Responding to Changing Needs – Recommendations from the Chief Electoral Officer of Canada Following the 40th General Election
II – Issues Relating to Political Financing
The purpose of the federal political financing regime is to ensure the integrity, fairness and transparency of the electoral process in such a way as to build public trust while promoting participation. This regime has become increasingly complex, however, as a result of numerous reforms, the latest of which were effected in 2003 and 2006. The different aims of the reforms have at times affected the consistency of the regime and created challenges in the areas of clarity and compliance with the Canada Elections Act.
The recommendations in this chapter reflect an approach that seeks to balance two key objectives: to improve the integrity and consistency of the regime and to reduce the administrative burden on the entities governed by the Act.
On the one hand, we see a need in some respects to improve control measures and to put forward administrative compliance mechanisms that would complement the penal measures already set out in the Act. In particular, we are recommending changes to the review process for political parties' electoral campaign returns that would require parties, upon the request of the Chief Electoral Officer, to provide explanations and documentary evidence in support of their electoral expenses returns (recommendation II.1). The purpose of this recommendation is to strengthen the integrity of the regime and accountability in the management of public funds. We are also recommending, in the case of candidates and parties that exceed their spending limit, a reduction of the amount of their election expenses reimbursement equal to the amount by which the spending limit was exceeded (recommendation II.2). This administrative measure, which is already in use in some provinces, would allow for more effective penalties to enhance the fairness of the process.
On the other hand, it is evident that the regime has become increasingly onerous with each new set of reforms. It generates costs and inefficiencies for both the political entities and Elections Canada without really ensuring that the objectives of the Act are achieved. This suggests a need to reduce the regulatory burden while preserving the underlying values of integrity and transparency. It is in this spirit that we have addressed reform of the unpaid claims regime (recommendation II.8). We are also recommending a review of the requirements under the Act with regard to the opening of bank accounts and the filing of auditors' reports for campaign returns and their subsequent updates (recommendations II.10, II.12 and II.13).
On the whole, these recommendations are intended to enhance the regime's accessibility while maintaining the integrity of the political financing rules and helping to more effectively achieve fairness and transparency.
Maintaining the Integrity of the System
II.1 Documents Supporting the Parties' Financial Returns
To ensure transparency and improve financial reporting related to the public funding of political parties, the Chief Electoral Officer should be able to request that registered political parties provide any documents and information that may, in the Chief Electoral Officer's opinion, be necessary to verify that the party and its chief agent have complied with the requirements of the Act with respect to the election expenses return.
The Canada Elections Act provides a set of rules to ensure the financial transparency of the various regulated political entities: political parties, candidates, electoral district associations, nomination contestants and leadership contestants. Registered political parties are required to submit a financial transactions return every year (section 424), a quarterly return on contributions34 (section 424.1) and an election expenses return after each general election (section 429). The Chief Electoral Officer has the mandate of ensuring that those returns comply with the requirements of the Act. However, despite these legislative requirements and the substantial public subsidies attached to them, the Chief Electoral Officer does not have any real means to ensure that parties' returns meet the requirements of the Act. This situation is particularly problematic when it comes to the election expenses return as parties may obtain a reimbursement for these expenses. Indeed, unlike candidates and other regulated entities, political parties are not required to provide any documentary evidence to support their returns. This inconsistency in the Act undermines considerably the transparency of political parties and the accountability of the Chief Electoral Officer, in terms of his audit capacity.
Analysis and discussion
Registered parties are eligible to sizeable public subsidies, partly in the form of a 50-percent reimbursement of their election expenses.35 For that reimbursement to be paid to a party, the Chief Electoral Officer must provide a certificate to the Receiver General attesting that he is satisfied that the party has complied with the reporting requirements of the Act (section 435). Following the 40th general election, $29,182,448.51 was paid to the five parties that qualified for this reimbursement.36
Despite the considerable funding given to registered parties, the Chief Electoral Officer does not receive any documentary evidence of the expenses reported in the election expenses return. Nor does the Act provide the Chief Electoral Officer with the authority to request that a party provide such evidence. Therefore, he has no means to verify the accuracy of the reported expenses on which the reimbursement is based. In comparison, the election laws of five provinces stipulate that documentary evidence must accompany either the party's financial return or its election expenses return, or both.37 Furthermore, the chief electoral officers of all the provinces have the authority to request financial information or documentary evidence from the parties and to inspect their books in the party's own offices.38 In most cases, the latter authority is carried out directly by the chief electoral officer or his staff; in a few cases, a warrant from a court is required in advance.39
The expenditure of public funds without supporting documentation is also out of step with procedures that exist with respect to other federal spending. For example, with respect to Government of Canada payments to individuals or entities that do not result in the acquisition of goods, services or assets (known as transfer payments), there are government policies in place requiring departments and agencies to exercise financial oversight and conduct periodic reviews to ensure accountability for the funds paid.40 Without the capacity to have access to documents for verifying the parties' reported election expenses, Elections Canada cannot exercise similar oversight to ensure accountability and transparency.
The inability to verify a party's return also has serious repercussions for Elections Canada's ability to administer other aspects of the Act as intended by Parliament. For example, section 432 of the Act allows the Chief Electoral Officer to make or request corrections to a party's return provided to him under section 424 or 429. The intent of this power is plainly to allow Elections Canada to ensure that the return correctly reflects a party's financial transactions so that accurate information is available to the public, thereby furthering the Act's underlying goal of transparency. However, the inability of the Chief Electoral Officer to request that documentary evidence be provided greatly inhibits his ability to conduct such a review and to make or request the necessary corrections.
This lack of ability to verify parties' financial transactions with respect to an election contrasts with the law applicable to other entities governed by the Act. Candidates, leadership contestants and nomination contestants all must provide, with their returns, documentary evidence of the expenses set out in those returns.41 If the Chief Electoral Officer judges that the documents provided are not sufficient, he may request that the candidate or contestant file additional documents.42 The lack of a similar ability in respect of parties constitutes an inconsistency in
Party returns, as those of other entities, including candidates, are reviewed by an external auditor hired by the entity. The auditor must provide an audit report on the return and, if the return does not fairly reflect the information in the financial records on which it is based, must make a statement to that effect.44
However, while the external auditor's report is important, it is not a compliance audit. The role of the auditor hired by the party is to ensure that the election expenses return fairly reflects the information contained in the financial records on which it is based. This is strictly an accounting exercise in respect of the financial transactions reported. The external auditor does not examine whether the party's financial return complies with the requirements of the Act – for example, whether an amount claimed as an election expense eligible for reimbursement is, in fact, an election expense as defined in the law. By its nature, the report by the party's external auditor is an accounting exercise that does not have the objective of ensuring compliance with the Act.
Given the considerable public funds that are paid to parties based on the election expenses reported in their returns, and given the importance of the returns accurately reflecting the financial transactions to ensure transparency, it is recommended that the Act be amended to make it possible to verify that the party and its chief agent have complied with the requirements of the Act when the party's returns are submitted to the Chief Electoral Officer. To that end, two solutions may be considered.
Solution 1: Authorize the Chief Electoral Officer to request any necessary documentary evidence supporting the parties' election expenses returns
The Chief Electoral Officer should be authorized to ask a party to produce the documents and provide the information that he deems necessary to verify that the party and its chief agent are compliant with the Act's requirements with regard to election expenses returns.
Under this approach, the parties would be subject to a less cumbersome regime than that which applies to candidates, nomination contestants and leadership contestants, since a party would not be required to systematically submit all documentary evidence supporting its expenses. In terms of accountability, Elections Canada would be able to ensure transparency and compliance through audits focusing on key or randomly chosen transactions.
The recommendations report prepared following the 38th general election, Completing the Cycle of Electoral Reforms, contained a recommendation asking Parliament to provide the Chief Electoral Officer with examination and inquiry powers necessary to verify the accuracy and compliance of financial returns from all entities governed by the Act.45 This recommendation was rejected by the Standing Committee on Procedure and House Affairs. The recommendation presented here is simpler and less intrusive. Furthermore, the increased importance given to accountability for public expenditures since the enactment of the Federal Accountability Act46 supports such a measure.
It should be underlined that the measure recommended here would not grant Elections Canada access to a party's offices. Elections Canada would instead contact the party, which could then provide the agency with the documents in question or with access to them. What is more, the recommendation covers only the election expenses return produced under section 429 and not the other returns provided by the parties. This approach is based on the fact that the election expenses returns require a more thorough review, given that it involves a reimbursement.
This solution would provide the Chief Electoral Officer with the minimum tools he needs to meet the obligation conferred on him by the Act – that is, to ensure that political parties comply with the political financing rules and reporting requirements. It would also provide him with a better overview of the financial activities of the various entities of a political family, namely, the party, its electoral district associations and its candidates. This approach would substantially enhance transparency and accountability, thus complementing the reforms adopted in 2003 and 2006.
Solution 2: Expand the responsibilities of parties' external auditors
In consultations with the political parties, some opposed the solution set out above, raising concerns, in particular, about the potential for increased costs for Elections Canada. As an alternative, they proposed that the party's external auditor be given increased responsibility to perform a compliance audit function. The external auditors would thus be responsible not only for reviewing the parties' returns with regard to accuracy and transparency, but also for assessing compliance with the political financing rules set out in the Act.
For Elections Canada, the previously outlined solution is preferable to this last one. This solution would notably entail increased auditing costs for the parties and would require Elections Canada to issue guidelines for the accounting auditors.
However, if Parliament chooses not to pursue the proposed recommendation, it would be necessary to open discussions with professional bodies governing auditors and with the external auditors themselves to see, from their perspective, whether the proposed alternative is workable. The expanded accounting audit responsibilities, though perhaps not the ideal solution, would at least provide an additional basis for allowing the Chief Electoral Officer to determine whether the party has complied with the requirements of the Act before he authorizes the reimbursement of election expenses.
II.2 Reimbursement of Election Expenses When Limit Exceeded
Candidates or political parties having exceeded the authorized election expenses limit during an election should see a dollar-for-dollar reduction in their election expenses reimbursement, as is the case in Ontario and Manitoba.
This proposal is aimed at increasing public confidence in the integrity and fairness of the electoral process.
The Canada Elections Act does not provide timely consequences for the campaign of a candidate or a registered party that exceeds its election expenses limit during an election. While campaign officials may be prosecuted for an offence, the campaign itself is unaffected. Indeed, the campaign may receive a reimbursement of up to 60 percent of its election expenses even if the limit was not respected. This situation could affect public trust in the fairness of our political system.
Analysis and discussion
To ensure a certain level of electoral fairness, Parliament has adopted rules to govern political financing – including rules on contributions, election expenses limits, various financial benefits for parties and candidates – as well as the disclosure requirements that make enforcement of all these rules possible.
The provisions on the reimbursement of election expenses47 and on election expenses limits48 contribute substantially to ensuring electoral fairness. The balance struck by Parliament between the limits, and the level of state resources provided to political parties and candidates that allows them to compete within these limits, promotes equal participation in the electoral process by the various contenders. The parties and candidates that have obtained an appreciable measure of support from electors are assured of a certain amount of state funding.49
When parties or candidates exceed their statutory election expenses limit, however, they have effectively stepped outside the regime adopted by Parliament to maintain electoral fairness. The measures currently provided for in the Act are purely penal in nature and are not sufficiently effective in addressing non-compliance with these limits.
For instance, despite the fact that the chief agent of a political party or an officer from a candidate's campaign may be prosecuted and convicted for having incurred election expenses in excess of the limit, there are currently no measures to address the unfair advantage from which the party or candidate benefited in the election by overspending.50 Such a party or candidate receives the full amount of the reimbursement calculated using the statutory formula in the Act. Indeed, a candidate or party that reported election expenses below its limit and that is subsequently convicted of omitting to report a substantial portion of its election expenses may even receive an additional reimbursement following the conviction – namely, the difference between the amount reported and its actual expenses, up to 60 percent of the limit. In such a case, the amount of the additional reimbursement could turn out to be substantially higher than the amount of the fine imposed.
To address this situation and to give effect to Parliament's intent of establishing, to some extent, a level playing field among candidates in an election through the partial reimbursement of election expenses and the election expenses limit, a formula should be developed to reduce the amount of reimbursement offered to candidates or political parties that exceed their limit. Such a reduction would be achieved by administrative means, independently of the potential recourse to penal sanctions.
Such a regime exists in two provinces. In Ontario, subsection 38(4) of the Election Finances Act provides that the subsidy paid to a campaign is "reduced by an amount equal to such excess" over the limit of campaign expenses. In Manitoba, subsection 73(1) of the Elections Finances Act provides that the reimbursement provided to the party or candidate is "reduced by $1 for every dollar" by which the election expenses or the advertising expenses exceed the election expenses limit or the advertising expenses limit (whichever excess is greater).
Using the Ontario and Manitoba model (a dollar-for-dollar reduction to account for any overspending), the proposed measure would have the following effects in a scenario of two candidates competing within a $100,000 election expenses limit:51 the candidate who spent the maximum authorized amount would receive a reimbursement of $60,000 for his or her election and personal expenses paid, while a candidate who exceeded the $100,000 limit by $5,000 would be eligible for a reimbursement of only $55,000 for his or her election and personal expenses paid.
Public confidence in the fairness of the electoral process could be significantly enhanced if the reimbursement were reduced to account for overspending as this would constitute a real and concrete consequence affecting the campaign itself in a timely manner.
II.3 Failure of Deregistered Electoral District Associations to File Outstanding Financial Returns
The Chief Electoral Officer should be required to refuse an application for registration from an electoral district association when a deregistered association of the same party and the same electoral district has not complied with the requirement to submit its final financial return (as well as any outstanding return) within six months after deregistration. This ban on registering a new association should be maintained for four years. However, if the missing returns are provided during that period, the Chief Electoral Officer should be authorized to proceed with the new registration.
These changes would provide added effectiveness to the rules governing financial reporting by electoral district associations that aim to ensure the transparency of the political financing regime.
Registered electoral district associations must report annually on their financial transactions and may be deregistered if they fail to do so. Within the six months following its deregistration, an electoral district association must submit a final financial return. This requirement aims to ensure the overall transparency of the political financing system, since the registered association can transfer funds and provide goods and services to the party, other associations and candidates. However, Elections Canada has difficulty obtaining these final financial returns from deregistered electoral district associations, as the Canada Elections Act requires. At present, a new association may register in place of the deregistered association that has not met this requirement.
Analysis and discussion
Electoral district associations are an important component of political parties and of our democratic system. They help to air local issues, select candidates, recruit volunteers and raise funds to finance electoral activities. Until 2004, however, electoral district associations were considered to be the "black hole" of our political financing system. To remedy that situation, the reforms adopted in June 2003, which came into effect on January 1, 2004, put in place a voluntary registration and reporting regime for electoral district associations. There are currently 1,268 registered electoral associations, of which 977 are affiliated with the four parties represented in the House of Commons.
Once registered, electoral district associations may collect contributions, transfer funds, provide goods and services to specified entities of the same registered party, accept the transfer of surplus electoral funds from candidates or surplus campaign funds from leadership contestants or nomination contestants and, with the consent of the party, issue receipts for tax purposes to contributors (section 403.01).
Under the Act, registered associations must also meet a number of obligations relative to their financing and administration. In the six months following its registration, an association must provide an initial statement of assets and liabilities as of the day before the date of registration (section 403.05). Registered associations must also provide an annual financial transactions return, including, among other things, the name and address of each person who has contributed a total amount of more than $200 in the calendar year (section 403.35). Registered associations must also keep the information in the Registry of Electoral District Associations up to date and report to the Chief Electoral Officer when information in the Registry changes.
Failure to comply with one of the above obligations constitutes an offence either by the association itself or by the financial agent, as the case may be. An association may also be deregistered for failing to comply with these obligations. Section 403.21 creates a process that requires the Chief Electoral Officer to give an association the opportunity to meet its obligations before deregistering it. The electoral district association will be deregistered only if it does not rectify the omission.52 A deregistered association is still obliged to file all required financial returns that it has not yet submitted, including a financial return covering the period up to its deregistration (section 403.26). A financial agent who fails to file these returns within six months after deregistration commits an offence.
Since 2004, 76 electoral district associations have been deregistered. Elections Canada often has difficulty obtaining the final financial return from deregistered associations. In 8 cases, the returns have been filed after the six-month deadline; in 19 other cases, no return has been filed at all.53
It is not surprising that there has been little enforcement action despite the difficulties Elections Canada has experienced in obtaining the final financial returns. Enforcement for an offence under Part 19 of the Act is generally appropriate only in the clearest and most serious cases. Often, the failure to comply with section 403.26 is neither clearly the fault of any one person nor, at first glance, particularly serious. In most cases, deregistration occurs after the association's dissolution, the key members having simply withdrawn for one reason or another. In some cases, the electoral district association fails to file its return because it cannot find someone to act as financial agent. In such circumstances, it is impossible to take enforcement action. Moreover, the offences in question apply only to the financial agent of the deregistered association. Furthermore, given the small amounts of money involved in some of these cases, it is not often in the public interest to expend available resources for the purposes of enforcing the Act.
Although not always appearing serious enough to warrant enforcement action, non-compliance with section 403.26 remains a significant administrative concern. In addition to being a problem in itself, this non-compliance could affect the integrity of the political financing system or the perception of its integrity. This is especially true when coupled with the fact that there is nothing to prevent an electoral district association of the same party from registering again in the same electoral district, even if the deregistered association has not complied with its financial reporting obligations following deregistration.
Once the association is deregistered, another association of the same party may apply to register the very next day for the same electoral district. If the new association provides the documents required under section 403.02, the Chief Electoral Officer has no choice but to register it, even if its predecessor has not filed its outstanding financial returns.
This situation is incompatible with the Act's goal of transparency and may lead to legitimate questions as to whether the integrity of the political financing system is being maintained.
To overcome this difficulty, steps should be taken to limit the ability of electoral district associations to register again, or of parties to register a new association in an electoral district when the previous association in that electoral district has been deregistered and has not, within the six months following its deregistration, provided an audited financial return for the portion of the fiscal period ending on the day of its deregistration or for any earlier fiscal period for which the documents have not yet been provided. The Chief Electoral Officer should be required to refuse an application for registration in such a case.
The requirement to file the financial returns before a new association may be registered will be an additional incentive for members of the electoral district association to take responsibility for filing the deregistered association's outstanding returns. Furthermore, the party's knowledge that its future activities in an electoral district may be compromised because of irregularities in the association's file will encourage the party to provide the necessary assistance to a deregistered association to comply with the requirements of the Act. The goal of this procedure would be directly aimed at achieving timely compliance with the terms of the Act.
However, it would not be justifiable to permanently prohibit the registration of an association in a particular electoral district because of the non-compliance of a former association or its financial agent.
The Chief Electoral Officer should therefore be required to refuse to register an association if a deregistered association of the same party in the same electoral district has failed to comply with its financial reporting obligations under section 403.26 within four years of its deregistration (that is, a "normal" electoral cycle). However, if during that period the missing returns are filed – that is, those set out in section 403.26 as well as the annual returns covering the period since deregistration – the Chief Electoral Officer should be authorized to proceed with the new registration. After a period of four years, a new association could be registered without having to produce the missing returns.
II.4 Disposal of a Candidate's Surplus Electoral Funds
A candidate's campaign that has not transferred its campaign property to the registered association or to the registered party should be required to dispose of such property at fair market value in anticipation of its disposal of surplus electoral campaign funds. Moreover, the resale value of such property should be included as electoral campaign revenue in calculating the surplus.
These changes would help maintain Canadians' trust in the process by ensuring that no person can profit financially from an election campaign.
After all financial obligations of a candidate's campaign have been met in accordance with the Canada Elections Act, any surplus funds must be remitted to the registered party or the registered association, in the case of a candidate endorsed by a registered party, or to the Receiver General in any other case.
It would undermine the integrity of the political financing rules if individuals could profit by keeping excess funds accumulated with the support of public subsidies. The same applies to any property that was purchased with the aid of public funds. It would also discredit the political financing rules if individuals linked to the campaign could simply keep the property, which may have significant value, for their personal use after the election.
There is currently no explicit requirement in the Act for a candidate's campaign to dispose of campaign property after the election and to include that value in the calculation of surplus campaign funds. Nevertheless, Elections Canada has been requiring that campaigns dispose of property of significant value before disposing of their surplus. This policy is consistent with Parliament's intent to prevent campaign officials and others from benefiting personally by the use of property financed, in part, by state funding.
Generally, this approach by Elections Canada has worked well. Nevertheless, to prevent difficulties and to remedy a possible enforcement gap currently found in the Act, it is recommended that the Act be amended by adding explicit property disposal rules. The Act would thus require campaigns to transfer property to the registered party or association in accordance with the requirements of the Act, or else sell such property at fair market value before disposing of surplus campaign funds. It is further recommended that the resale value of the property, at fair market value, be included as campaign revenue for the purposes of calculating surplus electoral campaign funds under subsection 471(2).
II.5 Offences for Filing a Campaign Return with False or Misleading Statements or Filing an Incomplete Campaign Return
Offences that apply to official agents for filing an incomplete campaign return or a return with false or misleading statements should also apply to candidates and nomination contestants.
This recommendation would make the Act more consistent.
In its current form, the Canada Elections Act is inconsistent in its treatment of non-compliance with similar obligations applicable to candidates, leadership contestants and nomination contestants.
In the three cases, the Act prohibits a candidate or contestant, and an official agent or financial agent, as the case may be, from providing to the Chief Electoral Officer a return that the candidate, contestant or agent knows or ought reasonably to know contains a material statement that is false or misleading (paragraphs 435.43(a), 463(1)(a) and 478.38(a)). It also prohibits a candidate or contestant, and an official agent or financial agent, as the case may be, from providing an incomplete return that does not substantially set out the required information (paragraphs 435.43(b), 463(1)(b) and 478.38(b)). These provisions enhance transparency for candidates, leadership contestants and nomination contestants alike.
However, the measures to enforce these important provisions of the political financing regime are drafted inconsistently.
The provisions applicable to leadership contestants and their financial agents include equivalent offences that apply to both.
- Paragraph 497(1)(q.16) establishes a strict liability offence for the leadership contestant or his or her financial agent who, contrary to paragraph 435.43(b), provided an incomplete return.
- Paragraph 497(3)(m.16) establishes a dual-procedure offence for the leadership contestant or his or her financial agent who knowingly provided a return containing a material statement that is false or misleading (contrary to paragraph 435.43(a)) or an incomplete return (contrary to paragraph 435.43(b)).
The same symmetry is not found in the measures to enforce the provisions applicable to candidates and their official agents. The Act includes the following related offences:
- under paragraph 497(1)(y), a strict liability offence for the official agent who, contrary to paragraph 463(1)(b), provided an incomplete return
- under paragraph 497(3)(v), a dual-procedure offence for the official agent who knowingly provided a return containing a material statement that is false or misleading (contrary to paragraph 463(1)(a)) or an incomplete return (contrary to paragraph 463(1)(b))
In order to give effect to Parliament's intent of also prohibiting candidates from knowingly providing returns containing false or misleading statements, or from providing incomplete returns, it is recommended that the offences mentioned above for official agents also apply to candidates.
With respect to nomination contestants, a drafting error seems to have been made, for while paragraph 497(3)(z.12) applies to both the nomination contestant and his or her financial agent, paragraph 497(1)(z.35), setting out the strict liability offence for having filed an incomplete return, does not mention the contestant. It is, therefore, further recommended that the offence under paragraph 497(1)(z.35), which currently applies only to the financial agent of a nomination contestant, also be made applicable to the contestant.
II.6 Election Advertising Expenses of a Registered Party's Electoral District Associations and of Third Parties
The rules for election advertising by third parties should be reworded to apply to those expenses related to election advertising that are incurred before the beginning of the election period if the advertising is transmitted during the election period.
Similarly, electoral district associations should be prohibited from transmitting election advertising during an election period, even when the associated expenses are incurred before the beginning of the election period.
These changes to the wording of the relevant provisions are aimed at better reflecting Parliament's intent.
Section 350 sets limits on the election advertising expenses that a third party may incur.
For its part, section 403.04 prohibits the electoral district association of a registered party from incurring election advertising expenses during an election period.
Sections 350 and 403.04 are similarly worded. Parliament is restricting election advertising expenses incurred during the election period. That time reference is unnecessary, as the definition of election advertising in section 319 already restricts it to advertising transmitted during an election period. Adding the phrase "during the election period" to sections 350 and 403.04 is problematic as it has the effect of restricting the scope of the prohibition solely to expenses incurred during the election period. The affected entities would therefore be free to incur election advertising expenses before the election period – that is, expenses related to the production of messages and the acquisition of their means of distribution – and then using the products of those expenditures during the election period.
Since the adoption of sections 56.1 and 56.2 of the Canada Elections Act, which fix the date of general elections, this omission is likely to have more of an impact on electoral fairness.
Analysis and discussion
Section 350 and the third parties regime
Given the definition of election advertising in section 319, the Act should simply prohibit a third party from incurring election advertising expenses that exceed the limits set out in section 350, without specifying when those expenses are incurred.
Such an amendment would consequently include, for the purposes of the limits set out in section 350, the value of advertising products and services acquired before the beginning of the election period, but used during the election period.
The Act should also provide that, in the case of a general election that is not held on the date set out in subsection 56.1(2) or section 56.2, or in the case of a by-election, the third party will have proved that those costs do not constitute an election advertising expense if the third party can demonstrate that, on the issue of the writs, it was no longer able to cancel the transmission of that advertising.
Section 403.04 and electoral district associations of a registered party
Section 403.04 was incorporated into the electoral legislation in 2003 with the passage of An Act to amend the Canada Elections Act and the Income Tax Act (political financing).54
That provision prevents an electoral district association of a registered party, whether the association is registered or not, from incurring election advertising expenses during an election period.
As is the case for section 350, the proposed solution consists of removing the time reference in section 403.04. Consequently, associations would be prohibited from incurring election advertising expenses. Because advertising distributed outside the election period does not constitute election advertising, such advertising would not be covered by the prohibition. Moreover, all election advertising within the meaning of section 319 would be covered by the prohibition, regardless of whether the associated expenses were incurred before or during the election period.
These amendments would reflect Parliament's intent at the time that the provisions were adopted.
II.7 Candidates' Debates
The Act should define under what circumstances expenses incurred to organize a candidates' debate constitute a non-monetary contribution received by the participating candidates and an election expense of those candidates. Similarly, it should specify under what circumstances expenses incurred to organize a party leaders' debate constitute a non-monetary contribution made to the participating registered parties and an election expense of those parties. These clarifications would add certainty to the corresponding rules and make it easier for candidates to interpret them.
In recent years, there has often been confusion about the political financing rules set out in the Canada Elections Act and how they apply to candidates' debates that are organized by community associations or by other interested individuals or groups during an election. During the 40th general election, Elections Canada was again asked whether a candidate's participation in a debate constitutes, with respect to the costs of organizing the event, a non-monetary contribution to the candidate and an election expense of the candidate.
In light of the importance of such debates to our democratic system, the Chief Electoral Officer's interpretation of the political financing rules has long been that expenses incurred to organize a forum for debate that allows the public to hear and question candidates do not constitute a contribution to any candidate, provided that the following conditions are met:
- The forum must be open to the public, and the invitation must be extended to all of the candidates. (Where this is not the case, there must be a reasonable basis for the exclusion.)
- The forum must be conducted in a politically impartial fashion.
While the Chief Electoral Officer believes that this interpretation is consistent with the intent of Parliament, this matter continues to generate complaints that are difficult to address during an election period.
Analysis and discussion
While the definition of "election advertising" under section 319 of the Act excludes the transmission of debates, the definition of a candidate's election expenses under section 407 is broader than merely what constitutes election advertising; it includes non-monetary contributions received by a candidate to the extent that the property or service that constitutes a contribution is used to directly promote or oppose a candidate during an election period.
For example, if a landlord offers a candidate free use of one of the landlord's premises to set up an electoral campaign office during an election period, this non-monetary contribution constitutes an election expense of the candidate since it promotes that candidate's election.
Section 407 could, therefore, be read as including in election expenses the costs of a debate organized to promote the election of a candidate or to place another candidate who is not participating at a disadvantage. The individual who incurs these costs would thereby make a non-monetary contribution that would be subject to the Act's rules on contributions, including the limits and the restrictions on who can contribute.
That having been said, elections present a prime opportunity in our democratic system for the public to engage in a policy debate on the issues of the day. The holding of an all-candidates' debate is, and has consistently been, an important means through which electors receive information about the positions of the various candidates running in their electoral district. This information can be crucial in helping electors decide for whom to vote. This was recognized in a 1993 decision of the Ontario Court (General Division), R. v. CBC.55
Furthermore, many such all-candidates' debates are organized by community associations for the benefit of the residents of a neighbourhood or by local television stations as a community service. Here, too, if section 407 is applied to the letter with respect to candidates' debates, the costs of organizing the debates would constitute an election expense because they are a non-monetary contribution to the campaigns. In light of the rules on political contributions in the Act, the community associations and local television stations organizing the debates would therefore be committing an offence under the Act since only individuals can make contributions to a candidate. This would be the case even if all candidates were participating in the debate since each candidate would be participating as a means of promoting or enhancing his or her respective campaign for election.
Elections Canada is of the opinion that this was not Parliament's intent when it adopted the rules on political financing in the Act since candidates' debates have a long and established history and play a very important role in Canadian democracy. In fact, it is clear that Parliament intended for such debates to receive special treatment under the Act since section 319 of the Act explicitly provides, under paragraph (a) of the definition of "election advertising", that "the transmission to the public of ... a debate" is not considered election advertising.
The result is uncertain: some may argue that Parliament did not want debates to be considered as election advertising, but nevertheless wanted the associated organizational expenses to constitute an election expense of the candidates or parties that benefit from the forum, which enables them to communicate their views to electors. As mentioned above, if this had been the intent of Parliament, only individuals would be able to organize such debates, in strict compliance with contribution limits.
Over the years, Elections Canada developed criteria for determining in what circumstances expenses incurred to organize a debate are, in fact, a non-monetary contribution to the participating candidates and an election expense of those candidates.
First, in light of the definition of "election expense" under section 407, the criteria established by Elections Canada recognize that providing a forum for debate to candidates, if done with the intent of promoting particular candidates, can constitute a contribution to those candidates and must be subject to the contribution rules of the Act, including the rules respecting eligibility and limits.
However, as noted above, the expense incurred to organize a forum for debate that allows the public to hear and question candidates will not represent a contribution made to a candidate provided that:
- The forum is open to the public, and no candidate is excluded. (Where this is not the case, there must be a reasonable basis for the exclusion.)
- The forum is conducted in a politically impartial fashion.
Elections Canada has consistently applied these criteria and believes them to be consistent with Parliament's intent in adopting the rules on political financing. However, since these criteria are not explicitly set out in the Act, they are more subject to challenge.
Parliament should adopt clear provisions in the Act that define under what circumstances expenses incurred to organize a candidates' debate constitute a non-monetary contribution received by participating candidates and an election expense of those candidates, and under what circumstances expenses incurred to organize a debate among party leaders constitute a non-monetary contribution to participating registered parties and an election expense of those parties.
Reducing the Regulatory Burden
II.8 Treatment of Candidates' Outstanding Claims (Including Loans)
The rules governing the unpaid claims of candidates56 should be amended to simplify them and to improve their effectiveness.
The proposed system would eliminate many elements of the current regime that are ineffective or that undermine transparency, including the requirement to obtain authorization for late payment of claims and the rules for deeming unpaid claims to be contributions. The new system would provide for a standard 18-month period for payment of debts, accompanied by stepped-up reporting requirements, and offences for non-payment of claims after 18 months.
At the beginning of the campaign, the vast majority of candidates lack the funds needed to pay the expenses that will be incurred for the election. These are generally funded through loans or instalment payments to creditors, whose invoices are often not received until the campaign is over. Payment of these claims can extend over months, if not years in some cases. When that happens, there is a risk that the transparency and integrity of the political financing regime will be undermined.
The Canada Elections Act includes provisions aimed at providing an end date to the financial administration of a candidate's campaign and at ensuring the transparency and integrity of the political financing regime. But the current regime is burdensome, complex and very ineffective. The provisions on which it is based were adopted well before the political financing reforms of 2003 and 2006, and were transposed to newly regulated entities (including nomination and leadership contestants) without being brought up to date.
Although elements of the regime apply to registered parties and electoral district associations, the recommendations made here apply only to candidates, leadership contestants and nomination contestants. As registered parties and associations are ongoing entities with annual reporting obligations, many of the concerns raised about the regime do not apply to them. In the following paragraphs, the term "candidate" will refer to candidates, nomination contestants and leadership contestants.
Analysis and discussion
The existing regime for the payment of claims
The current regime for candidates' payment of claims was built over the years. Some aspects go all the way back to the 19th century, but most of the provisions date from 1974. The current regime includes the following elements:
- The invoice for the claim must be sent within three months after the event (candidate selection, election or leadership race).
- The claim must be paid within four months after the candidate's selection or election, or 18 months following the end of the leadership race.
- An application must be made to the Chief Electoral Officer or to a judge to pay a claim when either of the above deadlines is not met.
- When claims are paid following the authorization of the Chief Electoral Officer or a judge (or in other limited circumstances), candidates must file an updated campaign return.
- If a claim is not paid within 18 months of the deadline, the amount of the claim is "deemed to be a contribution," except in defined circumstances, including when the claim is the subject of a "binding agreement to pay" or if the claim has been written off in accordance with the creditor's "normal accounting practices."
- The list of claims deemed to be contributions is to be published.
- In some circumstances, subject to specified exceptions, failure to pay an unpaid claim in a timely manner may constitute a strict liability offence.57
None of the elements of this regime were reviewed during the major reforms of political financing carried out in 2003. The regime applicable to candidates was simply tacked onto the regime governing nomination contests and leadership races, irrespective of the new rules on contributions. Neither was the regime reviewed in 2006, when the rules regarding contributions were tightened again. Consequently, it is ill adapted to the new realities facing candidates: it is cumbersome, complex and ineffective. It also fails to achieve its key objectives – that is, to provide an end date for the financial administration of candidates' campaigns and to ensure the transparency and integrity of the political financing regime.
Lack of an end date
Two aspects of the regime seek to provide an end date for the financial administration of candidates. For the first, the Act sets a deadline for the submission of invoices and the payment of claims, which cannot be exceeded without the authorization of the Chief Electoral Officer or a judge. In addition, the Act stipulates that claims remaining unpaid after 18 months be deemed contributions, subject to exceptions. Both of these elements are problematic.
i) Deadlines for submission of invoices and payment of claims
In practice, failure to make payment is almost always a result of a lack of funds. For many election candidates, this may be because they have not received their election expenses reimbursement within four months after polling day. In the aftermath of the 38th general election, 348 candidates had unpaid claims four months after the election, which is the deadline set by the Act for payment of such claims. The figure was 310 candidates for the 39th general election.58 Ability to pay all of the claims within the prescribed time frame constitutes a widespread problem for all candidates and is not an isolated phenomenon.
Candidates who have not paid their claims by the four-month deadline must request authorization from the Chief Electoral Officer or a judge before they can pay them. This requirement is needlessly cumbersome. First, many candidates do not even know about it, so they inadvertently commit an offence by paying a debt without obtaining authorization to do so.59 Second, those unable to pay their debts within the new deadline set by the Chief Electoral Officer must then obtain the authorization of a judge. In so doing, they incur additional expenses that increase the burden of the outstanding claims. Neither the Chief Electoral Officer nor the judge is likely to withhold this payment authorization since paying an election debt is desirable in and of itself, and the authorization – since it is the primary mechanism for requiring a candidate to produce a modified return – ensures transparency.60
It should also be pointed out that the creditors' requirement to submit their invoice within three months following the event does not take into account the fact that certain expenses are incurred beyond this date. This is the case, for example, with expenses relating to fundraising activities aimed at paying these debts or with legal fees associated with requests for judicial authorization for late payment of claims. When an expense is incurred after the three-month deadline, the creditor and the candidate are violating the provisions of the Act that set out deadlines for invoice submission and payment since these deadlines have already expired.61
Thus, the provisions relating to submission of invoices and payment of claims within a set deadline are ineffective, if not counterproductive.
ii) Deemed contributions
There is a presumption under the Act that a claim that remains outstanding after 18 months constitutes a contribution. This presumption was originally introduced to bring a close to the financial administration of candidates after 18 months, at which time outstanding claims are deemed to be contributions and are published by the Chief Electoral Officer. However, the presumption does not apply when the unpaid amount:
- is the subject of a binding agreement to pay
- is the subject of a legal proceeding to secure its payment
- is the subject of a dispute
- has been written off by the creditor as an uncollectible debt in accordance with the creditor's normal accounting practices
Nevertheless, these provisions do not achieve their intended results.
First, the scope of the exceptions provided for in the Act is such that the presumption does not apply to the vast majority of outstanding claims. It should be noted that it is not possible for the Chief Electoral Officer to categorically evaluate whether a claim actually meets the criteria for an exception to the rules because there is no obligation to file documentary evidence to support the notification provided by the candidate or the candidate's agent as to the application of one of these exceptions.
Second, the deemed contributions regime does not take account of the contributions limits and restrictions on their source that were added to the Act. Before 2003, restrictions on the source and amount of contributions were few in number. The only consequence of declaring an unpaid claim as a contribution was identifying the amount in question. But since the new rules were adopted in 2003 and 2006, the presumption that claims constitute contributions took on a new meaning. If a candidate fails to provide the notification regarding the four exceptions above as required by the Act, the creditor could be deemed to have made a contribution in excess of the
authorized limit. However, since the offence provided for when a person makes a contribution
in excess of the limit requires proof that the limit was wilfully exceeded, application of enforcement measures requires going beyond the legal presumption.62 In this context, we can
no longer set an arbitrary date beyond which candidates' outstanding transactions are no longer reviewed and simply published as contributions.
Thus, the publication of claims deemed to be contributions no longer constitutes a close to the financial administration of candidates and to Elections Canada's requirement to examine the manner in which the candidates settle their claims.
Lack of transparency
Despite its complexity, the current regime does not in all cases achieve its primary goal of making candidates' financial transactions fully transparent. The most significant problem with the current regime is that it does not require an updated return every time claims are paid and contributions are raised after candidates file their initial return but before the requirement for payment authorization takes effect.
As indicated earlier, the requirement to file an updated return arises only in certain circumstances – generally, when the candidate applies for authorization from the Chief Electoral Officer or a judge to pay a claim outside the statutory period. Because of the way various sections of the Act interact, candidates may reimburse expenses or make loan payments without having to update their returns.
The statutory period for paying claims runs for four months from the event, in the case of candidates and nomination contestants, and 18 months, in the case of leadership contestants. The requirement to seek the authorization of the Chief Electoral Officer or a judge to pay a claim is imposed only after the end of this period. Candidates have no obligation to submit a return when they pay a claim during the period between the filing of the return in which they report that unpaid claim and the beginning of the period when they must seek authorization to pay a claim. In effect, claims paid during this period are not subject to any disclosure requirements under the Act because no updated return need be filed in such a case.63
The reporting gap is clearest with respect to party leadership contestants. Leadership contestants must file their campaign return within six months of the end of the leadership contest. However, they have 18 months to pay their unpaid claims. Any claims that are paid between the date of filing the campaign return and the end of the 18-month period, as well as the contributions raised to make those payments, are not subject to reporting requirements. If the contestant's claims are all paid within the 18-month period, the contestant has no legal obligation to ever report those financial transactions.64
In addition, candidates and contestants are required to report on contributions and other funds received since the original return was filed only when the Chief Electoral Officer exercises his discretionary power to impose such an obligation on one who seeks authorization to pay a claim after the specified deadline.65
These issues further confirm that the payments regime is not functioning effectively with respect to its initial objectives.
Proposed new regime
What is needed is a simpler and more effective regime that, above all, makes financial transactions transparent.
It is therefore recommended that the following elements of the payment regime, applicable to candidates and contestants, be repealed:
- the provisions setting out a period in which claims must be invoiced and paid, along with the associated offences
- the provisions requiring that a written application for authorization to pay be made to the Chief Electoral Officer or a judge to excuse the candidate or creditor from the deadlines for submission and payment of claims
- the existing obligation to update a return following each authorized payment
Furthermore, instead of deeming claims to be contributions – an approach that causes complications and confusion context of contribution limits – transparency should be sought through publication of outstanding claims, with appropriate documentation to support all requested exceptions.
The Act should simply be amended to require that all candidates who have unpaid claims on the date that they submit their financial return, or who carry out transactions after the return has been filed, must report on the payment of those claims and declare the sources of funds used for the payment of those claims. Payments and transactions made during the first 18 months following polling day, as well as contributions received, could be reported at the time of the candidate's choosing within that 18-month period.
If any claims remain unpaid, or if the candidate has transactions that were not reported over the 18-month period following the election or the end of the contest, the candidate will need to file a return updated to the end of that period.
At that time, in order to allow the Chief Electoral Officer to determine whether the rules on contributions (including the anti-avoidance provisions) were complied with, the candidate should be required to indicate whether any of the following circumstances apply to each unpaid claim:
- Any part of the claim is subject to a dispute, and steps have been taken by the parties to resolve the dispute.
- The claim is the subject of a court proceeding to recover payment.
- The parties have agreed on a reasonable repayment schedule, which is being followed (i.e. the agreed payments are not in default).
- The debt was written off as uncollectible in accordance with the creditor's usual business practices. (In this case, the creditor would be required to provide documentation, as requested by the Chief Electoral Officer, to verify the creditor's usual business practices, including whether it normally affords credit in such an amount, whether it followed normal debt recovery processes and whether the debt was written off in accordance with the creditor's usual practices.)
- Any other relevant fact concerning the unpaid claim that may explain why it remains unpaid and was not, in reality, a contribution.
In addition to stating which of the above conditions (if any) applies to an unpaid claim, the candidate should be required to provide documentary evidence of the condition. In the case of a written agreement to pay, the repayment schedule should be provided.
As recommended elsewhere,66 there is no need for an audit report on an updated return. However, it should be clear that the candidate must provide documents to support any expenses reported in an updated return and that the Chief Electoral Officer may request additional documentation, as is the case with the initial campaign return.
It should also be an offence to fail to file an updated return where required or, as is the case for all returns, to file one that is incomplete, false or misleading. The Chief Electoral Officer would publish all updated returns, including the information regarding the status of claims that remain unpaid.
The recommended changes would simplify financial transactions occurring after the initial campaign return is filed, thus lessening the regulatory burden associated with payment authorizations and regularization of late invoices. Furthermore, a legal presumption would no longer occur at an arbitrary moment to suggest that a creditor was really an ineligible contributor, in the absence of any consideration of the facts surrounding the transaction.
In addition, the recommended measures would enhance transparency by eliminating the existing reporting gap. They would also make it possible for the Chief Electoral Officer to have a better understanding of the facts surrounding the candidate's transactions and thus determine whether any of them need to be brought to the attention of the Commissioner of Canada Elections so that an investigation can be carried out to verify compliance with the rules on contributions.
The regime described above does not, however, resolve the problems associated with the lack of closure when claims remain unpaid after the proposed 18-month period after the election or contest period. Ideally, all claims would be paid within that time. However, experience shows that this is not always the case, and the four circumstances outlined above are examples of situations in which claims may remain unpaid long after a campaign or contest has ended.
To deal with any claims that remain unpaid after the 18-month period, parts of the current regime should continue. That is, a candidate who wishes to make a payment after that time should be required to seek the authorization of the Chief Electoral Officer before the end of the statutory period, unless the payment is being made as a result of court proceedings to recover the unpaid amount. The Chief Electoral Officer could then require the documents and set the conditions that he deems necessary to ensure the integrity of the rules on political financing. After a claim is repaid (whether authorized by the Chief Electoral Officer or as a result of a court proceeding to recover payment), the candidate should be required to file an updated return setting out all financial transactions that have occurred since the previous update, including the source of contributions or transfers used to pay the amount.
Additionally, the Act should provide for a strict liability offence for any claim that remains outstanding after the 18-month period. Unlike the offence currently set out in the Act, it would apply regardless of whether the Chief Elector Officer has issued an authorization to pay after the 18-month period. The candidate would then have to convince the judge that he or she has exercised due diligence to pay his or her campaign debts.
Parliament may also wish to consider additional provisions to motivate candidates to pay their claims before the 18-month deadline. One option that could be considered is a ban on being a candidate, a leadership contestant or a nomination contestant for a specific period or for a shorter period if the unpaid claim is paid in the meantime. This ban, similar to that now found in paragraph 65(i) for candidates who fail to file their election expenses return, could apply to candidates who have unpaid claims more than 18 months after the campaign, and it could remain in place until the claims are settled, unless those claims are the subject of litigation. This option, however, involves serious considerations about electoral participation and should be reviewed carefully by Parliament to assess whether it is legitimate in our democratic system. For this reason, it does not form part of the present recommendation.
II.9 Extensions of Time for Filing Financial Returns67
Political entities should be able to apply to the Chief Electoral Officer for an extension of time up to the date that the return is due and in the two weeks after that date.
Political entities should be able to apply to a superior court for an extension in the following three scenarios: once the above period has expired, on the expiry of the Chief Electoral Officer's extension or on the Chief Electoral Officer's refusal of an extension.
Any such extension of time should be authorized unless the Chief Electoral Officer or the judge, as the case may be, has reason to believe that the political entity has shown gross negligence.
In addition, candidates who fail to file an electoral campaign return by the statutory due date should forfeit up to one-half of their nomination deposit, regardless of whether they receive an extension.
These changes would allow extension requests to be processed more efficiently and would reduce recourse to the courts. What is more, they would encourage greater compliance with the statutory deadlines.
The existing regime for seeking an extension to the filing deadline for a financial return is costly, cumbersome for regulated political entities and does not promote timely reporting.
Under the Canada Elections Act, entities that are seeking extensions to file a return or a modified return must apply to the Chief Electoral Officer by the date that the return is due or to a court in the two weeks after that date. Although the Act does not explicitly provide for extension requests to be made after that two-week period, it is not unusual for courts to grant such extensions all the same.68
Failure to file by the prescribed deadline is an offence for which the agent of the relevant entity may be prosecuted. Elected candidates who do not meet this requirement may not continue to sit or vote as members of Parliament until they are in compliance. Furthermore, candidates who do not file their returns cannot be reimbursed for a portion of their election expenses, even if they are otherwise eligible, and lose their nomination deposit (section 468). Electoral district associations and registered parties that fail to file returns may be subject to deregistration.
Despite the above provisions, there are several weaknesses in the existing regime.
- The grounds for allowing extensions are too narrow.
- The existing regime puts the procedures in the hands of the courts too early in the process.
- The existing regime is not effective in promoting the timely filing of returns.
These three issues will be reviewed in turn.
Analysis and discussion
1. Grounds for allowing extensions are too narrow
The Chief Electoral Officer or a judge may authorize an application for an extension to the filing deadline only if it can be shown that one of the following four criteria caused the late filing:
- the illness of the applicant
- the absence, death, illness or misconduct of the agent or a predecessor
- the absence, death, illness or misconduct of a clerk or an officer of the agent, or a predecessor of one of them
- inadvertence or an honest mistake of fact69
One of the primary goals of the Act is to ensure transparency in political financing through complete disclosure of the financial transactions of regulated political entities. There are any number of circumstances that may cause a regulated political entity to seek an extension for filing its return. If a circumstance does not fit within the scope of those enumerated in the Act, however, the Chief Electoral Officer or court cannot, by law, allow an extension to the deadline or a modification of the return.
Yet the result of refusing an extension to a political entity is to prevent the publication of the financial return. Although the entity may be subject to prosecution in these circumstances, the goal of transparency is defeated. These prosecutions may have a deterrent effect, but they do not ensure transparency. Furthermore, prosecution is unlikely in circumstances in which a reasonable attempt to obtain an extension was made but denied under the terms of the law.
As a result, the Chief Electoral Officer, applicants and the courts must often stretch elements of a situation to match one of the four grounds in order to ensure transparency while avoiding enforcement action.
2. Dependence upon the courts early in the process
Under the present regime, only a superior court has the power to grant an additional extension of time if an entity fails to apply for an extension by the deadline or fails to meet an extended deadline provided by the Chief Electoral Officer. Given the importance placed upon the objective of transparency and the fact that there is no known instance of a court refusing an application for an extension, the requirement to seek a judicial extension at such an early stage appears to be an unnecessary financial and administrative burden, both for the applicant and for the courts.
3. Ineffectiveness of the current regime in promoting timely disclosure
Notwithstanding the penalties clearly stated in the Act, and the fact that the entities must go through the burdensome and costly process of seeking a court order as prescribed by the Act, many entities still do not file their financial returns on time.
With respect to candidates, the following statistics show the extensions granted by the Chief Electoral Officer following the three most recent general elections:
- 2004 general election: 343 extensions out of 1,686 candidates = 20.3 percent
- 2006 general election: 430 extensions out of 1,636 candidates = 26.3 percent
- 2008 general election: 471 extensions out of 1,602 candidates = 29.4 percent
This data shows that the timely filing of returns is becoming less and less common, at least with respect to candidates.
At present, the primary penalty associated with late filing is prosecution. However, this measure is generally seen as being appropriate only in the clearest and most serious cases.
Generally, enforcement action is taken if the return is not filed as required by the Act. Because of the overriding goal of transparency, it is in the public interest to ensure that entities file a return. Although Elections Canada wishes to encourage timely reporting, the agency is very hesitant to refuse an extension request or to oppose an extension request made to a court. In most cases, timeliness must, therefore, be sacrificed in favour of transparency.
In conclusion, the current process is cumbersome for political entities, costly and ineffective, and does not encourage more timely reporting.
In light of the above issues, it would be appropriate to modify the existing provisions relating to extensions of time for all political entities to better ensure that the goals of the Act are achieved.
In Completing the Cycle of Electoral Reforms, the previous recommendations report of the Chief Electoral Officer, it was recommended that the Chief Electoral Officer be entirely responsible for granting extensions to candidates, both before and after the statutory deadline. The House of Commons Standing Committee on Procedure and House Affairs voiced its support for this recommendation in its 13th report, Improving the Integrity of the Electoral Process,70 published in June 2006, but the Government did not act on it.
The present recommendation seeks to build on that earlier recommendation by extending its application to all entities. Furthermore, it reinstates a role for the court (removed in the earlier recommendation). Finally, to deal with the rising problem of non-compliance with the statutory deadline by candidates, it proposes that the refund of a portion of the candidate's nomination deposit be dependent upon filing within the deadlines prescribed by the Act.
For all entities, the following is proposed:
- The current provisions regarding the granting of extensions should be replaced with a provision authorizing all such extensions unless the Chief Electoral Officer or judge, as the case may be, has reason to believe that the political entity has shown gross negligence. Such a provision would better reflect the fact that, with rare exceptions, the public interest is better served by disclosure of the information.
- The period in which an application may be made to the Chief Electoral Officer for an extension should be extended to include the two weeks after the return is due. In many cases, last-minute complications cause a return to be filed somewhat late. These complications should not require an entity to seek an extension from the courts. This would greatly reduce the burden on the courts and on entities that, in good faith, are unable to file their returns by the prescribed deadline.
- An application for an extension should be made to a superior court: (1) when an application has not been made to the Chief Electoral Officer within the prescribed time frame; (2) on the expiry of an extension granted by the Chief Electoral Officer; or (3) on the refusal of the Chief Electoral Officer to grant an extension.
The above changes will reduce the administrative burden on entities seeking an extension. However, other changes are needed to reverse the trend toward more frequent late filing by candidates. It is, therefore, recommended that candidates who file after the statutory deadline, even in accordance with an extension provided by the Chief Electoral Officer or a court, forfeit a portion of their nomination deposit.71
At present, candidates who do not file their return within the deadline authorized by the Act forfeit their entire nomination deposit, as do candidates who fail to return all of their unused tax credit receipts within a month of polling day.
Therefore, if the above recommendation is accepted, candidates who file within four months of polling day (that is, by the statutory deadline) shall have their entire nomination deposit refunded. In contrast, candidates who fail to comply with all of the terms of the Act, or who fail to return all unused tax credit receipts, would lose their entire deposit. Finally, candidates who file after the four-month deadline, but within an extension period, would forfeit a portion of their nomination deposit.
There are two possible options for implementing this recommendation. The first would be that candidates who file after the four-month deadline forfeit one half of their nomination deposit. The second option would be that candidates who file within the first week after the four-month deadline forfeit $100; within the second week, $200; and so on, up to a maximum of $500.
II.10 Removing the Requirement for Audit Reports on Updated Returns
The requirement that an updated return filed by a candidate72 be accompanied by an updated auditor's report should be eliminated. This requirement is of little practical use and constitutes a burden for the candidates.
In some circumstances under the Canada Elections Act, a candidate must file an updated audit report along with an updated financial return. The requirement for an updated audit report is an unnecessary administrative and financial burden on candidates for the following reasons.
First of all, in many cases, the amounts are minimal, and there are very few transactions.
Second, an updated return must be filed within 30 days of the transaction – an especially tight timeline. Given the past difficulties experienced in obtaining returns on time, this additional requirement could further slow a process that is intended to achieve timely reporting.
Finally, Elections Canada receives from the candidates all of the documentation pertaining to the expenses in the updated return and has the authority to request additional documents as necessary.
II.11 Contributions to Leadership Contestants
It is recommended that the "per contest" limit imposed on contributions to leadership contestants be replaced with an annual limit.
It is further recommended to repeal the existing presumption that a contribution made within 18 months following a leadership race is deemed to be a contribution for this race.
These changes would make the Act more consistent by harmonizing the leadership contestants' regime with the regime for candidates and nomination contestants.
The limit imposed on contributions to leadership contestants is not established on an annual basis (as is the case for other regulated entities), but rather is established on a "per contest" basis.
Furthermore, subsection 405(5) of the Canada Elections Act states that contributions made to leadership contestants within 18 months after a leadership contest are deemed to be contributions to that contest. This provision is of questionable utility and leads to uncertainty in cases where a person is a contestant in two leadership contests that closely follow each other.
Analysis and discussion
There are no deeming provisions similar to subsection 405(5) for the other entities in the Act. This is likely because other entities, with the exception of candidates not affiliated with a party, have contribution limits calculated on an annual basis. As contributions to leadership contestants are instead calculated on a per-event basis, the Standing Committee on Procedure and House Affairs raised concerns about the contribution rules for leadership contestants when it considered Bill C-24 in 2003. Specifically, the Committee wished to clarify that contributions could be received for a period of 18 months after a contest and applied to debts from that contest. The Committee added subsection 405(5) in an effort to clarify the situation.
In practice, the presumption established by subsection 405(5) raises more questions than it provides solutions.
To begin with, it is unclear whether a person who has a debt from a previous leadership contest, but wishes to begin collecting contributions as a contestant for a future contest, is barred from accepting contributions for the second contest for 18 months after the selection date of the first contest.
It is also uncertain whether a leadership contestant who still carries a debt 18 months after the contest can continue to accept contributions after that period to pay off the debt.
If a provision proves necessary, it should be worded as a presumption that can be rebutted, as opposed to being deemed to be one thing or another. However, even a rebuttable presumption appears to be unnecessary. It should be noted that in the absence of subsection 405(5) or of a similar provision with a presumption, there would be no prohibition on a contestant raising funds after selection day if that contestant still has debts to pay. The simplest way to deal with the uncertainty raised by subsection 405(5) would therefore be to repeal it.
In addition to repealing the provision, Parliament should deal with the root of the problem that caused the Committee concern and replace the "per contest" contribution limits with annual limits for leadership contestants. Creating annual contribution limits would remove any question as to which limit applies to a given contribution. It would also make the contribution limit regime for leadership contestants consistent with that of most other entities. Finally, an annual limit would be better adapted to the reality of leadership contestants taking part in a larger-scale contest, financed over several years, because of the substantial costs associated with the contest and the significant reduction of contribution limits since 2006.
II.12 Adjustments to Leadership Contestants' Reporting Requirements
Adjustments should be made to the return accompanying the contestant's application for registration. It should include information on loans obtained before the contest begins, and the period covered by the return should be adjusted. This adjustment would eliminate the overlap between the information provided in this return and in the first "weekly return," which is a source of confusion.
It is further recommended that only contestants who accepted contributions and incurred expenses valued at over $10,000 should be required to file the weekly returns (a final campaign return would still be required of the other contestants). Also, the number of these weekly returns should be reduced from four to two.
These recommendations seek to simplify the requirements of the current regime while maintaining the underlying principle of transparency.
A set of new rules governing the financing of leadership contests of political parties came into effect in January 2004.73 Since then, experience has shown that some aspects of these rules are not well adapted to the reality of leadership contestants, which may in fact be quite variable. Some contests are low-key, with limited spending and contributions, while other contests are substantial in scope and involve large sums of money. In both cases, adjustments to the rules would appear to be called for.
Analysis and discussion
Party leadership contestants are required to file a number of returns, including five during the leadership race. In establishing these requirements, Parliament wanted information to be made public on the financing of the leadership contestants' campaigns, with a view to making the party leader selection process more transparent.
In addition to the campaign return that must be submitted within the six months after a contest, leadership contestants are required to submit various financial returns before the conclusion of the contest. The first of these returns must accompany the application for registration. The next return is due three weeks before the end of the leadership contest. Three additional returns are due in the following three weeks (two weeks before the end of the contest, one week before the end of the contest and the last day of the contest). The four returns presented at weekly intervals are referred to as the "weekly returns."
The following table shows the required returns and their deadlines, the periods covered and the content required.
|When contestant registers||Start: Date when 1st contribution received or 1st expense incurred
End: Day preceding registration request
|Contributions and number of donors
Donors' names and addresses
|Return 275 (1st weekly return)|
|No later than three weeks before end of race||Start: First day of race
End: Four weeks before end of race
|Information requested in registration return
Details of loans obtained
Directed contributions (donors' names and addresses, amount of contribution and amount transferred by party)
Donors' names and addresses
Transfers to the party or an association
Contributions received and reimbursed to their donor
|Return 376 (2nd weekly return)|
|No later than two weeks before end of race||Start: Four weeks before end of race
End: Three weeks before end of race
|Same as for 1st weekly return|
|Return 477 (3rd weekly return)|
|No later than one week before end of race||Start: Three weeks before end of race
End: Two weeks before end of race
|Same as for 1st weekly return|
|Return 578 (4th weekly return)|
|No later than last day of race||Start: Two weeks before end of race
End: One week before end of race
|Same as for 1st weekly return|
|No later than six months after end of race||Start: Date when 1st contribution received or 1st expense incurred||Information requested in weekly returns
Status of campaign expenses
Status of disputed claims
As indicated in the recommendation, some of these returns require a few changes.
Return accompanying the application for registration
The return accompanying the application for registration has a number of shortcomings. First, although it includes contributions received before the application for registration was submitted, it does not include loans, even though they are an important element of the leadership contestant's financial picture. Elections Canada currently asks leadership contestants to voluntarily report loans, but it would be preferable to have this requirement in the Canada Elections Act.
Second, the interplay of certain provisions of the Act requires that contributions received by a leadership contestant be reported twice, both in the return filed by the contestant upon registration and in the first weekly return. Aside from adding to the administrative burden on the contestants, this double reporting can be confusing for the public. For example, journalists reporting on contributions may not be aware of this overlap and may, therefore, over-report the contributions received by a contestant.
It is recommended that the overlap be eliminated by specifying that the return accompanying the application for registration relate only to contributions received up to the beginning of the leadership contest.
Under this approach, contributions received directly by the contestant between the beginning of the leadership contest and the date of application for registration would not be reported before the filing of the first weekly return. In practice, however, this would involve relatively few contributions, as the majority of those made to leadership contestants are directed contributions transferred through the party to take advantage of the tax credit available for contributions to political parties.
The only effect of this change will be the deferral of the reporting of a number of contributions, which will no longer be reported in the initial return but rather in the first weekly return. The information will, therefore, still be available well before the selection date. In addition, as most contributions to leadership contestants are made through the party, it is unlikely that much substantive information will be delayed.
The wording of paragraph 435.06(2)(d) of the Act could, therefore, be amended as follows to eliminate the overlap while ensuring that loans obtained before registration are declared. (Underlined sections indicate proposed amendments.)
435.06 (2) The [leadership contestant's] application must be accompanied by the following:
(d) a statement containing the information referred to in paragraphs 435.3(2)(d) to (e) with respect to contributions received and loans obtained before the beginning of the leadership contest.
The Act requires that the financial agent of leadership contestants submit four weekly returns in the last weeks of the contest to provide information about the contestants' sources of funding before a new leader is selected. This requirement for four interim returns imposes a heavy administrative burden on leadership campaigns, with little added value in terms of transparency. The number of returns to be filed could be reduced without affecting transparency since the information should still be submitted in the last weekly return filed before the end of the contest.
Furthermore, the requirement to provide four weekly returns was developed based on leadership campaigns that receive substantial financing in the form of contributions or loans. For campaigns that receive a much lower level of financing, it is more difficult to justify the requirement to submit four weekly returns before the end of the contest.
The rationale behind the section 435.31 requirements is to ensure the timely availability of information about the financing of leadership campaigns before a new leader is selected. In the wording of the provision adopted by Parliament, efforts were made to balance the objective of transparency with the operational requirements related to compiling and sending the relevant information to the Chief Electoral Officer. As such, there is no requirement to provide, before the end of the contest, information about loans obtained or contributions accepted during the last week of the leadership contest.80
In accordance with paragraph 412(2)(b), the Chief Electoral Officer must publish the returns filed pursuant to section 435.31 as soon as practicable after he receives them, in the manner that he considers appropriate. In practice, the Chief Electoral Officer has chosen to publish these returns on the Elections Canada Web site.
Since the adoption of rules on the financial administration of parties' leadership contests in 2003,81 seven leadership contests have been held.82 Of these seven contests, three had at least one contestant whose campaign received total contributions (including loans) of an amount greater than $10,000 (Green Party contest, 2006; Liberal Party contest, 2006; Liberal Party contest, 2008). Most of the other contests were very small affairs; in one case, the whole contest was a one-day event.
Section 435.31 seems to have been developed based on a model of leadership contests in which contestants receive substantial loans or contributions. It is particularly important for the public to know who contributed funds to such campaigns, in light of the higher risk of undue influence. Conversely, where a campaign receives low levels of contributions or loans, the potential for contributors or lenders to exert undue influence is considerably reduced. In such cases, the justification for the burden of producing four weekly returns – which are often "nil" returns – does not seem as compelling. In fact, the information obtained may not be of any use, most evidently in the case of campaigns that did not receive contributions or loans.
Therefore, section 435.31 should be amended to require "weekly returns" only from campaigns that, up to the time of the return, accepted contributions and loans of a total amount greater than $10,000. Should a leadership contestant only meet the $10,000 threshold subsequent to the period covered by the first return to be filed under section 435.31, but before the end of the period covered by the last return to be filed under that section, the period of the next return due to be submitted under section 435.31 would cover the full period from the beginning of the contest to the end of the period covered by that return.
A leadership campaign that would not be required to provide weekly returns under section 435.31 would clearly continue to be subject to the requirement to submit a final campaign return within six months of the end of the leadership contest, pursuant to section 435.3.
In addition, another amendment to section 435.31 is desirable. The need to produce four distinct weekly returns in the weeks preceding the day of the leadership contest seems excessive. The same information could be obtained from fewer returns, while still ensuring that the necessary information is available before the new leader is selected. Indeed, since the last of the returns (covering contributions and loans received during the second-to-last week of the contest) is due no later than one week after the period it covers, it is possible, under the current rules, that the information may not be posted on-line before the new leader is selected.83
For these reasons, the number of weekly returns required before the end of a contest should be reduced from four to two. The first return would continue to cover the period from the first day of the contest to the day that is four weeks before the end of the contest and would have to be submitted no later than one week after the end of the period that it covers. The second end-of-contest return would cover the period from the end of that covered by the first return to the day that is one week before the end of the contest. To ensure that the legislative intent behind section 435.31 is met and that the information contained in such a return is publicly available before the new leader is selected, the second return should be submitted no later than two days before the end of the leadership contest.
II.13 Bank Account and Audit of a Candidate's Campaign Return
Candidates84 who conduct no financial transactions should not be required to open a separate bank account.
Candidates85 who are not eligible for the reimbursement of election expenses and who did not receive contributions or incur expenses of more than $10,000 should not be required to produce an auditor's report with their campaign return.
The financial aspects of campaigns place a heavy administrative burden on candidates and their agents.86 Detailed rules on political financing have been adopted over time to ensure transparency and electoral fairness, as well as to protect the integrity of the political financing regime. Although valid policy reasons existed for adopting each of these rules, it remains that in certain circumstances, the underlying rationale is not as compelling.
One example is the requirement for the candidate's agent to open a separate bank account for the campaign, even when no financial transactions occurred. Another is the requirement to audit a candidate's campaign return, even when no significant financial transactions occurred during the campaign and the candidate did not qualify for public funding.
Analysis and discussion
Under the Canada Elections Act, the agent of a candidate must open a separate bank account for the purposes of the campaign, through which all of its financial transactions must be processed. Currently, this requirement applies to all candidates, whether or not a financial transaction other than the required payment of the candidate's deposit actually occurs.87
In some cases, financial institutions require a deposit when a bank account is opened. Agents must then make a contribution or a loan to the campaign to satisfy the legal requirement to open a bank account. In fact, an agent who fails to satisfy this requirement commits an offence, with a maximum penalty upon conviction of a $1,000 fine and three months' imprisonment.
It is recommended that the requirement for agents to open a bank account for the purposes of the campaign be removed if no financial transaction other than payment of the candidate's deposit occurred.
Candidates and leadership contestants are required to appoint an auditor at the same time that they appoint an agent; this must be done before a contribution is received or a campaign expense incurred. It should be noted that nomination contestants are exempted from the requirement to appoint an auditor and produce an audited campaign return if they accepted contributions or incurred expenses valued under $10,000.88
The auditor's role is to conduct the necessary examinations to determine whether the campaign return accurately presents the information contained in the financial records on which it is based, in accordance with generally accepted auditing standards.
While it is desirable, at the start of the campaign, to require all candidates to designate a qualified auditor willing to report on their return, the need to require that the return of every candidate or contestant is, in fact, audited is not as clear cut.
If the campaign incurred significant expenses or received many contributions, there is value in calling upon an independent and professional auditor to examine the campaign return and determine whether it accurately reflects the financial records on which it is based before the return is submitted to the Chief Electoral Officer.
Similarly, an audit is an important control mechanism when the candidate receives 10 percent or more of the valid votes cast in the electoral district since the campaign will receive direct public funding. Indeed, the Act provides for reimbursement of up to 60 percent of the candidate's election and personal expenses. It is, therefore, important for an audit to verify that the reported expenses are supported by the financial records.
On the other hand, the need for and usefulness of a campaign return audit are not as evident when significant financial transactions have not occurred and when the candidate did not qualify for the reimbursement of election expenses. Although section 466 of the Act does provide for a subsidy to assist in paying the fee charged by the candidate's auditor (and, in practice, the cost to very small campaigns is covered by the state through the minimum amount of this subsidy), an audit may in some cases add very little value and may in fact delay reporting on the financial transactions of a campaign. In cases where the auditor is not in a position to finish the work within the tight deadlines set by the Act, the candidate may have to obtain an extension of the filing deadline from a judge, with the fees inherent in such a process being added to the cost of the campaign.
The significant administrative burden imposed on some candidates as a result of applying this requirement is particularly evident when the return reflects no transactions, indicating that the campaign did not incur any expense nor accept any contribution, loan or transfer. A total of 142 of the 1,636 candidates in the 39th general election submitted a return showing no transactions. Nevertheless, they were required under the Act to have it audited before it could be sent to the Chief Electoral Officer. In accordance with section 466, the auditor would have received the minimum public subsidy of $250 provided under the Act to examine a return that did not contain a single financial transaction.
Moreover, it can be argued that little value is added by requiring an audit of the returns of other small campaigns that were far from reaching the applicable spending limit, and that only accepted a small amount in contributions, if those campaigns are not eligible for the reimbursement of election expenses. Although the establishment of the cut-off point for requiring an audit may be somewhat arbitrary, data from the 39th general election provide some idea of the consequences of adopting such a threshold.
|$5,000 Threshold||$10,000 Threshold|
|Qualified for Reimbursement||
|Did Not Qualify for Reimbursement but Required Audit||
|Total Audits Required||
|Total Audits No Longer Required||
- Data as of April 14, 2010; subject to change.
- Audit required if contributions or electoral campaign expenses exceed the applicable threshold.
As shown above, in the 39th general election, a total of 884 candidates would have required an audit, regardless of their financial transactions, because they were eligible for reimbursement of their election expenses. Since public funds would be provided to help finance the campaigns, the state would have an obvious interest in ensuring that the amount of reimbursement, calculated on the expenses reported in the return, is supported by the financial records.
If a threshold of $5,000 had been in effect for that election,89 an additional 146 candidates would have been required to have their returns audited, as well as the 884 candidates who would automatically have had to do so because they were eligible for public funding. Therefore, in total, 1,030 audits would have been required instead of 1,636 under the existing rules.
If a threshold of $10,000 had been in effect for that election,90 in addition to the 884 candidates who would automatically have had their returns audited because they were eligible for public funding, 75 other candidates would have been required to do so. Therefore, in total, 959 audits would have been required.
A threshold of $10,000, as opposed to $5,000, results in a substantial drop in the number of audits required from candidates endorsed by parties not represented in Parliament, independent candidates and candidates with no affiliation. (Only half of those who would have needed their returns audited with the $5,000 threshold would be required to do so with a $10,000 threshold.) Since, in the past, some of these candidates may have had the least opportunity for support from a party to assist them in navigating the maze of rules and procedures involved, adoption of a $10,000 threshold may be desirable. On the other hand, whichever threshold is chosen, the usefulness of an audit is called into question for these campaigns: in both cases, the candidates are far from the statutory spending limit, they have received relatively low levels of contributions and in no case would they be eligible for direct public funding.
Such a comprehensive study has not been carried out with regard to party leadership contestants. There is no reason, however, not to extend this recommendation to them.
Consequently, it is recommended that the Act be amended to exempt candidates from the requirement to have their returns audited if they are not eligible for reimbursement of their election expenses, did not accept total contributions of more than $10,000 during the campaign and did not incur expenses of more than $10,000. The same recommendation is made for leadership contestants if they did not accept total contributions of more than $10,000 during the campaign and did not incur campaign expenses of more than $10,000.
The requirement that a candidate's nomination papers or a leadership contestant's registration application include the name and consent to act of an agent and an auditor should, however, be maintained.
II.14 Pre-Confirmation Transfers to Candidates
Registered parties and registered electoral district associations should have the right to transfer funds, goods and services to candidates at any time. From the moment that they accept a transfer, those who intend to be a candidate must begin meeting the financial requirements of the Act.
This recommendation would simplify the current rule and would benefit the parties, associations and candidates.
Transfers of funds, goods and services from registered parties and associations to candidates are permitted only once their candidacy is confirmed by the returning officer. Meanwhile, registered parties and associations frequently wish to transfer goods, services and funds to candidates to help them start up their campaigns before their candidacies are confirmed by the returning officers.
The significant number of pre-confirmation transfers to candidates demonstrates the extent of the problem. In the 2004 general election, 535 candidates received transfers (from the party, the associations or both) before their nomination was confirmed. In the 2006 election, 333 such transfers occurred. Since these transactions are not authorized by section 404.2, they constitute illegal contributions. Only individuals are authorized to make contributions to political entities governed by the Canada Elections Act.
Analysis and discussion
To deal with the problem created by the existing prohibition against the transfer of funds, goods and services by registered parties and associations to candidates before their official confirmation by the returning officer during the election period, the Act could permit transfers to candidates before they are officially confirmed. More specifically:
- Parties and associations could be given the right to transfer funds to candidates at any time after the issue of the writ.
- Parties and associations could be given the right to transfer funds to candidates at any time, including before the issue of the writ.
The advantages and disadvantages of these potential amendments will be discussed in turn.
It should be specified, however, that the following proposals apply solely to transfers of funds to candidates. In the case of transfers from candidates (see paragraphs 404.2(2)(c) and (2.1)(c)), it is desirable to maintain the restrictions set in these provisions to ensure transparency and preserve contribution limits by preventing persons who do not subsequently file a return from injecting funds into the political system.
It should also be noted that the Chief Electoral Officer treats the time when the candidate's nomination is confirmed by the returning officer as the time when he or she receives a party's endorsement. Elections Canada believes, therefore, that transfers between the party or electoral district association and a candidate are possible only after confirmation of the candidate's nomination. This position is based on the fact that once the nomination has been confirmed, the candidate must meet the reporting requirements and abide by the contribution limits, retroactive to when the candidate received his or her first contribution or incurred his or her first campaign expense. While the timing of confirmation establishes a clear line beyond which legal consequences come into play, the party's endorsement has no bearing on the candidate's legal obligations. For example, different rules apply to candidates who receive a party's endorsement but subsequently lose it and become independent candidates because their nominations are confirmed as independent candidates and not as candidates of a party.91
The first solution would be to eliminate the words "endorsed by the party" from the relevant provisions referring to transfers to candidates. Such a change would have little negative impact on the other goals of the Act.
In terms of reporting, if a person who receives funds (or goods or services) from the party or registered association subsequently becomes a candidate, the transfer would have to be reported by the candidate pursuant to section 365.92 If funds (or goods or services) are made available to a person who subsequently does not become a candidate, the transfer would still have to be reported, but only in the return of the party or association.93 This is not unusual, however. Parties and associations are not restricted in their disbursement of funds or goods.
Similarly, if the recipient does not become a candidate, there is the possibility that some of the transferred funds will be lost to the political system.94 However, as noted above, this is no different from any other situation where a registered party or association makes a transfer or payment to a person who is not a candidate. The Act generally does not prohibit such payments.95
That said, a party or association is unlikely to transfer something of value unless it is certain that the candidate will represent it in the next election.
If Parliament chooses to amend the provisions of the Act to allow pre-confirmation transfers, sections 82 and 365 should be amended to take transfers into account. These sections provide that, for financial purposes (including disclosure), a person who becomes a candidate is deemed to have been a candidate from the moment he or she accepted a contribution or incurred a campaign expense. These provisions should be amended so that they are also triggered by the acceptance of a transfer.
Transfers after the issue of the writ or at any time
There remains the question as to whether the allowable period for transfers to candidates should be extended to authorize transfers from the issue of the writ or at any time. As already noted, the goals of the Act are unlikely to be severely affected by allowing pre-confirmation transfers. The impact on the regime would not be any greater if pre-confirmation transfers were allowed at any time than if such transfers were limited to the writ period.
Finally, given that parties and associations would likely wish to have the flexibility to make transfers to candidates outside the writ period, especially in the weeks leading up to an election call, it would be preferable to choose the broader approach, allowing more scope for transfers.
It should be noted that, should Parliament wish to maintain the status quo, it is further recommended that the words "and whose candidacy is confirmed by the returning officer" be added after the words "endorsed by the party" in section 404.2 so that there is no doubt as to when transfers can be made.
II.15 Election Superseded by a General Election – Effects on Political Financing and Reimbursement of Candidates' Expenses
The system for reimbursing a candidate's expenses in the event of a superseded election should be reviewed to increase its fairness and to enable candidates in the first cancelled election to transfer their assets to their campaign for the second election. Consequently, the following is recommended:
- All confirmed candidates at a superseded election should be reimbursed for eligible election and personal expenses incurred.
- Reimbursement of a candidate's election expenses and personal expenses should be the same for a cancelled election as for a completed election – that is, a reimbursement of 60 percent of the election and personal expenses paid to a maximum of 60 percent of the authorized limit.
- Only the expenses paid for by a candidate should be reimbursed.
- The campaign assets of a candidate in the first cancelled election should be transferable to the campaign of the same candidate in the second election. The transfer would be presumed to have occurred when the writ for the second election was issued. The candidate would be presumed to have accepted the transfer.
Section 470 of the Canada Elections Act governs the political financing of candidates when an election is superseded by a general election. It also applies when the writ of election is withdrawn because of flood, fire or other disaster. In both situations, the election in progress is cancelled and replaced by another.
The purpose of section 470 appears to be to compensate the candidate for any campaign deficit resulting from a cancelled election.96
However, section 470 has the following impacts on participating political entities; we will further elaborate on these below.
- Section 470 creates an unfair situation for candidates in an electoral district where the election was cancelled before the closing day for nominations because in this case they are not entitled to any reimbursement.
- Section 470 allows a higher reimbursement for candidates who rely on transfers (rather than on contributions) to finance their campaign.
- Section 470 allows candidates to be reimbursed for expenses that were not actually incurred or paid.
Furthermore, section 470 has the following gaps:
- It does not provide for the candidate of a registered party in a by-election that is superseded by a general election to receive more funding from an individual who might have already reached the annual contribution limit that he or she is subject to.
- The Act does not provide any means for the campaign assets of a candidate in a by-election to be transferred to the campaign of the same candidate running in the general election that replaces it.
Analysis and discussion
According to section 470, the rules in Part 18 of the Act respecting electoral campaign expenses apply somewhat differently to the campaign expenses of a candidate in a superseded election.
Candidates in a cancelled election must prepare a return on their campaign's financial transactions in accordance with section 451 of the Act, and they will have to report and dispose of any surplus as required by the Act.
However, a candidate's election expenses and personal expenses are not reimbursed in the same way following a superseded election as they are following an election that is completed.
A candidate in a superseded election is eligible for reimbursement of election or personal expenses only when the following circumstances unite:
- The election is cancelled on or after the closing day for nominations (that is, 21 days or less before polling day) – no candidate is eligible for reimbursement if the election is cancelled before the closing day for nominations.
- The candidate's election expenses, as disclosed in his or her electoral campaign return, are greater than the value of the contributions received.
- The candidate's electoral campaign return and related documents are submitted as required under section 451 of the Act.
If the aforementioned conditions are satisfied, the candidate qualifies for a reimbursement amount that is the lesser of:
- the election expenses limit established for the electoral district
- the amount by which the total of the candidate's election and personal expenses, as disclosed in his or her electoral campaign return, exceeds the total value of contributions that the candidate received
The following text discusses the impacts of the rules set out in this provision and the gaps identified.
a) The effect of cancelling an election before the closing day for nominations on the reimbursement of candidates' election and personal expenses
Paragraph 470(2)(a) provides that candidates are not entitled to reimbursement for election expenses if a by-election is cancelled before the closing day for nominations, even if their nomination has been confirmed.
This rule has been in the Act since 1977. It has been amended a few times, but the minimal reimbursement structure has always been retained. When it was introduced, the right to reimbursement was linked to completion of the enumeration of electors rather than the closing day for nominations. Thereafter, the election expenses limit set for the electoral district was added to determine a limit for reimbursement. Finally, the closing day for nominations replaced the completion of enumeration so as to put a time limit on possible reimbursements.
Parliament wanted to restrict eligibility for reimbursement based on a specific day in the election calendar. The reason for this restriction is unclear. However, it appears to create an injustice.
This injustice is clear when two by-elections being conducted at the same time, but with different closing days for nominations, are superseded by the call of a general election. In the electoral district where the by-election is cancelled after the closing day for nominations, the candidates running in that by-election are entitled to reimbursement. In the other electoral district where the by-election is cancelled before the closing day for nominations, the running candidates are not entitled to reimbursement.97
In addition, some candidates may have incurred a substantial portion of their election expenses before the closing day for nominations, when the election is cancelled, and will not be entitled to any reimbursement. Others may have incurred far fewer expenses by that time and, as a result, will not be as seriously affected by the lack of reimbursement.
This aspect of section 470 appears to contradict the objective of the provision, which is to eliminate any campaign deficit incurred by the candidates.
Section 470 of the Act should be amended to allow reimbursement to all confirmed candidates who incurred eligible election expenses and personal expenses.
b) The effect of campaigns financed by transfers on the reimbursement of candidates' expenses and on the formula for calculating reimbursement
The calculation for the reimbursement of expenses set out in section 470 takes into account any "contributions" received by the candidate. Only expenses that exceed the contributions may be reimbursed. This rule does not take into consideration transfers received from the party or registered electoral district association.
Therefore, a candidate whose campaign is financed by contributions made to the electoral district association is entitled to a higher reimbursement than a candidate who receives the contributions directly.
In 2004,98 several amendments to Part 18 of the Act came into effect. Some of them were adopted to provide for the transfer of funds between the various entities of a political party.
Subsections 404.2(2) and (2.2) permit this type of transfer. Although transfers must be reported, they do not constitute a contribution. Without this specific exclusion, the ordinary meaning of the term "contribution" would include transfers. Transfers were, in fact, considered to be contributions before 2004.
The amendments that came into force in 2004, stipulating that transfers do not constitute contributions, redefined the term "contribution" for the purposes of the Act.
The new definition of the term "contribution," applied in section 470, would favour some candidates by increasing the amount of their reimbursement. To resolve this problem, section 470 must be amended to include transfers in the calculation of reimbursement. This amendment would give effect to what appears to have been the intention of section 470 – that is, to allow reimbursements only for expenses that have resulted in debt.
c) Lack of resources for the second campaign
Furthermore, there is a question of whether the purpose of section 470, to eliminate any campaign deficit of a candidate, is fair to candidates in a superseded election. In fact, section 470 provides that the amount reimbursed is the amount by which the candidate's election expenses and personal expenses (up to the expense limit) exceeds the total value of contributions received.
Candidates in a superseded election may be left without financial resources to mount a new campaign, although some assets acquired during the first election may be used during the second. In theory, they may have spent all the money they had and cannot seek additional contributions from those who have already contributed up to their annual limit. Even if they finance their campaign through transfers and obtain a 100 percent reimbursement of their expenses, the money they had at the start of the campaign is gone.
The candidates in the second election campaign are not necessarily all the same. New candidates would therefore have resources that were not exhausted by the cancelled campaign. In theory, this gives them an advantage. To resolve this issue, it should be possible for the election expenses and personal expenses of candidates in a cancelled election to be reimbursed in the same way as for a completed election – that is, reimbursement of 60 percent of the actual election expenses and personal expenses paid, to a maximum of 60 percent of the authorized limit.
d) Reimbursement of a candidate's unpaid expenses
Under section 470, if a by-election is superseded by another election on or after the closing day for nominations, all candidates in the cancelled election qualify for a reimbursement amount that is the lesser of the election expenses limit for the electoral district or the amount by which the total of the candidate's election expenses and personal expenses, as disclosed in his or her electoral campaign return, exceeds the total value of contributions that the candidate received.
For a candidate to be entitled to this reimbursement, the candidate's election expenses, as disclosed in his or her electoral campaign return, must exceed the value of contributions that the candidate received, and the candidate's electoral campaign return and any associated documents must be provided in accordance with section 451 of the Act.
Section 470 provides for the reimbursement of all reported expenses, and not only those that have actually been paid. To resolve this problem, section 470 should specify that the reimbursement is only for expenses that have actually been paid, as is the case in the ordinary conduct of an election that is not cancelled.
e) Transferring assets from one campaign to another when an election is superseded by another
When one election is superseded by another, the Act does not provide any means for the campaign assets of a candidate in the first election to be transferred to the campaign of the same candidate in the second election. This type of transfer is not permitted by the Act, and this poses some practical problems: the candidate continues to occupy the premises and to benefit from signs posted on the streets, as from all of the accumulated resources that are at the candidate's disposal for the campaign in the second election. That reality cannot be ignored and requires legal mechanisms to regularize the situation for the second campaign.
Candidates of a registered party could transfer all the assets from their campaign for the cancelled election to the registered electoral district association. The electoral district association could then transfer them to the candidate's campaign for the second election. However, this transaction would be an artificial one.
Candidates who do not represent a registered party have no way to transfer the assets of their campaign for the first election to their campaign for the second election. They could sell them, but that could create a double reimbursement, since both campaigns would have incurred and paid the same costs.
In order for the assets of the campaign of a candidate in the first election to be transferred to the candidate's campaign in the second election, the Act must include provisions to that effect. Such provisions should be able to resolve several of the problems that arise when one election supersedes another and both campaigns of the same candidate follow one another.
Some elements of the first campaign could continue during the second campaign. For example, commercial messages transmitted during the first campaign could continue during the second campaign.
To resolve this type of issue, the candidate would be presumed to have accepted the transfer that would be presumed to have occurred upon issue of the writ. It would be an exception to the rule prohibiting candidates from receiving transfers before their nomination is confirmed by the returning officer.99
The value of the assets acquired during the first campaign and transferred to the second campaign would constitute an election expense for the purposes of the expenses limit of the second election. These expenses would not, however, be considered for a second reimbursement.
II.16 Adjustment for Inflation (Payments to Auditors)
The reimbursement amount for the fees to audit candidates' electoral campaign returns and registered electoral district associations' financial transactions returns should be subject to an inflation adjustment.
This recommendation would maintain the value of the payment made to auditors.
Section 403.39 provides that a registered association will be reimbursed for a portion of the audit fees for its financial transactions return. The maximum amount that can be reimbursed has not been adjusted for inflation since the passage of An Act to Amend the Canada Elections Act and the Income Tax Act (political financing)100 in 2003.
For its part, section 466 provides that a candidate will be reimbursed for a portion of the audit fees for his or her electoral campaign return. The maximum amount that can be reimbursed has not been adjusted for inflation since the passage of An Act to Amend the Canada Elections Act and the Income Tax Act (political financing)101 in 2003, although the calculation method was modified slightly in 2006.102
The reimbursement limits set out in those sections should be adjusted to take into account the gradual increase in audit fees due to inflation. The inflation adjustment factor set out in subsection 405.1(1), which calculates inflation based on the year 2002, should be used.
Calculated using the proposed formula, the amount of $1,500 set out in those sections would be adjusted to $1,717 for 2010, and the amount of $250 set out in paragraph 466(b) would be adjusted to $286 for that year.
34 For those parties eligible to receive the quarterly allowance.
35 The reimbursement is only available to parties that obtained 2 percent of the valid votes cast in the election or 5 percent of the votes in the electoral districts in which they ran candidates.
36 Eligible parties are also entitled to a quarterly allowance based on the number of votes received in the preceding general election. This allowance can be issued only if the party has submitted its annual returns, its quarterly returns and, if applicable, its election expenses return (section 435.02). In 2009, $27,174,226 was paid to the five eligible parties.
37 These provinces are Quebec, Saskatchewan, New Brunswick, Nova Scotia and Prince Edward Island. See Election Act 1996, S.S. 1996, c. E-6.01, s. 251; Election Act, R.S.Q., ch. E-3.3, sec. 434; Political Process Financing Act, S.N.B. 1978, ch. P-9.3, sec. 82; Elections Act, R.S.N.S., c. 140, s. 184; Election Expenses Act, R.S.P.E.I. 1988, c. E-2.01, s. 20.
38 Election Act, R.S.B.C., 1996, c. 106, s. 276; Election Finances and Contribution Disclosure Act, R.S.A. 2000, c. E-2, s. 4 and 5; Election Act, 1996, S.S. 1996, c. E-6.01, s. 266; Elections Finances Act C.C.S.M., c. E32, s. 57; Election Finances Act, R.S.O. 1990, c. E.7, s. 6 and 7; Election Act, R.S.Q., c. E-3.3, s. 118; Election Expenses Act, R.S.P.E.I. 1988, c. E-2.01, s. 5 and 6; Elections Act, 1991, S.N.L. 1992, c. E-3.1, s. 274 and 275.
39 Elections Finances Act C.C.S.M., c. E32, s. 70.1; Political Process Financing Act, S.N.B. 1978, ch. P-9.3, sec. 18; Elections Act, R.S.N.S., c. 140, s. 193.
40 See the Treasury Board's Policy on Transfer Payments.
41 See subsections 435.3(3), 451(2.1) and 478.23(3).
42 See subsections 435.3(4), 451(2.2) and 478.23(4).
43 It is noteworthy that the requirement to file documentary evidence, and the ability of the Chief Electoral Officer to request additional documents, also applies to leadership and nomination contestants, despite the fact that, unlike registered parties, they are not eligible for public subsidies.
44 See sections 426, 430 (parties) and 453 (candidates).
45 See p. 89 and following.
46 S.C. 2006, c. 9.
47 See section 435 for the reimbursement to political parties and sections 464 and 465 for the reimbursement to candidates.
48 See sections 422 and 423 for political parties and sections 440 to 443 for candidates.
49 A candidate must have obtained 10 percent of the valid votes cast in the electoral district to be eligible for the reimbursement, whereas a registered party must have received at least 2 percent of the valid votes cast nationally in an election or 5 percent of the valid votes cast in the electoral districts where they endorsed candidates.
50 With the possible exception of a contested election under Part 20 of the Act, where someone can prove that this constituted an irregularity, fraud or illegal practice (in the case of a candidate who knowingly overspends during the campaign) that affected the result of the election. The difficulty in proving this makes a contestation for this reason unlikely.
51The example involves two candidates, both of whom expect to receive 10 percent or more of the votes cast in their electoral district. This is a requirement for all reimbursements pursuant to sections 464 and 465 of the Act.
52 Electoral district associations can also be deregistered in other circumstances: the association can voluntarily choose to deregister or can be deregistered at the request of the party.
53 Figures as at March 31, 2010.
54 S.C. 2003, c. 19, s. 23 (Bill C-24).
55 R. v. CBC (1993) 72 CCC (3d) 545, 42 CPR (3d) 250 (Ont. C. (Gen. Div.)); see also Gauthier v. Milliken et al., T‑571-06 (Fed. C.) and National Party v. CBC, 13 Alta KL.R. (3d) 20, 19 CPC (3d) 191, 106 DLR (4th) 568. It is noteworthy that if a leaders' debate does not meet the criteria for excluding it as an election expense under section 407, the debate would constitute a non-monetary contribution made to a participating registered party and an election expense of that party because the debate promotes the registered party.
56 In this recommendation, the term "candidate" also refers to leadership contestants and nomination contestants.
57 A strict liability offence is an offence for which the prosecutor has only to prove that the wrongful act was committed by the accused, without any proof being required as to intent; however, the accused will not be found guilty if the accused can prove that he or she exercised due diligence in attempting to meet the statutory requirements. .
58 Data is as of May 5, 2010, and subject to change.
59 During the 39th general election, 101 candidates' returns were referred to the Commissioner of Canada Elections.
60 The requirement to produce an updated return applies only in certain circumstances, generally when the candidate asks the Chief Electoral Officer or a judge for authorization to pay a claim after the deadline prescribed by the Act has expired. An updated return must also be submitted when a payment is made following an order issued by a court in connection with an action to recover a debt or when a creditor dies.
61Authorization can be requested of the Chief Electoral Officer or a judge to "regularize" a late claim of this nature.
62 See paragraph 497(3)(f.13). Parliament's silence regarding its desire to subject deemed contributions to the new rules for contributions at the time of their adoption suggests that it neither anticipated nor wanted this consequence. That being the case, the presumptions apply only to the extent that this is necessary to meet the objectives that were set when the rules were adopted, namely, transparency and the desire to end the reporting requirement.
63 That said, when calculating the surplus funds to be disposed of in accordance with the requirements of the Act, it is the candidate's responsibility to justify any calculation of surplus funds not based on amounts reported in the return. To satisfy the Chief Electoral Officer that the surplus amount is accurate, the candidate should normally report all new payments and contributions.
64 After 18 months, any outstanding claims that a leadership contestant wishes to pay can be paid only with the authorization of the Chief Electoral Officer or a judge, in accordance with sections 435.26 and 435.27. Under section 435.35, an authorization triggers the requirement for an updated return.
65 For example, see subsection 447(2) with respect to payments made by candidates.
66 See recommendation II.10 concerning audits on updated returns.
67 For the most part, this recommendation applies to the five political entities governed by the Act. For the purposes of this recommendation, the terms "financial return" or "return" – unless the context is not applicable – refer equally to the campaign returns produced by the various types of candidates (candidates, leadership contestants and nomination contestants) or by the parties after a general election. Also, the term "agent" refers to a candidate's official agent; the financial agent of an association, nomination contestant or leadership contestant; and a party's chief agent.
68 See, for example, Green Party of Canada v. Canada (Chief Electoral Officer) 2002 O.J. No. 188 (Sup. Ct.) (QL).
69 Only (b) to (d) apply to parties and associations. See subsections 433(3) and 403.41(3).
70 Standing Committee on Procedure and House Affairs, Improving the Integrity of the Electoral Process, p. 24.
71 In the last recommendations report by the Chief Electoral Officer, Completing the Cycle of Electoral Reforms, it was recommended that the application to the Chief Electoral Officer for an extension be accompanied by a $1,000 cheque payable to the Receiver General for Canada. Although the Standing Committee on Procedure and House Affairs endorsed that recommendation, we are proposing a less severe approach, one that is more in line with the current regime and that provides for a deposit to guarantee compliance with the candidate's obligations.
72 This recommendation applies to all three types of candidates: election candidates, party leadership contestants and nomination contestants.
73 Following the passage of the Act to amend the Canada Elections Act and the Income Tax Act, S.C. 2003, c. 19 (Bill C-24).
74 See sections 435.05 and 435.06.
75 See section 435.31.
79 See section 435.3.
80 This information must nevertheless be disclosed after the contest as part of the leadership campaign return required to be filed within six months of the end of the contest by virtue of section 435.3.
81An Act to amend the Canada Elections Act and the Income Tax Act (political financing), S.C. 2003, c. 19.
82 Green Party (June 29 to August 28, 2004); Green Party (April 21 to August 26, 2006); Liberal Party (April 7 to December 3, 2006); Newfoundland and Labrador First Party (one-day contest on September 15, 2008); Canadian Action Party (May 6 to November 6, 2008); Christian Heritage Party (February 7 to November 7, 2008); and Liberal Party (November 14, 2008, to May 2, 2009).
83 For instance, whereas the leader may be chosen on the morning of the last day of the contest, the return itself may be submitted at the end of that day. Furthermore, even where a return was submitted before the new leader was selected, if only a paper copy was received at Elections Canada, the time needed to process the data to allow for the information to be posted on-line currently means that the return is likely to be publicly available only after the leader is selected.
84 The use of the term "candidate" in the recommendation regarding the requirement to open a separate bank account also refers to leadership contestants and nomination contestants.
85 In this recommendation, the term "candidate" also includes leadership contestants, the latter being ineligible for reimbursement of their campaign expenses.
86 The term "agent" refers to a candidate's official agent and the financial agent of a nomination contestant or leadership contestant.
87 The candidate's deposit may be paid with funds other than campaign funds and, in such cases, would not be processed through the campaign account.
88 See section 478.25.
89 That is, no audit would be necessary if total electoral expenses (including non-monetary contributions) and total contributions received were each under $5,000.
90 That is, no audit would have been necessary if total electoral expenses (including non-monetary contributions) and total contributions received were each under $10,000.
91 Contribution limits and the rules governing transfers differ for independent candidates and for those without party affiliation.
92 Pursuant to this provision, a person is deemed to have been a candidate from the time he or she accepted a contribution or incurred an expense.
93 The amount will then be reported as a disbursement, not as a transfer.
94 There is the possibility of funds being returned as contributions, but they would then be subject to the relevant contribution limits.
95 However, subsection 405.2(4) and section 405.21 prohibit contributions in some circumstances, depending on the uses to which the party will put the funds.
96 It should be noted that these rules apply only to persons who were candidates in the cancelled election – that is, their nomination papers had been accepted by a returning officer prior to the cancellation of the election. Persons whose nominations were not confirmed prior to the cancellation of the election never were official candidates for the purposes of the Canada Election Act. These persons are not required to report and are not eligible for any reimbursement of election or personal expenses..
97 This problem could have occurred in 2008, as by-elections called on different dates were superseded by the calling of the general election. Fortunately, in all cases, the writ for the general election was issued after the closing day for nominations, thus leaving the candidates in the four electoral districts on an equal footing.
98 Following the passage of An Act to amend the Canada Elections Act and the Income Tax Act (political financing), S.C. 2003, c. 19.
99 See recommendation II.14, which proposes that this prohibition be removed.
100 S.C. 2003, c. 19, s. 23 (Bill C-24).
101 Ibid., s. 50.
102 An Act to Amend the Canada Elections Act and the Public Service Employment Act, S.C. 2007, c. 21, s. 35 (Bill C-31).