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2. Reviewing the Third Party RegimeMeeting New Challenges: Recommendations from the Chief Electoral Officer of Canada following the 43rd and 44th General Elections

Third parties are individuals and organizations other than certain regulated entities such as candidates and political parties. Many of them (e.g. unions and industry associations) exist for purposes other than elections, but wish to participate in the democratic process by, for example, promoting the interests of their members, including by supporting or opposing certain parties or candidates. Other third parties are created during the election period specifically to engage in the political debate by promoting or opposing a party or candidate for that election. Still others are permanent entities that were created to promote or oppose parties and candidates at all times, including during the election period.

At the 2019 general election, 154 third parties registered with Elections Canada. At the 2021 general election, which did not have a pre-election period, 105 third parties registered with the agency.

By regulating the participation of third parties, the Act protects the level playing field in terms of spending and facilitates transparency about who is promoting those competing for election. Without the regulation of third parties, the Act's spending limits and transparency requirements for political parties and candidates could easily be circumvented by individuals or organizations that support them.

2.1. Third Party Expenses

Before the 2019 general election, the Act regulated third party advertising expenses only during the election period. Third parties were required to register if they spent $500 or more on election advertising and to attach a tagline to any election advertising (whether they met the spending threshold or not). A registered third party had to submit financial reports and was subject to spending limits during the election.

In response to concerns that the existing third party regime was ineffective—partially brought about by the decreasing relevance of the definition of advertising, as discussed above—Parliament amended the law and created two additional types of activities for which third parties are now regulated: partisan activities—which include calling electors, canvassing door to door and organizing rallies—and certain election surveys conducted to support regulated activities. Spending limits for partisan activities, election surveys and partisan advertising were also applied to third parties for the new pre-election period for a fixed-date general election. New requirements for interim reporting were imposed on third parties that spent or received a certain amount.

Two federal elections (in 2019 and 2021) have been administered under the newly expanded third party regime, which was implemented in 2019. The new regime effectively ensures that all third party expenses for activities that promote or oppose parties and candidates are regulated. Given that third party spending limits exist, in large part, to level the playing field for parties and candidates, it is appropriate to apply a similar scope of regulation to third party expenses as applied to the expenses of political parties and candidates.

In the 2019 election, the vast majority of third parties spent well under the spending limit: 86 percent of third parties spent 25 percent or less than the limit, and only 4 percent spent more than 75 percent of the limit. This suggests that the current regulation does not unduly limit third party spending for the vast majority of third parties. At the time this report was tabled, and although data exists for the 2021 general election, an analysis has yet to be completed.

In the two elections since the Act was amended, the area of greatest concern for third parties has been that of "issue advertising." Issue advertising promotes or opposes a party or candidate without specifically naming them. Instead, such advertising takes a position on an issue that is associated with the party or candidate.

Issue advertising by parties, candidates and third parties has long been regulated under the Act. Its regulation with respect to third parties, however, seems to have been especially noted by participants in the 2019 and 2021 elections, perhaps because such advertising is included in the definition of "election advertising" under the Act, but not in the new definition of "partisan advertising," from which issue advertising is expressly excluded. This means that issue advertising by third parties is regulated only during the election period and not in the pre-election period. Its exclusion from regulation during the pre-election period seems to have highlighted its long-standing regulation during the election period.

There is good reason to regulate issue advertising in the same way as advertising (or other communications) that explicitly mentions a party or candidate. Where an issue is so clearly associated with a candidate or a party that taking a position on that issue is a way to promote or oppose the party or candidate, to exclude such advocacy from spending limits or transparency requirements effectively defeats the objectives of the Act.

That said, there are legitimate concerns that expression can be inhibited by too broad an interpretation of issue advertising or communications. Currently, the law regulates all issue advertising that has the effect of promoting a party or a candidate, whether or not such promotion is the purpose of the communication. As a result, a large number of communications may be captured.

According to Elections Canada's survey of registered third parties after the 2019 general election, over half of third parties' financial agents said it was difficult to figure out whether the issues they wanted to advertise were issues that would engage the Act, and 4 in 10 said it was very difficult. The most common reasons cited for this difficulty were that the rules for advertising about issues in an election were not clear, followed by the perception that the issues the third parties regularly work on (e.g. climate change, gender issues) would create a need for registration and regulatory compliance.

Similarly, responses to the consultation conducted in 2020 indicated that the definition of issue advertising could be made clearer. Respondents noted that the link between an issue and a political entity is not always obvious. They also stated that the rules may have the unintended consequence of limiting communications that are conducted in the normal course of business or educational activities.

While it would not be consistent with the objectives of the law to exclude all issue-based communications from regulation, it is important to reduce uncertainty about what is and what is not regulated. Elections Canada believes that greater clarity could be provided, and the goals of the regime better achieved, if the law targeted only those issue-based communications that have the purpose of promoting or opposing parties and candidates. As noted, the Act also currently impacts issue-based election advertising during an election period that has the incidental effect of promoting a party or candidate while, in fact, being transmitted for some other reason.

Further clarity on the scope of regulated issue-based communications could be provided in law, as suggested by some respondents to the consultation. For example, Ontario's Election Finances Act does this by including a number of useful factors to consider when determining whether issue-based advertising falls under that legislation. These factors include whether the advertising was planned to coincide with the election, whether it refers to the election, whether it is similar to party or candidate advertising in appearance and whether it is consistent with the entity's non-election-period advertising. For the reasons noted above, Elections Canada believes that the factors outlined in the Ontario legislation should be applied at the federal level, beyond advertising, to all issue-based electoral communications. Issue-based electoral communications that can reasonably be seen to have the purpose of promoting or opposing a party or candidate should be regulated.

A more targeted regulation of issue-based communications that focuses on the purpose of the communication—with objective factors set out in legislation for determining whether there is a clear link between the particular communication and a party's or candidate's platform—should reassure third parties about the scope of the provisions of the Act. This change would continue to protect the spending limits and transparency objectives of the Act, while ensuring that only communications clearly linked to one or more candidates or parties are subject to regulation.

For consistency, Elections Canada believes that the same test should apply during both the election and the pre-election periods, recognizing that fewer issues should attract scrutiny in the pre-election period, when party platforms are less clearly defined.

Recommendation 2.1.1

  • To continue to provide transparency about electoral communications and to protect the objective of fairness through spending limits, the Act should regulate paid issue-based electoral communications—not only issue advertising—that can reasonably be seen as having the purpose of promoting or opposing a party or candidate during the election and pre-election periods.
  • To clarify the scope of regulated issue-based communications, a list of factors should be provided in the Act to help determine which communications would be captured under the Act as being for the purpose of promoting or opposing a candidate or party. Section 37.0.1 of Ontario's Election Finances Act could serve as a model.

2.2. Third Party Registration Threshold

Although the scope of the regulation of expenses and the related spending limits for third parties have recently been substantially changed, the third party registration threshold—set at $500—has not changed in more than 20 years.

In the 2019 general election, 73 percent of registered third parties spent over $1,000; 3 percent spent between $500 and $999; and 24 percent spent less than $499. Third parties that registered but spent less than $499 did so believing that they would, in fact, exceed the $500 threshold. It is unknown how many other third parties (those that did not register) spent less than $500. At the time this report was tabled, and while data exists for the 2021 general election, an analysis has yet to be completed.

Unlike spending limits, which are adjusted annually, the registration threshold remains frozen. Increasing this threshold would reduce the regulatory burden on smaller organizations and individuals.

Although some may express concern that a higher threshold for registration would allow some actors to escape regulation and thus threaten the goals of the law, it should be noted that the requirement for a third party to include a tagline or authorization statement in its advertisements applies to third parties even if they have not met the threshold for registration.

If Recommendation 1.1.1 is adopted, third parties required to register would also have to disclose their identity in their paid and unpaid electoral communications, and unregistered third parties would have to continue to identify themselves in their paid electoral communications. Therefore, an increased registration threshold for other regulatory requirements to apply could facilitate participation in the electoral process by reducing the regulatory burden on smaller third parties, while not unduly jeopardizing transparency. In line with Recommendation 1.1.1, once a third party has met the registration threshold, it should be required to identify itself in all its electoral communications, whether paid or unpaid.

Recommendation 2.2.1

  • To reduce the regulatory burden on those playing a smaller financial role in the electoral process, amend the Act to increase the third party registration threshold to $1,000.

2.3. Third Party Contributions

Although third parties have spending limits and reporting obligations that are similar to those imposed on parties and candidates, the same cannot be said with respect to the inflow of resources to third parties. Whereas parties and candidates must record all contributions of funds, goods and services in relation to the election, and such contributions are subject to limits, the same requirements do not apply to third parties.

Third parties are required only to record contributions given to them for the purpose of engaging in regulated activities. Contributions received for no specific purpose, or no purpose directly linked to regulated electoral activities, are treated as general revenue. If they are used for regulated activities, they are reported as forming part of the third party's own funds or resources. This provides a gap in transparency concerning the true origins of third party resources and provides a way for large anonymous contributions, or foreign contributions, to make their way into Canadian elections.

The proportion of third party funding coming from declared contributions is decreasing. In the 2011 general election, 92 percent of third party funding came from contributions, while 8 percent came from the third parties' own funds. In the 2019 general election, only 63 percent of total inflows used by third parties were recorded as contributions from named contributors; the other 37 percent came from the third parties' own funds.

In the case of entities that receive a substantial portion of their revenue from fundraising—notably, third parties created for the purpose of supporting or opposing parties and candidates—reporting that the entity's "own funds" are being used can have the effect of hiding whose resources are truly being used in the electoral process. This is because, under the Act, contributions received by an entity to support a given cause (or to support the entity more generally), but not specifically for regulated campaign activities, are considered to be part of the entity's general revenue and are reported as the entity's "own funds." This weakens transparency and can open the door to the use of foreign funds when they are co-mingled with general revenue.

Another problem with the current third party contributions regime is that a third party (e.g. entity A) can receive funds from another entity (entity B) that collects contributions. In that case, entity A's contributions from entity B are disclosed as such, without reference to original contributors, individual or otherwise. Again, this undermines transparency and allows for inflows of foreign contributions.

One solution to this lack of transparency could be to provide that all resources used by a third party to promote or oppose a party or a candidate should be subject to the same rules as those governing contributions to political parties and candidates. Only contributions from individual Canadian citizens or permanent residents, and subject to statutory limits, could be used by a third party for regulated electoral activities. While effective, such a solution may raise issues under the Canadian Charter of Rights and Freedoms because it restricts the expressive activities of a broad range of entities such as unions and commercial corporations by preventing them from using their own funds altogether, even though they carry on activities and generate revenues in Canada.

An alternative solution is to impose restrictions on those third parties that receive a significant level of funding from contributions (e.g. 10 percent per year). These entities, which present higher risks to transparency, would be able to register and participate in a Canadian election as third parties, but they would be required to use only funds that could be traced to contributions from individual Canadians and permanent residents. They could not rely on their "own funds" or contributions from sources other than individuals. These third parties would be required to have a separate bank account for their third party campaign expenses; such an account would receive inflows only from these individual contributors, and all regulated expenses would need to be made from it.

These restrictions should not apply to individuals registering as third parties who should be allowed to continue relying on their own funds. In the last two elections, only a small number of individuals registered as third parties (8 in 2019 and 7 in 2021), and only one reported expenses above $5,000. Current prohibitions in the Act on the use of foreign funds are adequate with respect to this category of third party.

Recommendation 2.3.1

  • To achieve improved transparency and help prevent foreign funding of third parties, the Act should provide that third parties other than individuals who wish to rely on their own funds to finance regulated electoral activities need to provide Elections Canada with audited financial statements showing that no more than 10 percent of their revenue in the previous fiscal year comes from contributions.
  • All other third parties that are not individuals should be required to incur expenses to support or oppose parties and candidates only from funds set aside in a separate account established for that purpose. Such third parties should also be required to identify the contributors whose funds have been used to promote or oppose parties or candidates, and such contributors should be made up only of individual Canadian citizens and permanent residents.