Mrs. P. McNally Specialty Rulings Director Directorate Enquiries and Taxpayer G. Thornley Assistance Division 957-2101
Monica Jones-Kisil
7-4405
Subject: Interest Income of Political Candidates
This is in reply to your memorandum of October 4, 1989, in which you ask us to reexamine the position taken in our letter of September 11, 1989 with respect to interest income generated from political donations and further to our telephone conversation of October 10, 1989 (Thornley/Jones-Kisil) in which it was suggested that the official agent of the candidate might have had a trust relationship with the candidate.
In our September 11, 1989 letter we took the position that interest income earned in the account of an official agent of a candidate is income of the candidate. We took this position because the Canada Election Act, in the Revised Statutes of Canada, 1985, clearly states that the agent who is to maintain the bank account referred to in section 217 and 227, Thus in our view there is an agency and not a trust relationship involved.
According to Underhill and Hayton, Law of Trusts and Trustees (14th ed.) 1987, Butterworths, London, at page 5; and Hallsbury's Law of England Fourth Edition, Volume 1, at page 418, agency is a common law relationship arising where an agent has express or implied authority to act on behalf of his principal. In the present instance this authority is given by the candidate appointing an individual as his or her official agent (See section 215 of the Elections Act).
In this respect the Departments has stated its position regarding the distinction between an agency and a trust relationship in the 1988 Revenue Canada, Taxation Round Table. Part of the answer to question 32 of that Round Table is as follows:
"We would first note that there is a legal distinction
between an agency and a trust relationship. Where
there is an agency relationship, the beneficial owner
of the property will be subject to income tax without
regard to the agency relationship."The only person that benefits from contribution received by a candidate's official agent is the candidate who has the use of such funds for the paying of his election expenses. Only if there is a surplus is there a requirement to turn such funds over to a registered party or the Receiver General. Although it may be common practice to turn over surplus interest earned on contributions along with any surplus contributions, the practice appear to be required by the Canada Elections Act.
With respect to your suggestion, made during a subsequent telephone conversation, that the official agent's band account might be a constructive trust, we quote the following from Black's Law Dictionary:
"Constructive trust. Trust created by operation of law
against one who by actual or constructive fraud, by
duress or by commission of wrong, or by any form of
unconscionable conduct, or other questionable means,
has obtained or holds legal right to property which he
should no, in equity and good conscience, hold and
enjoy. Davis v. Howard, 19 Or.App. 310, 527 P. 2d 422,
424. A constructive trust is a relationship with respect to
property subjecting the person by whom the title to the
property is held to an equitable duty to convey it to
another on the ground that his acquisition or
retention of the property is wrongful and that he would
be unjustly enriched if he were permitted to retain the
property. Restatement, Second, Trusts 1(e)."We do not feel that this definition has relevance with respect to the official agent of a candidate.
21(1)(b)
We trust that these further comments will be of assistance to you.
B.W. Dath Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch