpose.

A foreign entity includes:

  • an individual who is not a Canadian citizen or permanent residen
  • a corporation or entity organized outside Canada
    • that does not carry on business in Canada, or
    • whose only activity in Canada is to influence electors to vote or refrain from voting, either in general or for a particular candidate or registered party in the election
  • a trade union that does not hold bargaining rights for employees in Canada
  • a foreign political party
  • a foreign government or an agent of a foreign government
Prohibition on using certain contributions

The third party is prohibited from using a contribution for regulated activities if:

  • it does not know the name and address of the contributor, or
  • it is unable to determine the type of contributor
Contributor identification

Contributions received for regulated activities must be reported in the third party's financial returns.

Contribution received What to keep in mind
Up to $200 Contributions up to $200 are reported by contributor type.

The third party must keep a record of the contributor's name and address.
Totalling more than $200 The contributor's name, address and type, as well as the amount and date of the contribution, must be reported.

If a contributor is a numbered company, the name of the chief executive officer or president must also be reported.
Multiple contributions for different purposes The third party only needs to report the contributions received for the purpose of regulated activities.
Unable to identify which contributions were made for regulated activities The third party must list the name and address of every contributor who made contributions totalling more than $200 for any purpose during the reporting period.

Note: When total contributions from a contributor are over $200, their name, partial address and contribution amounts disclosed in the financial return will be published on the Elections Canada website.

Example
  1. A Canadian not-for-profit association makes a $50,000 contribution to a third party for regulated activities during the pre-election period. The third party deposits the amount in the bank account that was opened for the campaign and reports the contribution in its financial return.
  2. After an election is called, a third party decides to organize an event in support of a candidate. Olga, a self-employed event planner who is a Canadian citizen, offers to organize the event free of charge. Olga would normally charge $2,000 for this service. The third party reports the commercial value of the service, $2,000, as a non-monetary contribution from Olga.
  3. Jared, a permanent resident of Canada, donates a $175 software licence to the third party to create election advertising during the election period. Because Jared is not in the business of selling or renting office supplies and the commercial value of the licence is $200 or less, the non-monetary contribution is deemed to be nil and is not reported.
  4. During a by-election, a Canadian polling firm conducts an election survey free of charge on behalf of the third party. The commercial value of the service is a non-monetary contribution from the corporation. Even if the commercial value is $200 or less, the contribution has to be reported because it is not from an individual.
Accepting contributions of cryptocurrency

A contribution of cryptocurrency is non-monetary. The contribution amount is the commercial value of the cryptocurrency at the time that it was received.

For contributions up to $200, if the contributor is an individual and not in the business of selling cryptocurrencies, the contribution amount is deemed nil. But the contributor must still be eligible under the contribution rules.

In all instances, third parties should be mindful of the rules in the Canada Elections Act against circumventing contribution restrictions and watch for unusual amounts or patterns in contributions that they receive.

Volunteer labour

What is volunteer labour?

Volunteer labour is any service provided free of charge by a person outside of their working hours, excluding a service provided by a self-employed person who normally charges for that service.

Volunteer labour is not a contribution.

Who is eligible to volunteer?

Any person (who is not a corporation, trade union, association or group) can volunteer for a third party, even if they are not a Canadian citizen or permanent resident.

But a self-employed person cannot volunteer a service they would normally charge for. That is a non monetary contribution and not volunteer labour. The person would have to be eligible under the contribution rules.

People who work on-call or variable hours can volunteer for a third party, as long as they are not self-employed in the field and their employer has not instructed them to work for the third party while receiving standby pay or other compensation.

Note: To know whether a person is an employee or self-employed, ask if they receive a salary or wages, payroll deductions and a T4 slip from their employer or corporation at tax time. If they do, the person is an employee for the purpose of the Canada Elections Act and can volunteer in the same capacity as their line of business, outside their working hours.

Examples
  1. Nana, who is employed as a teacher, makes phone calls for the third party during the evenings, asking voters to support a candidate. This is volunteer labour and is therefore not a contribution.
  2. Eve works for an advertising firm and is paid to be on standby on weekends. When she is not doing work for the corporation during these hours, Eve folds flyers provided to her by the third party and distributes them in her neighbourhood. This is volunteer labour and is therefore not a contribution.
  3. Erik, a self-employed accountant, offers to become the third party's auditor free of charge. Because Erik is self-employed and normally charges for that service, this is not volunteer labour but a non monetary contribution. However, Erik could volunteer other services, for example he could volunteer as the financial agent.
Paying volunteers for part of their work

Volunteers can be paid for part of their work related to regulated activities, but the paid work is not volunteer labour. An agreement must be in place before the work is performed. It can specify incentive- or performance-based terms of remuneration rather than a fixed rate. The expenses incurred under the agreement (the payments for the work) are regulated expenses and have to be reported.

Administering expenses for regulated activities

The Canada Elections Act sets limits on all expenses that a third party incurs to carry out regulated activities. These expenses must be reported in the financial returns.

The third party has to maintain proper books and records to ensure accurate reporting of regulated expenses and compliance with the Canada Elections Act.

The third party's auditor, if one is required, must have access to the third party's books and records at any reasonable time and may require the third party to provide any additional information or explanation needed to prepare the auditor's report.

For an overview of regulated activities, see What are regulated activities? in Chapter 2, Definitions and Registration.
For an overview of reporting requirements, see the Reporting obligations tables in Chapter 8, Reporting.

Separate bank account for regulated activities

A third party that is required to register must open a separate bank account for the sole purpose of its regulated activities. This campaign account must be with a Canadian financial institution or certain authorized foreign banks, as defined by the Bank Act.

All financial transactions in relation to the third party's regulated activities must go through the campaign bank account. If the third party intends to use its own funds to pay for regulated activities, it must deposit the funds from its general account into its campaign account.

After election day, the third party must close the campaign bank account once all unpaid claims and any outstanding balance have been dealt with. The third party must send the final bank statement to Elections Canada.

What is a regulated expense?

This handbook uses "regulated expense" as an umbrella term for partisan activity expenses, election survey expenses, partisan advertising expenses and election advertising expenses.

Regulated expenses include:

  • amounts paid
  • liabilities incurred
  • the commercial value of donated property and services (other than volunteer labour)
  • the difference between an amount paid or liability incurred and the commercial value of the property or services (when they are provided at less than their commercial value)

When a regulated activity takes place during the pre-election period or election period, the associated expense is subject to the limit for that period, regardless of when the expense was incurred.

The expense is usually the amount that the third party was charged for property or services related to a regulated activity, unless this amount was less than commercial value.

Commercial value, in relation to property or a service, 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:

  • the person who provided the property or service (if the person who provided it is in that business), or
  • another person who provides that property or service on a commercial basis in the area (if the person who provided the property or service is not in that business)

In other words, commercial value is generally the amount charged in a store for an item or a service.

Who can authorize expenses?

Expenses for regulated activities must be authorized by the financial agent or a person authorized in writing by the financial agent.

Note: Delegating a person to incur expenses for regulated activities does not limit the responsibility of the financial agent.

Non-monetary contributions are also expenses

The third party incurs an expense when it accepts a non-monetary contribution in relation to a regulated activity.

When property or services are received from an eligible contributor at no charge, the full commercial value is a non-monetary contribution. (Keep in mind that if a service is provided free of charge by an eligible volunteer, there is no contribution and no expense. See Volunteer labour earlier in this chapter for details.)

When property or services are purchased from an eligible contributor for less than commercial value, the difference between the purchase price and the commercial value is a non-monetary contribution.

In both cases, the full commercial value of the property or service is a regulated expense.

Examples
The third party engages a Canadian corporation to design election advertising material for the upcoming election. By giving a 30% discount not offered to other customers, the corporation made a non monetary contribution (30% of the commercial value of the service) to the third party. The full commercial value of the service (the amount the corporation would normally charge for the service) is an election advertising expense subject to the limit for the election period.

Note: If the commercial value of a non-monetary contribution provided for regulated activities is $200 or less, and it is from an individual (who is a Canadian citizen or permanent resident) not in the business of providing that property or service, the contribution is deemed to be nil and no expense has to be reported.