CITATION: Conservative Fund Canada v. Canada (Elections), 2010 ONCA 882 |
DATE: 20101221 |
DOCKET: C51593 |
COURT OF APPEAL FOR ONTARIO |
Simmons, LaForme and Epstein JJ.A. |
BETWEEN |
Conservative Fund Canada |
Applicant (Respondent) |
and |
The Chief Electoral Officer of Canada |
Respondent (Appellant) |
Barbara A. McIsaac, Angela Vivolo and Marc Chénier, for the appellant |
William J. Burden, Arthur Hamilton and Linda I. Knol, for the respondent |
Heard: June 10, 2010 |
On appeal from the order of Justice Herman J. Wilton-Siegel of the Superior Court of Justice dated December 31, 2009, with reasons reported at 2010 G.T.C. 1045. |
Epstein J.A.: |
[1] On its face, this seemingly curious case is about almost $600,000 in public funds – seemingly curious as each party is disclaiming any right to the funds. However, properly understood, it is neither curious nor about the $600,000. It is a debate about the accounting treatment of election expenses, the resolution of which affects general election spending limits.
[2] The specific question before this Court is whether the Chief Electoral Officer of Canada (the “CEO”) is obligated to authorize the amendment of two election expenses returns filed on behalf of the Conservative Party of Canada. The answer to this question depends on whether the Canada Elections Act, S.C. 2000, c. 9 (the “Elections Act” or the “Act”) requires that general election expenses be reported in accordance with Generally Accepted Accounting Principles (“GAAP”).
[3] The question arises because in 2008 the Party received rebates under the Excise Tax Act, R.S.C. 1985, c. E-15, of Goods and Services Tax (“GST”) it had paid for taxable supplies associated with the 2004 and 2006 general elections. If GAAP applies and the election expenses returns can be amended, the result will effectively be that political parties in receipt of such rebates will benefit by an increase in their legislatively available election spending.
[4] On the application judge’s interpretation of the relevant legislation, he concluded that GAAP applies to election expenses returns and that the Conservative Fund Canada, which brought the application on behalf of the Party, is entitled to amend the two election expenses returns.
[5] On appeal, the CEO submits that the application judge erred in allowing the amendments. His analysis was based on an interpretation of the Elections Act that is contrary not only to the plain reading of the relevant provisions of the Act, but also to Parliament’s intention to give every political party a fair chance to have its message heard or, as it is often called, to provide for a level political playing field.
[6] I agree, and would allow the appeal for the reasons that follow.
[7] Before turning to the applicable legislative provisions, I believe it will assist if I explain certain accounting terms relevant to the dispute between the parties.
[8] GAAP is a term used to refer to the conventions, rules and procedures that define approved accounting practices at a particular time. The principles include not only broad guidelines of general application, but also detailed practices and procedures, and are used by accountants in the preparation of financial statements: Bryan A. Garner, ed., Black’s Law Dictionary, 8th ed. (St. Paul: West, 2004).
[9] Generally accepted auditing standards (“GAAS”) is a term that refers to guidelines that establish the professional qualities of an auditor and the criteria to be used in an auditor’s examination of financial records and the accompanying audit reports: Black’s Law Dictionary, 8th ed.
[10] As can be seen from these definitions, the difference between the two is that GAAP is what organizations must follow while preparing financial statements and GAAS is what auditors must follow during an engagement.
[11] It is of note that a requirement for an auditor to apply GAAS does not indicate whether or not the financial records that are being examined must be prepared in accordance with GAAP. According to the handbook of the Canadian Institute of Chartered Accountants, reporting standards under GAAS include that “[w]here an opinion is expressed, it should indicate whether the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in accordance with Canadian generally accepted accounting principles” except when the statements are prepared on a different basis, as described in the auditor’s report (Canadian Institute of Chartered Accountants, CICA Handbook (Toronto: CICA, 2010), at s. 5100.02). Thus, GAAS neither mandates, nor excludes, GAAP.
[12] As correctly identified by the application judge, the key to the resolution of this matter involves the interpretation of the election expense provisions contained in the Elections Act and the interplay between those provisions and the GST rebates provided to certain qualifying organizations under the Excise Tax Act. I will therefore start with a relatively extensive review of the legislative framework.
[13] The Elections Act is the statute that regulates all aspects of elections and by-elections. The Act contains a number of important features that are relevant to this appeal.
[14] One important aspect of the Elections Act is that it limits election spending.
[15] Section 422 of the Act sets out a spending limit that applies uniformly to all political parties. It is calculated based on the number of registered electors in electoral districts in which the registered party has endorsed a candidate.
[16] Section 423 prohibits a party from incurring “election expenses” that exceed the limit calculated in accordance with this formula. Election expenses are broadly defined in s. 407 of the Act to include any costs incurred, whether paid or unpaid, or any non-monetary contributions received, by a registered party that are used to directly promote or oppose a registered party, its leader or a candidate during an election period. Under para. 497(1)(l), it is an offence for the chief agent of a registered political party to incur expenses that exceed the statutory limit.
[17] To enable the CEO to monitor election expenses and to ensure parties adhere to the spending limits, s. 429 of the Elections Act requires the chief agent of a registered party to provide an election expenses return to the CEO when a general election has been held.
[18] In addition, the party’s auditor is required, pursuant to s. 430 of the Act, to examine the general election expenses return in accordance with GAAS and to report to the party’s chief agent. This report must be included in the party’s general election expenses return. Section 430 requires the auditor’s report to include an opinion as to whether the return presents fairly the information contained in the financial records on which the return is based. In its current form, there is no mention of GAAP in s. 430.
[19] However, that was not the case between 2000 and 2004. At that time, the wording of s. 430(1) expressly required the auditor to provide an opinion in his or her report as to whether the financial records supporting the election expenses return were prepared in accordance with GAAP. It was only in 2004, with the introduction of significant changes to the rules pertaining to political financing, that the reference to GAAP in s. 430(1) was removed.
[20] In addition to filing election expenses returns, registered political parties must file a financial transactions return for each fiscal period, pursuant to s. 424 of the Elections Act. Sections 424(2)(f) and (g) stipulate that a financial transactions return must provide a statement of the party’s assets and liabilities and any surplus or deficit, and a statement of the party’s revenues and expenses, all in accordance with GAAP. Section 424(2)(i) requires an election expenses return for each by-election during the fiscal period.
[21] Pursuant to s. 426(1), an auditor must examine the political party’s financial transactions return in accordance with GAAS and provide an opinion as to whether the return presents fairly the information contained in the party’s financial records. Section 426(2) requires the auditor to include any statement considered necessary if the financial transactions return does not present fairly and in accordance with GAAP the information in the financial records on which it is based. Notably, there was a reference to GAAP in s. 426(1) that was removed at the same time as that in s. 430(1); however, the reference to GAAP in s. 426(2) was retained.
[22] A chief agent may apply to the CEO to correct a financial transactions return or an election expenses return under s. 433(1)(b). The CEO may authorize the correction under s. 433(3) of the Elections Act, based on, among other reasons, an honest mistake of fact.
[23] If the CEO rejects an application to correct a general election expenses return, s. 434 of the Act permits the registered party to apply to a judge for an order authorizing the correction. Section 434(3)(c) provides that the judge may not grant the order sought unless satisfied that the application was brought due to one of the factors in s. 433(3), including an honest mistake of fact.
[24] Another important aspect of the Elections Act is that it provides for government subsidies to registered political parties. For example, under s. 435 of the Act, a registered political party may qualify for a reimbursement of 50% of its paid election expenses as stated on the general election expenses return, if certain criteria are met. This reimbursement rate was increased from 22.5%, as of January 1, 2004, with an exceptional rate of 60% reimbursement set for the first general election following January 1, 2004.
[25] Registered political parties that obtain a sufficient number of votes in a general election also receive public funding under s. 435.01 of the Elections Act. This funding, which commenced as of January 1, 2004, is provided on a quarterly basis, based on the number of votes cast in the party’s favour during the most recent general election.
[26] As a result of these subsidies, some political parties receive a substantial portion of their total revenue from government funding, which, as explained below, is significant for GST purposes. I now turn to the second piece of important legislation on this appeal – the Excise Tax Act.
[27] Under the current Excise Tax Act regime, tax relief is available to organizations that meet the definition of a “qualifying non-profit organization” (“QNPO”). Pursuant to s. 259, a QNPO is eligible to receive a rebate of 50% of the GST that it has paid on the acquisition of taxable supplies. A registered political party may qualify as a QNPO and become eligible for GST relief if its income from governmental sources constitutes at least 40% of its total income for that year.
[28] The increases in government subsidies to registered political parties, added in the 2003 amendments to the Elections Act and effective as of January 1, 2004, have allowed some registered political parties to qualify for GST rebates under s. 259 of the Excise Tax Act. Not all registered political parties qualify as QNPOs, however, as qualification depends on the amount of public funding a party receives compared to its private funding. Parties may qualify and cease to qualify over time depending on their electoral performance and the amount of money they raise from private donations in any given year.
[29] Generally, registered parties that qualify for quarterly payments under s. 435.01 of the Elections Act will meet the requirements for QNPO status. Each of the five largest registered parties in Canada (the Party, the Liberal Party, the New Democratic Party, the Bloc Québécois, and the Green Party) presently qualifies for quarterly payments and had 50% of its paid election expenses from the last general election reimbursed.[1]
[30] While that is the current system, it is also important to understand the prior rules governing political parties under the Excise Tax Act for purposes of this appeal. As part of its argument, the Fund relies on a position taken by the CEO concerning the former rules.
[31] Prior to amendments to the Excise Tax Act that came into effect in 1997, political parties had an option to treat their activities as similar in nature to a business engaged in the production of taxable supplies. A political party that opted for this treatment would collect GST on the sale of party memberships, just as a business would collect GST on the sale of taxable supplies. Like a business, the political party would then be entitled to claim an income tax credit (“ITC”) for any tax paid on the goods and services purchased by the party that could be related to taxable supplies – for the political party, ITCs are the mechanism by which the ultimate burden for GST is placed on the final consumer of the goods and services. By allowing intermediaries along the supply and production chain to offset their tax paid on their inputs against the tax they collect from their customers, a cascade of tax is avoided.
[32] In the context of this ITC regime, the CEO took the position in a letter dated May 29, 1996, to legal counsel for the Progressive Conservative Party of Canada, that the P.C. Party’s election expenses returns should be retroactively adjusted to reflect expenses net of the GST recovered through ITCs, and that the P.C. Party’s reimbursement under the Elections Act would be correspondingly adjusted to reflect the lower expenses.
[33] Subsequent to this letter, amendments to the Excise Tax Act came into effect in 1997. These amendments added the “supply of a membership in a registered party” to the list of exempt supplies under the Excise Tax Act. Accordingly, registered political parties could no longer be considered to be providing “taxable supplies”, so they could no longer claim ITCs in respect of the GST paid on any purchases.
[34] In summary, the ITC regime no longer applies to registered political parties. However, under the current regime, political parties that qualify as QNPOs receive a partial rebate of their GST.
[35] The following is a summary of the underlying facts, none of which is in dispute.
[36] As required by s. 429 of the Elections Act, the Fund provided the CEO with the Party’s general election expenses returns in respect of the June 2004 and January 2006 elections.
[37] In accordance with these returns, under s. 435 of the Act, the Party qualified for and received from the Consolidated Revenue Fund a reimbursement of 60% of its election expenses as stated on its return for the June 2004 election, and 50% of its expenses for the January 2006 election. These expenses included an amount that the Party had paid in GST for the goods and services relating to the two elections.
[38] From 2005 to 2007, the Party was in discussion with the Canada Revenue Agency regarding its eligibility as a QNPO. In March 2007, the Party was advised that it did qualify and that the decision was retroactive to January 2004. As a result, in April 2008, the Party received a rebate of 50% of the GST it paid from January 2004 to January 2007. This rebate included 50% of the GST that the Party paid in relation to taxable goods and services associated with the general elections held in June 2004 and January 2006.
[39] The Fund then took the position that the Party’s general election expenses returns for these two elections overstated its expenses by the amount of the GST rebate and, as a result, the Party had received a government subsidy for its election expenses to which it was not entitled.
[40] Accordingly, by letter dated June 26, 2008, the Fund sought authorization from the CEO, pursuant to s. 433(1)(b) of the Elections Act, to amend its election expenses returns to reflect the reduction in its expenses by the amount of the GST rebate. The proposed basis for the correction was an honest mistake of fact (s. 433(3)(c)), in that the Fund did not know when it submitted its election expenses returns that the Party was a QNPO, eligible for a GST rebate under the Excise Tax Act. The Fund attached “corrected” election expenses returns for the 2004 and 2006 general elections, reflecting a reduction in election expenses due to the GST rebates. The Fund proposed, upon confirmation of their acceptance by the CEO, to repay to the Receiver General for Canada the amount that it believed it was overpaid under s. 435 of the Elections Act.
[41] On December 2, 2008, the CEO advised by letter that he would not authorize the Fund’s requested correction. The basis for the refusal was that the GST rebate had no effect on the reporting of election expenses.
[42] Shortly thereafter, the CEO issued a memorandum regarding the use of GST/HST rebates in which he advised all registered political parties of his position in this regard.
[43] Notwithstanding the CEO’s December 2 letter, the Fund once again submitted “corrected” general election expenses returns for the 2004 and 2006 general elections to the CEO by letter dated June 30, 2009, and requested a reconsideration of the CEO’s position. By letter dated July 29, 2009, the CEO rejected the Fund’s request to correct its returns.
[44] On August 12, 2009, the Fund commenced an application in the Superior Court, pursuant to s. 434(1)(b) of the Elections Act, for an order authorizing the proposed corrections. If it were so authorized, it planned to reimburse the Receiver General for Canada for the overpayment.
[45] The application judge identified the issue as being whether the Fund is entitled to an order correcting the two general election expenses returns to reflect a reduction in expenses by the amount of the GST rebate.
[46] He attributed no significance to the retroactive nature of the payment that triggered the Fund’s request for a correction. While the issue had arisen in the context of retroactive payments, it had to be “approached as a matter of interpretation on the basis that the issue applies on a going-forward basis to future elections, also having retrospective effect because the [Fund] did not know that it was a QNPO as of the original date of filing of the general election expenses returns for the 2004 and 2006 general elections.”
[47] The application judge gave four reasons for his conclusion that the Elections Act requires that a political party report its expenses in its general election expenses return in accordance with GAAP and therefore net of any GST rebate. He did so by setting out the four principal arguments advanced by the CEO and rejecting each of them in turn.
[48] First, following a three-stage analysis, he rejected the CEO’s argument that nothing in the Elections Act expressly requires or permits the deduction of a GST rebate from the general election expenses reported under s. 429. He determined that the plain reading of the applicable provisions in the Elections Act supports the conclusion that election expenses reported on general election expenses returns be reported in accordance with GAAP:
(1) Section 424 requires an annual filing of a financial transactions return that sets out the party’s assets, liabilities, revenues and expenses for each fiscal year, all in accordance with GAAP. Section 426(2)(a) requires an auditor reviewing the return to include a statement if, in his or her opinion, the return does not present the information from the party’s financial records in accordance with GAAP. Therefore, financial transactions returns must be prepared in accordance with GAAP;
(2) Since by-election expenses are included in the total expenses reported in the financial transactions return for the year in which they are incurred, they must be reported in accordance with GAAP in the financial transactions return. Section 424 requires a separate by-election expenses return to be filed for any by-election during the fiscal year. In the absence of any indication to the contrary in s. 424, by-election expenses returns must also be reported in accordance with GAAP, to the extent that GAAP applies to such expenses. There is no basis for presenting general election expenses differently than by-election expenses, so it follows that general election expenses also have to be reported in accordance with GAAP. This conclusion is reinforced by the fact that an auditor’s report is required in respect of both financial transactions returns and general election expenses returns. While s. 430 does not contain language similar to s. 426, which explicitly requires the auditor to opine on whether the presentation of the financial information accords with GAAP, this does not mean that a general election expenses return ought not to be prepared in accordance with GAAP. The imposition of a separate requirement of an audit opinion for general election expenses other than in accordance with GAAP would impose an unnecessary cost on political parties; and
(3) Similarly, if general election expenses were to be reported in the general election expenses return in a manner other than in accordance with GAAP, a political party would be required to maintain two sets of books in respect of the same financial information: one for the financial transactions return (in accordance with GAAP) and one for the general election expenses return (on a different basis of accounting).
[49] The application judge proceeded from his conclusion that election expenses had to be reported in accordance with GAAP to find that they had to be reported net of recoverable GST.
[50] Second, he rejected the CEO’s position that there was a policy distinction in the Excise Tax Act between the ITC regime and the GST rebate provisions that would justify treating the former as a reduction of GST and the latter as a form of subsidy. Therefore, he agreed with the Fund that the CEO’s position in the 1996 letter, that election expenses returns should reflect expenses net of the GST recovered through ITCs, was also applicable under the QNPO system.
[51] Third, the application judge rejected the CEO’s argument that the Fund’s position would create a lack of harmony between the Elections Act and the Excise Tax Act. While accepting the Fund’s position that GST rebates should be reflected on election expenses returns would require a correction of the Party’s previously filed returns, the Elections Act specifically contemplates and provides for filings to be corrected, and accrual accounting should remove the need to file correcting returns after the receipt of any future GST rebate.
[52] The application judge acknowledged the theoretical possibility of the “endless paradoxical loop” suggested by the CEO, in which a party would lose QNPO status at the end of a year due to the receipt of a GST rebate under the Excise Tax Act and the corresponding reduction in election expenses reimbursement under the Elections Act, which could reduce the party’s government funding to below 40 per cent. However, he downplayed the possibility of such an occurrence and held that to the extent there was any disharmony between the two statutes for these or other imaginable practical reasons, this lack of harmony could not be used to infer Parliament’s intention to treat GST rebates in the manner proposed by the CEO.
[53] Finally, while the application judge agreed that the Fund’s interpretation of the Act benefits political parties that are QNPOs by essentially increasing the otherwise applicable spending limits by the amount of the GST rebate, he held that this did not evidence Parliament’s intention that election expenses be treated in accordance with the CEO’s position. First, he concluded that while the policy of creating a level playing field for political parties is an important objective of the Elections Act, the Act does not invariably give supremacy to that policy. Second, the CEO’s position would allow a political party that qualified as a QNPO to be unjustly enriched by receiving both a 50% GST rebate under the Excise Tax Act and a reimbursement of 50% of its GST expenses under the Elections Act.
[54] On the basis of the application judge’s conclusion that general election expenses had to be reported net of GST rebates, he held that the Fund was entitled to an order under s. 434(1)(b) of the Act allowing the proposed corrections to the Party’s general election expenses returns for the 2004 and 2006 general elections.
[55] There is only one issue and that is whether the Fund’s proposed corrections to the Party’s election expenses returns for the 2004 and 2006 general elections should be authorized.
[56] The parties agree that the issue of whether or not general election expenses have to be reported in accordance with GAAP is pivotal to the resolution of the dispute over whether the GST rebate required the proposed corrections to the Party’s election expenses returns.
[57] The CEO submits that the application judge erred in all four of the reasons he gave for concluding that the Elections Act requires that general election expenses must be reported in accordance with GAAP and thus net of GST rebates.
[58] First, the CEO argues that the plain wording of the Act does not support that conclusion. Moreover, when other principles of statutory interpretation are applied, it is clear that the legislative drafters deliberately omitted a GAAP reporting requirement for general election expenses returns. For example, the CEO points to the legislative history of the removal of the GAAP reporting requirement from the auditor’s report in s. 430, as outlined above.
[59] Second, the CEO submits that the application judge erred in failing to recognize that GST rebates are intended as subsidies and therefore there is an important policy distinction between GST rebates and ITCs, which are simply a mechanism to administer the GST regime. The CEO therefore contends that the position taken by his predecessor in the May 1996 letter, requiring adjustment of election expenses returns to reflect ITCs, does not apply to the present situation.
[60] Third, the CEO submits that the application judge erred in failing to recognize that his interpretation creates a lack of harmony between the two statutes, as a subsidy provided to a QNPO under the Excise Tax Act would result in government funding provided under the Elections Act having to be returned.
[61] Fourth, the CEO submits that the application judge erred in failing to recognize that Parliament has deliberately chosen an approach to levelling the playing field among political parties that focuses more on limiting how much registered political parties can spend during an election cycle than on how much they receive by way of government subsidy. Moreover, according to the CEO, the Act requires all expenses, including the full amount of the GST, to be reported at “commercial value”, ensuring that expenses are reported equally by all parties. The CEO argues that the application judge’s interpretation, which allows some parties to report election expenses other than at commercial value, undermines Parliament’s intention to promote the egalitarian model of elections.
[62] The Fund supports the application judge’s conclusion that both the wording of the Elections Act and public policy considerations make it clear that election expenses must be reported in accordance with GAAP, and therefore net of any GST rebate, in an election expenses return. The Fund also supports the application judge’s reasoning leading to that conclusion.
[63] In response to the CEO’s submission on legislative history, the Fund notes that the same change that was made to s. 430(1) was also made to s. 426(1), in relation to financial transactions returns. The Fund argues therefore that the significance the CEO attributes to the change to s. 430 does not assist its argument. The Fund contends that this change was not because GAAP does not apply with respect to election expenses returns, but rather because it cannot apply to non-monetary donations, a feature of election expenses that is not relevant in the financial transactions return.
[64] The Fund submits that the ordinary meaning of the provisions of the Act makes it clear that election expenses should be reported net of GST rebates in a general election expenses return. The Fund notes that s. 429 requires an election expenses return to set out expenses “incurred” by a registered party and argues that GST that is initially paid but subsequently rebated is not an expense that has been “incurred”. The Fund also points to s. 435 of the Act, which provides for the reimbursement of 50% of “paid” election expenses, and argues that if GST rebates are ignored in the election expenses return, a party will be reimbursed for GST that was not in fact “paid”.
[65] The Fund also submits that the application judge was correct in determining that there is no meaningful policy distinction between ITCs and GST rebates for QNPOs; the economic result is the same under either regime, with the GST initially paid rebated back to a registered party.
[66] In response to the CEO’s policy arguments, the Fund submits that Parliament deliberately contributed toward an uneven playing field in the Elections Act by providing unequal public funding of parties, depending on their electoral success. Further, the small spending advantage given to QNPO parties under the Fund’s interpretation would not enable these parties to control the electoral process or overwhelm the voices of non-QNPO registered parties.
[67] At the heart of this conflict is an issue of statutory interpretation.
[68] According to the well-known case of Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21, the analysis must focus on the words of the relevant statutory provisions, read in their entire context and in their grammatical and ordinary sense and interpreted harmoniously with the scheme and the object of the legislation and with Parliament’s intention.
[69] The words in issue are the words in s. 429 of the Act that set out the general election expenses reporting requirements of political parties:
429. (1) For a general election, the chief agent of a registered party shall provide the Chief Electoral Officer with
(a) an election expenses return on the registered party’s general election expenses in the general election that substantially is in the prescribed form;
(b) the auditor’s report referred to in subsection 430(1) on that return; and
(c) a declaration by the chief agent concerning those election expenses, in the prescribed form.
(2) An election expenses return must set out as an election expense each of
(a) the expenses incurred by the registered party, whether paid or unpaid; and
(b) the non-monetary contributions used by the registered party.
[70] For the following reasons, I do not agree with the application judge that, based on the plain meaning of the wording of the Elections Act, election expenses reported under s. 429 of the Act must be presented in accordance with GAAP and therefore net of any GST rebates received under s. 259 of the Excise Tax Act.
[71] I start with the observation that the Elections Act contains no specific wording that provides that general election expenses be reported in accordance with GAAP. Rather, s. 430 of the Act, which sets out the basis upon which the party’s auditor should evaluate the party’s reporting of election expenses as required under s. 429, specifies that they be reported “fairly”:
430. (1) As soon as practicable after a general election, the auditor of a registered party shall report to its chief agent on its return on general election expenses and shall make any examination in accordance with generally accepted auditing standards that will enable the auditor to give an opinion in the report as to whether the return presents fairly the information contained in the financial records on which the return is based.
(2) An auditor shall include in the report under subsection (1) any statement the auditor considers necessary if
(a) the return that is the subject of the report does not present fairly the information contained in the financial records on which the return is based[.] [Emphasis added.]
[72] The significance of the omission of any reference to GAAP in the general election expenses reporting requirements is augmented by the fact that the drafters of the Elections Act did expressly identify certain financial information as having to be presented in accordance with GAAP.
[73] I refer to the fact that only two of the eleven components of the financial transactions return in s. 424(2), that is, the statement of the party’s assets and liabilities and the statement of revenues and expenses, are explicitly required to be in accordance with GAAP. It is notable that the reporting requirements associated with by-elections found in s. 424(2)(i) make no reference to GAAP:
424 (2) A financial transactions return must set out
(a) the total contributions received by the registered party and the number of contributors;
...
(f) a statement of the registered party’s assets and liabilities and any surplus or deficit in accordance with generally accepted accounting principles...;
(g) a statement of the registered party’s revenues and expenses in accordance with generally accepted accounting principles;
...
(i) a return for election expenses incurred for each by-election during the fiscal period that sets out
(i) expenses incurred by the registered party, whether paid or unpaid, and
(ii) non-monetary contributions used by it[.]
[Emphasis added].
[74] Further, it is also significant that s. 430(2)(a), which is set out above, makes no reference to an auditor’s having to indicate if the return does not present the information contained in the financial records in accordance with GAAP. In contrast, its parallel provision, s. 426(2)(a), dealing with the requirements of an auditor’s report concerning a registered political party’s annual financial transactions return, specifically requires an auditor to report if the financial information is not presented in accordance with GAAP:
426. (1) The auditor of a registered party shall report to the party’s chief agent on the financial transactions return of the party and shall make any examination in accordance with generally accepted auditing standards that will enable the auditor to give an opinion in the report as to whether the return presents fairly the information contained in the financial records on which the return is based.
(2) An auditor shall include in the report under subsection (1) any statement the auditor considers necessary if
(a) the financial transactions return that is the subject of the report does not present fairly and in accordance with generally accepted accounting principles the information contained in the financial records on which it is based[.] [Emphasis added].
[75] Moreover, as the CEO points out, some significance must be attached to the 2003 amendments to the Elections Act that changed s. 430(1) to remove the requirement that the auditor make an inquiry in accordance with GAAP. As noted above, while both s. 426(1) and s. 430(1) were similarly amended to remove this requirement, it is significant that this change left no further reference to GAAP in s. 430, whereas s. 426(2) still refers to GAAP.
[76] These observations engage the statutory interpretation principle of implied exclusion. Professor Sullivan explains that the implied exclusion argument lies whenever there is reason to believe that if the legislature had meant to include a particular thing within the ambit of its legislation, it would have referred to that thing expressly: Ruth Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham: LexisNexis, 2008), at p. 244.
[77] In other words, deliberate legislative exclusion can be implied when an express reference might have been expected but is absent.
[78] The application of this rule makes it difficult to accept the application judge’s conclusion that the wording of the Elections Act indicates Parliament’s intention that general election expenses be reported in accordance with GAAP, in the light of the fact that the drafters of the Elections Act did not so specify.
[79] I also reject the Fund’s submissions that the ordinary meaning of the words “incurred” in s. 429 and “paid” in s. 435 makes it clear that election expenses returns should report election expenses net of any GST rebates. Whether or not GST is later rebated to a registered party under the Excise Tax Act, GST is an expense that was “incurred” and “paid” by the party at the time of the purchase of taxable goods or services. I do not find these words helpful to the interpretation process.
[80] I have concluded that the wording of the Elections Act does not specifically require that general election expenses returns have to be reported in accordance with GAAP and net of any GST rebates. However, this conclusion, standing alone, is not a sufficient basis upon which to interpret the Act.
[81] As outlined above, in Re Rizzo at para. 21, Iacobucci J. approved the modern principles of statutory interpretation as set out by Elmer Driedger in Construction of Statutes, 2d ed., (Toronto: Butterworths, 1983) and directed that statutory interpretation cannot be founded on the wording of the legislation alone.
[82] Significant weight is attached to the importance of interpreting legislation in a manner that is in keeping with the object of the legislation and with Parliament’s intention. In Sullivan on the Construction of Statutes, 5th ed., Professor Sullivan provides helpful assistance with the task of statutory interpretation in terms of the relationship between the wording of the statute and the significance of Parliament’s intention. After citing a passage from McBratney v. McBratney, [1919] 59 S.C.R. 550, at p. 561, she states at p. 281:
In this passage Duff C.J. asserts two principles that govern judicial reliance on purpose in interpretation.
(1) If the ordinary meaning of legislation is ambiguous, the interpretation that best accords with the purpose of the legislation should be adopted.
(2) If the ordinary meaning is clear, but an alternative interpretation is plausible and more in keeping with the purpose, the interpretation that best accords with the purpose of the legislation should be adopted.
These principles are often expressed in negative form: an interpretation that would tend to frustrate or defeat the legislature’s purpose should be rejected if there is a plausible alternative. [Emphasis added.]
[83] In terms of the legislative intent of the Elections Act, there is no debate over the fact that Parliament has adopted what I have previously referred to as an egalitarian model of elections as an essential component of our democracy. The basic premise of this model is that each citizen should have an equal opportunity to participate in the electoral process. This objective has been discussed by the Supreme Court in two recent cases - Figueroa v. Canada (Attorney General), [2003] 1 S.C.R. 912, at para. 72, and Harper v. Canada (Attorney General), [2004] 1 S.C.R. 827, at paras. 101-102.
[84] At issue in Figueroa was whether the Elections Act requirement that a political party nominate candidates in at least 50 ridings in order to receive and retain registered party status, and the benefits incident to that status, interfered with the capacity of individual citizens to play a meaningful role in the electoral process.
[85] In his analysis, Iacobucci J. at paras. 28-29 described the importance of the electoral process as “the primary means by which the average citizen participates in the open debate that animates the determination of social policy.” He identified that the right to vote allows each citizen to express support for the ideas of a candidate or party and “full political debate ensures that ours is an open society with the benefit of a broad range of ideas and opinions”.
[86] Full debate cannot happen, said Iacobucci J., when some voices are artificially amplified. The absence of a level playing field means that ideas or opinions of some Canadians are at an evident disadvantage even as a matter of public expression. He noted at para. 49:
Owing to the competitive nature of the electoral process, the capacity of one citizen to participate in the electoral process is closely connected to the capacity of other citizens to participate in the electoral process. The reason for this is that there is only so much space for political discourse; if one person “yells” or occupies a disproportionate amount of space in the marketplace for ideas, it becomes increasingly difficult for other persons to participate in that discourse. It is possible, in other words, that the voices of certain citizens will be drowned out by the voices of those with a greater capacity to communicate their ideas and opinions to the general public.
[87] Specifically relevant for the purposes of this analysis is Iacobucci J.’s emphasis on the importance of promoting equality in the political discourse through election financing. At para. 72 he explained:
The systems and regulations that govern the process by which governments are formed should not be easily compromised. Electoral financing is an integral component of that process, and thus it is of great importance that the integrity of the electoral financing regime be preserved.
[88] The importance of promoting equality in the political forum through election financing was both reinforced and amplified by the Supreme Court in Harper. The action was commenced by Mr. Harper to challenge the new third party spending limits and related provisions in the Elections Act under ss. 2(b), 2(d) and 3 of the Canadian Charter of Rights and Freedoms.
[89] At its core, Harper involved the freedom of third parties to freely express their political views and the limits that Parliament may put on this expression in the interests of a fair political discourse – in other words, the interaction between competing Charter interests.
[90] In its analysis, the Supreme Court noted that the overarching objective of election spending limits was electoral fairness, achieved in that case by limiting the election advertising of third parties who are influential participants in the electoral discourse. While the limits on third party spending were found to violate s. 2(b) of the Charter, they were justified under s. 1. The Supreme Court noted at para. 72 that in the absence of spending limits, it would be possible for the affluent or a number of people pooling their resources to dominate the political discourse and deprive their opponents of a reasonable opportunity to be heard.
[91] The Supreme Court explained that while a level playing field could be achieved in two ways – namely, by ensuring resources are equally accessible to all, or by placing limits on the ability to spend – Parliament had chosen to rely on the latter. At para. 62, Bastarache J. said:
The Court’s conception of electoral fairness ... is consistent with the egalitarian model of elections adopted by Parliament as an essential component of our democratic society. 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.... 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.... 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. [Emphasis added and citations omitted.]
[92] This conclusion regarding the importance and effectiveness of spending limits in promoting a level political playing field was also arrived at in the report of the Royal Commission on Electoral Reform and Party Financing, Reforming Electoral Democracy, vol. 1 (Ottawa: Communication Group, 1991), which states at p. 336:
[S]pending limits during election campaigns constitute a significant instrument for promoting fairness in the electoral process. They reduce the potential advantage of those with access to significant financial resources and thus help foster a reasonable balance in debate during elections. They also encourage access to the election process. This adds meaning to the fundamental right of candidacy by enhancing the opportunity for a more representative House of Commons. Finally, spending limits (as designed in our electoral law) help achieve these democratic objectives without diminishing electoral competition.
[93] For the purposes of the analysis in this case, what can be gleaned from Figueroa, and in particular Harper, is not only Parliament’s adoption of the egalitarian model of elections, but also that spending limits are the primary instrument used to promote this objective.
[94] Here, the question is whether the CEO’s or the Fund’s position on this appeal is more consistent with the egalitarian model.
[95] The CEO’s position has the effect of allowing the Party to retain its GST rebate under the Excise Tax Act and the refund from the government under the Elections Act, even though there is some overlap in these rebates. In particular, the Party was reimbursed under the Elections Act for a percentage of the GST incurred on its expenses for the 2004 and 2006 elections. The Party was subsequently rebated 50% of this same GST under the Excise Tax Act.
[96] As previously mentioned, the Fund’s position has the effect of increasing the amount the Party can spend on general elections before reaching the cap. If GST rebates received under the Excise Tax Act are deducted from reportable expenses on general election expenses returns under the Elections Act, this deduction would reduce the total reported expenses and free up space under the Party’s spending cap for further expenditures. This would effectively increase the Party’s spending limit on general elections not only for these two elections but for any future general elections for which it had QNPO status.
[97] Each side relies on what it submits are the negative policy implications of the other’s position to support its argument that the drafters of the legislation, deemed to be aware of the Excise Tax Act and the consequences of its intersection with the Elections Act, could not have intended such a result. I refer to the principle of statutory interpretation that it is presumed that the entire body of legislation enacted by a legislature does not contain contradictions or inconsistencies, but rather that the provisions are meant to work together to form a rational, coherent whole: Sullivan on the Construction of Statutes, 5th ed., at p. 325.
[98] The problem here is that no matter which of the two interpretations is accepted, Parliament’s intent to maintain a level political playing field is affected by the Party’s having the benefit of either increased funds available to it or an increased spending limit. However, as I have previously indicated, while an increase in the amount of money in the bank is helpful to a political party’s ability to communicate its message and views to the public, in terms of the promotion of a level political playing field, an increase in the party’s ability to spend during an election campaign is substantially more significant.
[99] The important role that spending limits play in the promotion of Canada’s electoral equilibrium leads to two interconnected conclusions that demonstrate that the application judge’s interpretation of the Act’s reporting requirements in terms of general election expenses is in error.
[100] First, I disagree with the application judge’s conclusion at para. 75 that the provisions in the Elections Act that provide for different levels of government subsidy for political parties with differing levels of electoral support provide evidence that the Elections Act “does not always give supremacy to the policy of a ‘level playing field’ among political parties.” These provisions do not indicate Parliament’s acceptance of an uneven political playing field. Parliament’s objective of promoting the egalitarian model of elections is made obvious through the spending limitations imposed during general elections.
[101] Second, interpreting the Elections Act in accordance with the CEO’s position – that election expenses are not to be reported in accordance with GAAP – is the interpretation that is harmonious with the scheme and the object of the Act and with Parliament’s intention.
[102] Finally, the application judge held that the CEO’s position creates a number of practical consequences that must be taken as contradicting Parliament’s intention that election expenses be reported in accordance with GAAP.
[103] The principle of statutory interpretation that is engaged in this part of the analysis is set out, once again, in Re Rizzo, where Iacobucci J. wrote at para. 27 that “[i]t is a well established principle of statutory interpretation that the legislature does not intend to produce absurd consequences.”
[104] In Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031, Gonthier J. expressed the principle as follows at para. 65: “Since it may be presumed that the legislature does not intend unjust or inequitable results to flow from its enactments, judicial interpretations should be adopted which avoid such results.”
[105] I am not persuaded that the CEO’s position produces “absurd consequences” or “unjust or inequitable results”.
[106] The Fund contends that the resultant different reporting requirements for annual financial transactions returns and general election expenses returns would unduly affect the maintenance of a political party’s books and the complexity of the required audits.
[107] I disagree. There was no evidence before the application judge of any actual problems that would be experienced by parties’ being required, in their financial reporting, to adjust for GAAP treatment, where appropriate. Further, while it is true that the auditor will have to present reports for audits of financial transactions returns and election expenses returns using different accounting principles, this is a standard requirement when an organization must, by statute or otherwise, report its financial information under different principles for different purposes.
[108] The Fund also argued that the CEO’s interpretation would create a lacuna within the operation of the Elections Act in the sense that the auditors would be left with no standard by which to report on general election expenses returns. The simple answer to this concern is that the legislation itself contains the reporting standard. Section 430(1) of the Act requires general election expenses to be reported in a manner that “presents fairly the information contained in the financial records on which the return is based.” There is no evidence that this stated manner of reporting is in any way problematic.
[109] Finally, as previously indicated, I disagree with the application judge’s finding that there was no meaningful policy distinction in the Excise Tax Act between the ITC regime and the GST rebate provisions in respect of QNPOs that would justify treating GST rebates differently than ITCs. The ITC regime provides for reimbursement of the GST paid on purchases of goods and services used in the course of doing business. In contrast, the s. 259 rebate under the Excise Tax Act is a subsidy provided to a particular group of organizations that receive a substantial amount of their funding from the government. It is given in recognition of their public service performance.[2] The two serve different purposes to advance different policies.
[110] In summary, the practical problems the application judge identified as supporting his interpretation of the legislation over that proposed by the CEO are not, in my view, problems at all. Certainly, they do not undermine my conclusion that Parliament intended that a political party’s election expenses are not to be reported in accordance with GAAP.
[111] While the interpretation I have arrived at does result in the Party’s being able to keep the GST rebate under the Excise Tax Act and the reimbursement under the Elections Act, that result does little if any disservice to the legislative intent of the Elections Act. I say this because this interpretation maintains the equality of spending limits - the primary instrument used by Parliament to protect the level political playing field.
[112] I therefore conclude that the relevant provisions of the Elections Act do not require that general election expenses be reported in accordance with GAAP. This conclusion is in keeping with the clear wording of the Act. Moreover, it is in keeping with the egalitarian model of elections adopted by Parliament as an essential component of our democratic society.
[113] It follows that for the purposes of general election expenses returns, expenses do not have to be reported net of GST rebates. The Fund’s returns for the 2004 and the 2006 general elections require no correction.
[114] For the above reasons, I would allow the appeal and deny the Fund’s application for authorization to correct its general election expenses returns for the general elections in 2004 and 2006.
[115] If the parties are unable to resolve the issue of costs before this Court and before the application judge, they may make brief written submissions within 30 days.
RELEASED:
“DEC 21 2010” “G. J. Epstein J.A.”
“JS” “I agree Janet Simmons J.A.”
“I agree H. S. LaForme J.A.”
[1] Elections Canada, “Quarterly Allowances to the Registered Political Parties (2010)” (4 October 2010), online: EC <www.elections.ca/content.aspx?section=pol&document=qua2010&dir=pol/qua&lang=e>; Elections Canada, “Total Paid Election Expenses and Reimbursements, by Registered Political Party – 2008 General Election” (10 September 2009), online: EC <www.elections.ca/content.aspx?section=fin&dir=pol/remb&document=table1_08&lang=e>.
[2] Department of Finance, News Release, TM1289, “Goods and Services Tax” (19 December 1989).