Canada’s electoral agency has launched discussions on how political parties must handle crypto contributions ahead of the general elections in October. Political parties asked for the Elections Canada’s (EC) guidance on accepting donations and conducting transactions in Bitcoin. The electoral body has published a draft note taking the position that crypto contributions are non-monetary, in-kind gifts.
The draft guidelines posted on the EC’s website indicates that cryptocurrencies “have traits of both money and property,” but notes that they are different from money. It states that a crypto contribution is non-monetary, describing it more as stocks or bonds, and “not eligible for a tax receipt.” However, it must be received within the Canada Elections Act’s (CEA) limitations and stipulations.
“Like money, they [cryptocurrencies] can be used to make purchases from businesses that choose to accept them,” the note says. “But unlike money, they cannot be placed directly into a bank account. Instead, cryptocurrencies can be sold for traditional currencies that can be placed into a bank account.” Per the EC, such characteristic qualifies cryptocurrencies as “a form of ‘property’ and fall under the definition of a non-monetary contribution.”
Several Canadian government and auditing bodies have taken the position that digital currencies are non-monetary. The Canada Revenue Agency deems cryptocurrency as a commodity, subject to barter transaction policies when utilized to pay for products or services.
According to EC, political entities receiving contributions should establish a two-step process to identify the givers of over 20 CAD and log transaction details from the blockchain to audit donations.
The recommendation is more difficult than it seems because of the anonymity associated with digital currencies. Crypto contributions will often be sent and received between virtual wallets using public keys which will be translated into addresses and seen on the blockchain ledger as a string of numbers and letters.
These addresses are the only data available publicly about the receiver and sender. To solve these issues, EC said that when a political party accepts crypto contributions, it must keep “a record of the contributor’s name and address, transaction number on the blockchain or other public ledger, public addresses used in the transaction, contribution date, amount and type of cryptocurrency sent, commercial value in Canadian dollars at the time received, and any transaction fees deducted.”
The political party should also report the person’s name, address, and donation amount in the financial return, if necessary, in accordance with non-monetary contributions policies.
“Failure to follow these procedures could result in the contribution being considered anonymous for the purposes of the CEA which would require the political entity to pay an amount equal to its commercial value to the Receiver General for Canada,” the guidelines state.
To meet the CEA’s transparency objective, party leaders and candidates cannot purchase services or property directly with digital currencies. It is also the case for registered political parties regarding their election expenses. The electoral agency mentioned that cryptos should be liquidated and the funds deposited into the bank account of the political entity before being utilized to make purchases.
When a political entity sells digital currencies, the draft report noted that “the transaction results in a contribution from the buyer only if the purchase price is above fair market value. The contributor must be eligible under the contribution rules and stay within their limit.” Political parties may hold cryptos for an “indefinite period.” The holdings will be “reported as assets at the fiscal year-end.”
Political parties can submit their improvements and opinions to the draft document until January 21.