Prime Minister Stephen Harper will announce the byelection date in the next two weeks, the source said. The Canada Elections Act requires a campaign of at least 36 days.
Penashue quit his post last week after his campaign accepted 28 separate illegal contributions during the 2011 election requiring repayments to the federal Receiver General of almost $48,000. He won the only Conservative seat in the province over Liberal incumbent Todd Russell by just 79 votes.
Penashue says he was unaware of the improper donations and has blamed an "inexperienced volunteer" — his former official agent. The former Innu leader outlines those mistakes and his achievements for Labrador on a website that offers lawn signs and accepts donations for the coming byelection.
He also promotes his work as a former MP in a large ad that ran Monday in the Labradorian newspaper. In it, he takes credit for securing federal support for development of the Muskrat Falls hydroelectric project and for scrapping the "ineffective long-run registry," a flubbed reference to the long-gun registry.
The domain name for the website, deliveringforlabrador.ca, was registered last Monday, according to the Canadian Internet Registration Authority. That's three days before Penashue made the stunning announcement that he'd step down and run again to clear the air with voters.
Tyler Sommers, a spokesman for the government accountability group Democracy Watch, said Penashue should not be allowed to run again until Elections Canada has publicly released results of an investigation into his campaign spending.
"They want to get through this as quickly as possible with as little information as possible," he said of the Conservative party. "Elections Canada should be able to prevent candidates from running if they've essentially admitted to breaking election laws, and there should be real penalties."
Penalties for candidate overspending range from $1,000 to $5,000 in fines or three months to five years in jail, or both, depending on the seriousness of the offence. Wilful intent to break election laws can carry a five-year ban on running for election to the Commons, although it's difficult to prove.
Sommers said penalties are rarely applied, and that election laws and enforcement efforts should be toughened up.
Elections Canada does not discuss details of ongoing investigations, spokeswoman Diane Benson said from Ottawa.
The Penashue case dominated question period in the House of Commons as parliamentarians returned Monday from a one-week break.
Liberal MP Joyce Murray, a party leadership hopeful, asked: "Why is the prime minister reappointing this failed politician to run in the byelection?
"And how can the public actually trust in Canadian democracy in the face of so much Conservative election corruption?"
Heritage Minister James Moore, filling in for Harper, responded that Penashue "has taken responsibility for mistakes that were made on his campaign."
Cory Hann, Penashue's byelection campaign spokesman, echoed that view.
"Peter Penashue is doing the right thing in being accountable to the voters who elected him," he said in an email.
NDP Leader Thomas Mulcair said his party — which has yet to nominate a candidate for Labrador — will campaign hard to ensure Penashue isn't re-elected, despite the pre-emptive Conservative push in the region.
"They’re spending outside the writ period to try to give him an advantage," Mulcair said.
"Stephen Harper's going to pay for this one dearly when the electors of that riding get a chance ... to deal with him and we'll make sure that that happens."
An examination of Penashue's amended 2011 election return reveals that he tried to have the matter put to bed last December but was firmly rejected.
The Conservative party had already made two separate repayments on Penashue's behalf by that point, transfers of $10,000 and $20,000 respectively, both on Nov. 23, 2012.
Elections Canada was not satisfied.
In a letter dated Feb. 12, 2013, the chief electoral officer responded that Penashue's proposed corrections to the return could not be supported.
The letter said that "in cases in which corporate (donation) cheques were received, corporate rather than individual names and addresses are required."
In other words, the campaign return was continuing to list corporate donations — which are illegal under the Elections Act — under individual donor names.
Elections Canada also objected to the fact that "no reference was made to the reporting of the contributions of air travel services" by two airlines.
Marc Mayrand, the chief electoral officer, ordered Penashue to submit a corrected campaign return no later than March 4, 2013 — less than three weeks from the date of Mayrand's letter.
"I wish to remind you that non-compliance with this deadline may result in the candidate being unable to sit or vote in the House of Commons," Mayrand warned.
On March 1, the Conservative party made another repayment of $14,350.
Elections Canada now says Penashue's 2011 campaign return is final.
It shows he overshot his campaign spending limit of $84,468.09 by $5,421.96 while accepting tens of thousands of dollars in illegal donations, including cash from 16 listed corporations and non-monetary contributions from airlines Innu Mikum Partnership and Provincial Airlines Ltd.
And while the 2011 campaign return is now deemed complete, Penashue has not been given the all clear.
Elections Canada may refer problematic files to the Commissioner of Elections, who can issue compliance orders or seek criminal charges through the Office of the Public Prosecutor.
The elections watchdog does not publicly disclose when it refers files to the commissioner, and compliance orders only become public when they are posted in the Canada Gazette and on Elections Canada's website.
Recently published reports say the Commissioner of Elections has referred its investigation over fraudulent 2011 election robocalls in Guelph, Ont., to the public prosecutor's office — something neither office will confirm.
—With files from Bruce Cheadle in Ottawa.
Note to readers: This is a corrected story. A previous version said Penashue's claim for scrapping the 'ineffective long-run registry' was fixed later in the ad later in the day.
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