Analysis of Financial Trends of Regulated Federal Political Entities, 2000–2014

1. Background

The rules governing political financing in Canada are the result of successive reforms starting in 1970 that were influenced by the recommendations of the Committee on Election Expenses (commonly known as the Barbeau Committee) in 1966.^Footnote 2 These recommendations included:

recognizing political parties and making them legally responsible for their fundraising activities and spending of funds
strengthening public confidence by requiring parties and candidates to disclose their revenues and expenditures
providing a degree of financial equality through public funding and imposing controls on the costs of elections
broadening the base of contributions through tax incentives for contributors

The recommendations of the Barbeau Committee, along with those of the Lortie Commission (1991), contributed to the establishment of what has been described as an "egalitarian model" of electoral democracy.

As explained by the Supreme Court of Canada:

This model is premised on the notion that individuals should have an equal opportunity to participate in the electoral process. Under this model, wealth is the main obstacle to equal participation; see C. Feasby, "Libman v. Quebec (A.G.) and the Administration of the Process of Democracy under the Charter: The Emerging Egalitarian Model" (1999), 44 McGill L.J. 5. Thus, the egalitarian model promotes an electoral process that requires the wealthy to be prevented from controlling the electoral process to the detriment of others with less economic power. The state can equalize participation in the electoral process in two ways; see O. M. Fiss, The Irony of Free Speech (1996), at p. 4. First, the State can provide a voice to those who might otherwise not be heard. The Act does so by reimbursing candidates and political parties and by providing broadcast time to political parties. Second, the State can restrict the voices which dominate the political discourse so that others may be heard as well. In Canada, electoral regulation has focussed on the latter by regulating electoral spending through comprehensive election finance provisions. These provisions seek to create a level playing field for those who wish to engage in the electoral discourse. This, in turn, enables voters to be better informed; no one voice is overwhelmed by another.^Footnote 3

Although this first report covers the 2000 to 2014 time frame, below is a brief overview of the history of the regime to facilitate the understanding of the broader context.

1970 – Bill C-215 (Amendment to the Canada Elections Act)

Following the recommendations of the Barbeau Committee, the CEA was amended in 1970 to include a process by which political parties could register with the Chief Electoral Officer. This allowed parties to place their name on the ballot under that of their candidate in any electoral district.

1974 – Bill C-203 (Election Expenses Act)

While the CEA was amended in 1970 to provide for the registration of political parties, it was in 1974 that Parliament passed the Election Expenses Act. The major legislative changes of the Election Expenses Act were:

limits on the election expenses of registered parties and candidates
public funding^Footnote 4 in the form of partial reimbursements of the election expenses of registered parties and candidates^Footnote 5
tax credits for individuals who contributed to registered parties and candidates, to a maximum of $500 per individual
a requirement for registered parties and candidates to disclose the amount and the source of all contributions over $100^Footnote 6
a prohibition on third parties (i.e. entities other than registered parties or candidates^Footnote 7) advertising for the purpose of promoting or opposing a political party and their candidates during an election period

2000 – Bill C-2 (The Canada Elections Act)

With the passage of Bill C-2 in 2000, the CEA brought into law the registration of third party advertisers and the regulation of their election advertising expenses.^Footnote 8 The legislation introduced spending limits for third party advertising during a general election of $150,000 nationally with a maximum of $3,000 in a particular electoral district. These spending limits are adjusted annually for inflation.

2004 – Bill C-24 (An Act to amend the Canada Elections Act and the Income Tax Act)

Bill C-24, An Act to amend the Canada Elections Act and the Income Tax Act, came into force on January 1, 2004. It expanded the scope of the CEA by regulating the financial activities of nomination contestants and leadership contestants as well as EDAs.^Footnote 9 For the first time, these entities were required to report on their revenues and expenses and were made subject to a range of regulatory controls. Nomination contestants were also now subject to spending limits (but not leadership contestants).

Bill C-24 also introduced the following restrictions on contributions:

Contributions from Canadian citizens and permanent residents were limited to $5,000 annually to a registered party and its EDAs, candidates and nomination contestants, plus an additional $5,000 towards a leadership contest and $5,000 to each independent candidate (all limits were indexed for inflation).
Contributions from corporations, trade unions and other associations were limited to $1,000 (indexed for inflation) annually to the EDAs, candidates and nomination contestants of a particular registered party; these entities were banned from contributing directly to a political party or its leadership contestants.

To compensate for potential revenue losses due to new restrictions on contributions, a range of measures were included that increased public funding:

Quarterly allowances to federal registered parties were introduced. The allowance was $0.4375 (indexed for inflation) for each vote received at the most recent general election. To qualify, a party needed to have received at least 2% of all votes cast nationally or 5% of votes cast in electoral districts in which it ran candidates.
The vote threshold for a candidate to be eligible for partial reimbursement of their paid election and candidate personal expenses was lowered from 15% to 10%.
The election expenses reimbursement rate for eligible candidates increased from 50% to 60%.
The general election expenses reimbursement rate for eligible registered parties increased from 22.5% to 50%, with a one-time increase to 60% for the 2004 general election.
The maximum political contribution tax credit of 75% of a contribution amount was applied to the first $400 contributed rather than to the first $200. The maximum tax credit was increased from $500 to $650.
Tax credits were made available for the first time for monetary contributions to EDAs.

2007 – Bill C-2 (The Federal Accountability Act)

This legislation, which came into force on January 1, 2007, further restricted political contributions by lowering the individual contribution limit and further restricting the eligibility of a contributor. The key political financing provisions of Bill C-2 were as follows:

Contributions from corporations, trade unions and associations were prohibited.
Contributions were capped at $1,000 (indexed for inflation) per calendar year to each of the following:
- each registered party
- the combination of EDAs, nomination contestants and candidates of the same political affiliation
Contributions were capped at $1,000 (indexed for inflation) in total to the contestants of a particular leadership contest and to each independent candidate of a particular election.
Cash contributions to regulated federal political entities were limited to $20.

2011 – Bill C-13 (Keeping Canada's Economy and Jobs Growing Act)

Bill C-13, which received royal assent on December 15, 2011, and came into effect in the second quarter of 2012, amended the CEA to reduce public financing of eligible registered parties by phasing out their quarterly allowances. The quarterly allowance was reduced each year until its elimination after the first quarter in 2015.

2014 – Bill C-23 (An Act to amend the Canada Elections Act and other Acts)

Bill C-23, An Act to amend the Canada Elections Act and other Acts and to make consequential amendments to certain Acts, received royal assent on June 19, 2014. The contents of Bill C-23 brought a number of changes to the CEA, including the following:

a new regime for reporting loans and unpaid claims
new loan restrictions in terms of source and amount
new election expenses limits for registered parties and candidates that include a 5% increase and a pro-rating of the limit for longer election periods
reductions in the reimbursement of paid election expenses for overspending the election expenses limit
higher contribution limits at $1,500 per year and $1,500 per electoral event for independent candidates, plus a $25 increase per year
a change in the limit for contributions to leadership contestants from an event-based to an annual limit
higher contribution limits for candidates and leadership contestants to their own campaigns (the change allows candidates to contribute up to $5,000 and leadership contestants up to $25,000 to their own campaigns)
a new regime for dealing with applications for extensions of reporting deadlines and corrections to transactions returns of regulated federal political entities
the requirement for the Chief Electoral Officer to issue guidelines, interpretation notes and written opinions

Return to source of ^Footnote 2 Report of the Committee on Election Expenses, 1966.

Return to source of ^Footnote 3 Harper v. Canada (Attorney General), [2004] 1 SCR 827, 2004 SCC 33.

Return to source of ^Footnote 4 For the purposes of this report, public funding means government subsidies in the form of quarterly allowances to eligible registered parties, partial reimbursement of the paid expenses of candidates and registered parties, and audit subsidies paid to the auditors of candidates and EDAs.

Return to source of ^Footnote 5 Registered parties received a 50% rebate for their telephone and advertising expenses. In 1983, the reimbursement changed to 22.5% of total election expenses – only if the expenses were at least 10% of the spending limit – and in 1996 the eligibility rules were again adjusted so that registered parties needed to have received at least 2% of the votes cast nationally or 5% of those cast in the electoral districts in which they ran candidates.

Candidates who received at least 15% of the vote in their electoral districts became eligible for the reimbursement. The amount of the reimbursement was based on a formula taking into account the number of electors in the district. In 1983, the reimbursement became 50% of the candidate's total election expenses.

Return to source of ^Footnote 6 The threshold of $100 was raised to $200 in 2000.

Return to source of ^Footnote 7 After 2004, the definition of a third party was modified to mean any entity or person other than a candidate, registered party or EDA of a registered party.

Return to source of ^Footnote 8 The 2000 legislation cumulated many attempts to regulate the advertising expenses of third parties during an election period. Legislation passed in 1974 was amended in 1983 to prohibit any third party election spending, unless it was officially authorized. The 1983 legislation was struck down by the courts as an unconstitutional infringement of freedom of expression under section 2 of the Canadian Charter of Rights and Freedoms. Subsequent legislation in 1993 was struck down for the same reason.

Return to source of ^Footnote 9 See Appendix B for the number of regulated federal political entities from 2004 to 2014.

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