open Secondary menu

Recommendations of the Chief Electoral Officer of Canada to the House of Commons Standing Committee on Procedure and House Affairs Respecting Specific Issues of Political Financing

7. Loans and the Transfer of Candidates' Debts

Summary of Section

This section:

  • sets out the existing rules contained in the Canada Elections Act with respect to loans and the need for a distinct regime for this type of transaction; and

  • as requested by the Committee, discusses the ability of a candidate to transfer campaign debts.

It recommends:

  • that political entities may borrow money in excess of the contribution limits only from financial institutions, as this expression is defined and used in section 437 of the Canada Elections Act;

  • the limit on loans made by individuals should be their contribution limit; an exception may be considered for an initial loan by a candidate to his or her campaign;

  • that a separate regulatory regime be developed for loans; and

  • that no additional changes to the Act are required at this time to address the issue of the transfer of campaign debts.

Current Law

Loans

While Parliament has imposed an extensive regime to control the source and extent of contributions, it has not done so with respect to that other source of funding constituted by loans. However, loans are money, albeit a legitimate means of financing a campaign if there is a reasonable expectation of repayment. The loans granted by lenders – who are not in the business of lending, who lend money at non-commercial rates, with terms that are not available to others, or in cases where there is little prospect of reimbursement – may be perceived as a means to influence the political entity to which the funds are provided. Also, the current provisions of the Act dealing with other unpaid claims are not adequate when applied to loans. For these reasons, consideration should be given to imposing additional controls and making these transactions more transparent and the rules governing disclosure more consistent from one political entity to the other.

Currently, the Act authorizes all political entities it governs to borrow money to meet their expenses. It also assimilates loans to contributions for the purposes of reporting. Thus, registered parties, registered electoral district associations, candidates, leadership contestants and nomination contestants are required to report on the loans they have contracted as part of their election/contest/financial returns.Footnote 29 Reporting requirements set out in the Act vary from one entity to another.

The repayment obligations also vary from entity to entity, with more time-constrained rules and consequences being imposed on event-based entities (the candidates, leadership contestants and nomination contestants) than on ongoing entities (the registered parties and EDAs). Candidates, leadership contestants and nomination contestants are expected to repay all claims (including loans) within a varying number of months following the event for which they contracted the loans.Footnote 30

Where the campaign of a candidate, a leadership contestant or a nomination contestant cannot repay a loan within the legislated period, it may apply to the Chief Electoral Officer for authority to repay the loan over a longer period. (A further application to a judge is available.) If the Chief Electoral Officer is satisfied that there are reasonable grounds for so doing, he may authorize the loan to be repaid over a longer period of time and according to specified terms and conditions – such as a requirement to repay the loan according to a precise repayment schedule.

It is an offence for candidates, leadership contestants and nomination contestants to fail to repay a loan within the legislated period after the conclusion of the event (polling day or selection date), unless the loan falls into one of the exceptions set out in the Act – the two most common of which are when the Chief Electoral Officer has authorized the repayment over a longer period of time or when a judge has done so.Footnote 31

The repayment rules applicable to loans contracted by parties and EDAs are defined in relation to the repayment date negotiated between the entity and the lender, presumably a recognition of their ongoing status.Footnote 32 There are no offences under the Act for failure by a party or an EDA to repay a loan.

In addition to the obligations above regarding the repayment of loans, the Act provides that the unpaid portion of a loan which remains unpaid on the day that is 18 months after the end of the event to which it relates or, in the case of registered parties and EDAs, 18 months after the end of the fiscal period to which the transaction return relates, is deemed to be a contribution which is subject to the eligibility, disclosure and contribution limits set out in the Act as of the day the loan was incurred. However, the unpaid amount will not be deemed to be a contribution if it falls within certain exceptions, the most common of which is that the amount is the subject of a binding agreement to pay. Another of these exceptions is when the loan has been written off by the creditor as an uncollectable debt in accordance with the creditor's normal accounting practices.Footnote 33

Any arrangement whereby a loan is used as a mechanism to avoid the eligibility, caps or disclosure requirements of the Act respecting contributions would constitute an offence under paragraphs 497(1)(i.4) and (i.5), and 497(3)(f.14) and (f.15), as a breach of the anti-avoidance provisions of the Act.

Recommendation

It is recommended that Parliament consider reviewing the rules governing loans to impose additional controls on loans, make these transactions more transparent and the rules more consistent from one type of political entity to another. More particularly, consideration should be given to:

  • providing that political entities may borrow money in excess of the contribution limits only from financial institutions, as this expression is defined and used in section 437 of the Canada Elections Act;

  • the limit on loans made by individuals should be their contribution limit; an exception may be considered for an initial loan by a candidate to his or her campaign;

  • providing that all loans (and lines of credit) authorized by lending institutions be at commercial rates; and

  • developing a separate regime for the treatment and reporting of loans in the Act, including requiring a more complete and consistent set of information to be provided for loans (as well as lines of credit) contracted by all entities, including interest rates, repayment schedules and the name of the lender.

Transfer of Debts

The Committee also requested that this report address matters related to the ability of a candidate to transfer his or her campaign debts. The discussion that follows is limited to candidates and does not extend to leadership contestants, although some aspects may be similar.

During or at the end of a campaign, a candidate may find himself or herself with insufficient funds to pay outstanding debts. To pay such outstanding debts, a candidate's campaign has two choices.

It can continue its fundraising efforts to raise the necessary funds.Footnote 34 However, where this fundraising is done after polling day, in addition to the difficulties involved in after-event fundraising, the contributions to the candidate do not appear to be tax receiptable pursuant to the current Canada Revenue Agency income tax interpretation.Footnote 35

The registered party or a registered electoral district association of a candidate can also either transfer the necessary funds to the candidate's campaign to pay the debtFootnote 36 or assume the liability for the payment of that debt. This latter arrangement will constitute the provision of a service to the candidate and also be reported as a transfer.Footnote 37 All candidates, including those who do not have a registered party or registered association can adopt a similar process if the debt is within the contribution cap of an individual or entity eligible to make contributions and is prepared to assume the responsibility for the debt. In that case, the transfer of liability would be treated as a non-monetary contribution by the individual or entity assuming the debt.

All payment of debts, fundraising for such purposes, and transfers must be reported by the candidate's campaign. This may require an update to the return where the payment, fundraising or transfer takes place after the filing of the campaign's electoral campaign return under section 451.Footnote 38

Recommendation

No additional changes to the Act are required at this time to address the issue of the transfer of debts by candidates to their EDA or the party.

Footnote 29 See paragraph 403.35(2)(i) and (i.1) for EDAs, 424(2)(j) for registered parties, 435.3(2)(d.1) for leadership contestants, 451(2)(e) for candidates and 478.23(2)(c) for nomination contestants.

Footnote 30 See section 445 for candidates, 478.17 for nomination contestants and 435.24 for leadership contestants.

Footnote 31 See subsection 445(2) for candidates, 435.24(2) for leadership contestants and 478.17(2) for nomination contestants.

Footnote 32 See section 418 for registered parties and 403.3 for EDAs.

Footnote 33 See paragraph 423.1(2) for parties, 403.34(2) for EDAs, 450(2) for candidates, 478.22(2) for nomination contestants and 435.29(2) for leadership contestants.

Footnote 34 Contributors wishing to donate to these campaigns must still adhere to their contribution caps. In the case of candidates who are not associated with a registered party, for whom the contribution caps run on a "per event" basis, it will be prudent to get an express statement from "after-polling day" contributors that such contributions are for the past election. This is to avoid confusion respecting to which event a contribution is intended.

Footnote 35 See CRA's Information Circular IC-75-2R7 (para. 8).

Footnote 36 The prohibition on the after-polling day transfer of funds in section 476 does not apply to transfers to pay claims related to the candidate's electoral campaign.

  1. No registered agent of a registered party, financial agent of a registered association or financial agent of a nomination contestant shall transfer funds to a candidate after polling day except to pay claims related to the candidate's electoral campaign.

Footnote 37 The choice of arrangement will depend on the circumstances. Where the campaign bank account is closed, the assumption of the debt by the registered party or registered association will not involve a transfer of funds and will not require the re-opening of the bank account. If funds are transferred to the candidate, those funds must be received in the campaign account and the expense paid by the candidate's official agent. Also, payment of an unpaid claim by a campaign later than four months after election day requires the consent of the Chief Electoral Officer under section 458.

Contributions made to a registered party or to a registered electoral district association are tax receiptable.

Footnote 38 See section 455 (updating financial reporting documents respecting unpaid claims) and section 458 (application to correct a return).