Consolidated financial statements

Public Accounts of Canada 2017 Volume I—Top of the page Navigation

Consolidated Statement of Operations and Accumulated Deficit for the year ended March 31, 2017

(in millions of dollars)

  2017 2016
Budget
(Note 3)
Actual Actual
Revenues (Note 19)
Tax revenues
Income tax revenues
Personal 143,859 143,680 144,897
Corporate 37,877 42,216 41,444
Non-resident 6,256 7,071 6,505
Total income tax revenues 187,992 192,967 192,846
Other taxes and duties
Goods and services tax 33,480 34,368 32,952
Energy taxes 5,810 5,634 5,565
Customs import duties 4,980 5,478 5,372
Other excise taxes and duties 5,318 5,868 5,916
Total other taxes and duties 49,588 51,348 49,805
Total tax revenues 237,580 244,315 242,651
Employment insurance premiums 22,402 22,125 23,070
Other revenues
Enterprise Crown corporations and other government business enterprises 5,939 5,655 7,916
Other 19,816 19,267 19,494
Net foreign exchange 1,922 2,133 2,322
Total other revenues 27,677 27,055 29,732
Total revenues 287,659 293,495 295,453
Expenses (Note 4 and Note 19)
Program expenses
Transfer payments
Old age security benefits, guaranteed income supplement and spouse's allowance 48,410 48,162 45,461
Major transfer payments to other levels of government 68,649 68,652 65,850
Employment insurance 21,123 20,711 19,419
Children's benefits 21,869 22,065 18,025
Other transfer payments 41,684 41,580 34,874
Total transfer payments 201,735 201,170 183,629
Other expenses 89,658 85,986 87,368
Total program expenses 291,393 287,156 270,997
Public debt charges 25,682 24,109 25,443
Total expenses 317,075 311,265 296,440
Annual deficit (negative 29,416) (negative 17,770) (negative 987)
Accumulated deficit at beginning of year (negative 615,986) (negative 615,986) (negative 612,330)
Other comprehensive income (loss) (Note 5 and Note 14) 1,857 (negative 2,669)
Accumulated deficit at end of year (Note 5) (negative 645,402) (negative 631,899) (negative 615,986)

Consolidated Statement of Financial Position as at March 31, 2017

(in millions of dollars)

  2017 2016
Liabilities
Accounts payable and accrued liabilities
Amounts payable to taxpayers 55,077 53,697
Other accounts payable and accrued liabilities 34,431 33,232
Provision for contingent liabilities (Note 6) 16,511 12,562
Environmental liabilities and asset retirement obligations (Note 7) 12,599 13,282
Deferred revenue 9,238 10,158
Interest and matured debt 4,663 4,922
Total accounts payable and accrued liabilities 132,519 127,853
Interest-bearing debt
Unmatured debt (Note 8) 713,633 688,211
Pensions and other future benefits
Public sector pensions (Note 9) 151,806 152,227
Other employee and veteran future benefits (Note 9) 93,568 85,681
Total pensions and other future benefits 245,374 237,908
Other liabilities (Note 10) 5,689 5,602
Total interest-bearing debt 964,696 931,721
Total liabilities 1,097,215 1,059,574
Financial assets
Cash and accounts receivable
Cash and cash equivalents (Note 11) 36,500 38,570
Taxes receivable (Note 12) 110,514 105,848
Other accounts receivable (Note 12) 11,041 10,270
Total cash and accounts receivable 158,055 154,688
Foreign exchange accounts (Note 13) 98,797 93,539
Loans, investments and advances
Enterprise Crown corporations and other government business enterprises (Note 14) 99,427 91,116
Other loans, investments and advances (Note 15) 24,579 24,841
Total loans, investments and advances 124,006 115,957
Public sector pension assets (Note 9) 1,900 1,639
Total financial assets 382,758 365,823
Net debt (negative 714,457) (negative 693,751)
Non-financial assets
Tangible capital assets (Note 16) 69,676 65,838
Inventories 6,842 7,221
Prepaid expenses and other 6,040 4,706
Total non-financial assets 82,558 77,765
Accumulated deficit (Note 5) (negative 631,899) (negative 615,986)
Contingent liabilities and contractual obligations (Note 6 and Note 18)

Consolidated Statement of Change in Net Debt for the year ended March 31, 2017

(in millions of dollars)

  2017 2016
Budget
(Note 3)
Actual Actual
Net debt at beginning of year (negative 693,751) (negative 693,751) (negative 686,959)
Change in net debt during the year
Annual deficit (negative 29,416) (negative 17,770) (negative 987)
Changes due to tangible capital assets
Acquisition of tangible capital assets (negative 9,335) (negative 8,547) (negative 8,015)
Amortization of tangible capital assets 6,343 5,168 5,049
Proceeds from disposal of tangible capital assets 576 421 632
Net gain on disposal of tangible capital assets, including adjustments (negative 880) (negative 157)
Total change due to tangible capital assets (negative 2,416) (negative 3,838) (negative 2,491)
Change due to inventories 379 29
Change due to prepaid expenses and other (negative 1,334) (negative 674)
Net increase in net debt due to operations (negative 31,832) (negative 22,563) (negative 4,123)
Other comprehensive income (loss) (Note 5 and Note 14) 1,857 (negative 2,669)
Net increase in net debt (negative 31,832) (negative 20,706) (negative 6,792)
Net debt at end of year (negative 725,583) (negative 714,457) (negative 693,751)

Consolidated Statement of Cash Flow for the year ended March 31, 2017

(in millions of dollars)

  2017 2016
Operating activities
Annual deficit (negative 17,770) (negative 987)
Non-cash items
Share of annual profit in enterprise Crown corporations and other government business enterprises (negative 4,920) (negative 7,316)
Amortization of tangible capital assets 5,168 5,049
Net gain on disposal of tangible capital assets, including adjustments (negative 880) (negative 157)
Cross-currency swap revaluation (negative 627) 1,722
Change in taxes receivable (negative 4,666) (negative 7,349)
Change in pensions and other future benefits 7,205 8,728
Change in foreign exchange accounts (negative 5,258) (negative 8,521)
Change in accounts payable and accrued liabilities 3,120 2,739
Change in cash collateral pledged to counterparties (negative 316) (negative 6,557)
Net change in other accounts 1,135 1,517
Cash used by operating activities (negative 17,809) (negative 11,132)
Capital investment activities
Acquisition of tangible capital assets (negative 7,834) (negative 7,379)
Proceeds from disposal of tangible capital assets 421 632
Cash used by capital investment activities (negative 7,413) (negative 6,747)
Investing activities
Enterprise Crown corporations and other government business enterprises
Equity transactions 2,195 4,975
Issuance of loans and advances (negative 52,213) (negative 54,542)
Repayment of loans and advances 48,703 52,699
Issuance of other loans, investments and advances (negative 6,104) (negative 7,749)
Repayment of other loans, investments and advances 5,510 6,145
Cash (used) provided by investing activities (negative 1,909) 1,528
Financing activities
Issuance of Canadian currency borrowings 507,483 452,850
Repayment of Canadian currency borrowings (negative 477,549) (negative 435,143)
Issuance of foreign currency borrowings 21,702 26,817
Repayment of foreign currency borrowings (negative 26,575) (negative 24,602)
Cash provided by financing activities 25,061 19,922
Net (decrease) increase in cash and cash equivalents (negative 2,070) 3,571
Cash and cash equivalents at beginning of year 38,570 34,999
Cash and cash equivalents at end of year (Note 11) 36,500 38,570
Supplementary information
Cash used for interest 13,451 14,337

Notes to the consolidated financial statements of the Government of Canada

1. Summary of significant accounting policies

Reporting entity

The reporting entity of the Government of Canada includes all of the government organizations which comprise the legal entity of the Government as well as other government organizations, including Crown corporations, which are separate legal entities but are controlled by the Government. For financial reporting purposes, control is defined as the power to govern the financial and operating policies of an organization with benefits from the organization's activities being expected, or the risk of loss being assumed by the Government. All organizations defined as departments and as Crown corporations in the Financial Administration Act are included in the reporting entity. Other organizations not listed in the Financial Administration Act may also meet the definition of control and are included in the Government's reporting entity if their revenues, expenses, assets or liabilities are significant.

Some Crown corporations and not-for-profit organizations rely on the Government for a portion of their financing. The consolidated Crown corporations that receive significant funding from the Government are Atomic Energy of Canada Limited, Canada Council for the Arts, Canadian Air Transport Security Authority, Canadian Broadcasting Corporation and VIA Rail Canada Inc. The consolidated not-for-profit organizations that receive significant funding are the Canada Foundation for Innovation and the Canada Foundation for Sustainable Development Technology. The financial activities of all of these entities are consolidated in these financial statements on a line-by-line and uniform basis of accounting after eliminating significant inter-governmental balances and transactions. Detailed information on these consolidated entities is included in Section 4 (unaudited) of this volume.

Enterprise Crown corporations are government business enterprises able to raise substantial portions of their revenues through commercial business activity and are therefore considered self-sustaining. The major enterprise Crown corporations include the Bank of Canada, Canada Mortgage and Housing Corporation, Canada Post Corporation and Export Development Canada. In addition, there are a number of self-sustaining government business enterprises that are not Crown corporations but which are controlled by the Government. These are referred to as other government business enterprises and include various Canada Port Authorities. Investments in enterprise Crown corporations and other government business enterprises are recorded under the modified equity method.

The Canada Pension Plan (CPP), which includes the assets of CPP under the administration of the Canada Pension Plan Investment Board, is excluded from the reporting entity because changes to CPP require the agreement of two thirds of participating provinces and it is therefore not controlled by the Government.

Basis of accounting

These consolidated financial statements are prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Revenues

Tax revenues are recognized in the period in which the taxable event occurs and when they are authorized by legislation or the ability to assess and collect the tax has been provided through legislative convention.

Tax revenues are measured from amounts assessed/reassessed and from estimates of amounts not yet assessed/reassessed based on cash received that relates to the fiscal year ended March 31. Annual revenues also include adjustments between the estimated revenues of previous years and actual amounts, as well as revenues from reassessments relating to prior years. Revenues do not include estimates of unreported taxes, or the impact of future reassessments that cannot yet be reliably determined.

Tax expenditures that reduce taxes paid or payable are considered tax concessions and are netted against the applicable tax revenue. Tax expenditures that provide a financial benefit through the tax system, and are not related to the relief of taxes paid or payable, are shown as other transfer payments and are not netted against tax revenue.

Tax revenues that were not collected at year end and refunds that were not yet disbursed are reported respectively as taxes receivable and amounts payable to taxpayers on the Consolidated Statement of Financial Position. These amounts also include other receivables and payables for amounts collected through the tax system such as provincial and territorial taxes, Employment Insurance premiums and Canada Pension Plan contributions receivable from individuals and employers as applicable.

Tax collected on behalf of the provincial/territorial governments is not included in tax revenues. It is recorded as payable to the provincial/territorial governments included within Other Accounts Payable and Accrued Liabilities and distributed by the Department of Finance in accordance with associated agreements.

The following policies are applied for specific revenue streams:

Expenses

The Government has three major types of expenses: transfer payments, other expenses and public debt charges.

Transfer payments are recorded as an expense in the year the transfer is authorized and all eligibility criteria have been met by the recipient.

Other expenses are generally recorded when goods are received or services are rendered and include expenses related to personnel, professional and special services, repair and maintenance, utilities, materials and supplies, as well as amortization of tangible capital assets. Provisions to reflect changes in the value of assets or liabilities, such as provisions for bad debts, loans, investments and advances and inventory obsolescence, as well as utilization of inventories and prepaid expenses, expenses of consolidated Crown corporations, and other are also included in other expenses. Public sector pensions and other employee and veteran future benefits, which comprise a portion of personnel expenses, are recorded as employees render services using the projected benefit method prorated on service, except for: veteran future benefits and workers' compensation where benefits are accrued on an event driven basis; accumulated sick leave entitlements where benefits are recognized using an accrued benefit method; and plan amendments related to past services, curtailments and settlements where costs are recorded when approved or paid.

Public debt charges are recorded when incurred and include interest, servicing costs, costs of issuing new borrowings, amortization of premiums and discounts on market debt including amounts arising on the extinguishment of debt, as well as interest on public sector pensions and other employee and veteran future benefits.

Cash and cash equivalents

Cash consists of public moneys on deposit and cash in transit less outstanding cheques and warrants. Cash equivalents consist mainly of term deposits usually not exceeding 31 days.

Foreign exchange accounts

Short-term deposits, marketable securities and special drawing rights held in the foreign exchange accounts are recorded at cost. Marketable securities are adjusted for amortization of purchase discounts and premiums. Purchases and sales of securities are recorded at the settlement date. Transaction costs are expensed as incurred for all classes of financial instruments.

Investment income earned with respect to foreign exchange accounts as well as write-downs to reflect other than temporary impairment in the fair value of securities are included in net foreign exchange revenues on the Consolidated Statement of Operations and Accumulated Deficit. Canada's subscriptions to the capital of the International Monetary Fund and loans to the International Monetary Fund are recorded at cost.

Loans, investments and advances

Investments in enterprise Crown corporations and other government business enterprises, which include the net assets and liabilities of enterprise Crown corporations and other government business enterprises, are recorded under the modified equity method whereby the cost of the Government's equity is reduced by dividends received and adjusted to include the annual profits and losses of these corporations, after elimination of unrealized inter-organizational gains and losses. All of these corporations follow International Financial Reporting Standards (IFRS). Under the modified equity method, the corporations' accounts are not adjusted to the Government's basis of accounting and other comprehensive income or loss of enterprise Crown corporations and other government business enterprises is recorded directly to the Government's accumulated deficit and net debt.

Some enterprise Crown corporations provide loans to borrowers outside the reporting entity of the Government. Some of these loans will be repaid through future appropriations of the Government under various subsidy programs which provide funds directly related to the repayment of the loan. For these loans receivable, a valuation allowance for the amount expected to be repaid from future appropriations is recorded to reduce their carrying value to an amount that approximates the amount to be recovered from sources outside the reporting entity of the Government. The valuation allowance is based upon the amount qualified borrowers are expected to receive under various Government subsidy programs and the percentage of the subsidy expected to be applied to the outstanding loan balance.

Other loans, investments and advances are initially recorded at cost and are adjusted to reflect the concessionary terms of loans made on a long-term, low interest or interest-free basis.

When necessary, an allowance for valuation is recorded to reduce the carrying value of other loans, investments and advances to amounts that approximate their net recoverable value. The allowance for valuation for other loans, investments and advances, reflects the possibility of losses associated with potential default on these exposures. The determination of the valuation allowance considers the credit risk of borrowers, collateral provided as well as previous repayment history. When they are determined to be uncollectible, other loans, investments and advances are written off. Subsequent recoveries are recorded as revenue when received.

Non-financial assets

The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 16. For certain tangible capital assets where the costs are not readily available, such as older buildings, estimated current costs have been extrapolated retrospectively in a systematic and rational manner to approximate original costs. Assets acquired under capital leases are recorded at the present value of the minimum lease payments using the appropriate discount rate, which is generally the lower of the interest rate implicit in the lease and government's rate of incremental borrowing at the inception of the lease. These assets are amortized over the lease term or the estimated useful life of the asset in accordance with the asset type. The corresponding lease obligations are recorded under unmatured debt on the Consolidated Statement of Financial Position. When conditions indicate that a tangible capital asset no longer contributes to the government's ability to provide goods and services, or that the value of future economic benefits associated with the tangible capital asset is less than its net book value, the cost of the tangible capital asset is reduced to reflect the decline in the asset's value.

Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act; works of art, museum collections and Crown land to which no acquisition cost is attributable; and intangible assets. In addition, acquisitions of works of art and museum collections consisting mainly of paintings, sculptures, drawings, prints, photographs, monuments, films and videos are expensed in the fiscal year in which they are acquired.

Inventories are valued at cost and are comprised of spare parts and supplies held for future program delivery and are not primarily intended for resale. Inventories that no longer have service potential are valued at the lower of cost or net realizable value. Items for which the costs are not readily available are valued using management's best estimate of original cost, based on available information.

Non-financial assets are not taken into consideration when determining the net debt of the Government, but rather are deducted from the net debt to determine the accumulated deficit.

Unmatured debt

Unmatured debt consists of market debt, cross currency swap revaluations, the obligation related to capital leases and other unmatured debt. Market debt is recorded at face value and is adjusted by discounts and premiums which are amortized on a straight-line basis over the term to maturity of the respective debt instrument. The corresponding amortization is recorded in public debt charges. When a marketable bond is exchanged or repurchased, and the transaction results in an extinguishment of the debt, the difference between the carrying amount of the debt instrument and the net consideration paid is recognized as a gain or loss in the Consolidated Statement of Operations and Accumulated Deficit, and the debt instrument is derecognized. An extinguishment occurs on the repurchase of bonds, or when there is an exchange of bonds with an existing bond holder and the terms of the original debt and the replacement debt are substantially different. Exchanged bonds are considered to have substantially different terms when the discounted present value of the cash flows under the new terms, including any amounts paid on the exchange, and discounted using the average effective interest rate of the original debt, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original debt. If an exchange of bonds with an existing bond holder does not result in an extinguishment, the carrying amount of the debt is adjusted for any amounts paid on the exchange, and the unamortized premiums or discounts relating to the original debt and arising on the exchange transaction are amortized over the remaining term to maturity of the replacement debt on a straight-line basis. The Government's holdings of its own securities, if any, are deducted from market debt to report the liability to external parties. As the Government does not specifically borrow on behalf of enterprise Crown corporations, there is no netting of outstanding market debt and loans to these corporations.

Cross currency swap revaluations consist of unrealized gains or losses due to fluctuations in the foreign exchange value of the cross currency swaps entered into by the Government.

The obligation related to capital leases represents the present values of the remaining minimum lease payments under capital lease agreements.

Public sector pensions and other employee and veteran future benefits

Public sector pensions and other employee and veteran future benefits are measured on an actuarial basis. The actuarial valuations estimate the current value of benefits earned and use various actuarial assumptions in the process. When actual experience of the plans varies from estimates or when actuarial assumptions change, actuarial gains or losses arise. Due to their tentative nature and because further adjustments will likely be required in the future, actuarial gains and losses are not recognized immediately but rather over the expected average remaining service life (EARSL) of the employees, which varies across plans, or the average remaining life expectancy (ARLE) of the benefit recipients under wartime veteran plans. Recognition of actuarial gains and losses commences in the year following the effective date of the related actuarial valuations. In addition, an unrecognized net actuarial loss is recognized immediately upon a plan amendment, up to a maximum of the related decrease in the accrued benefit obligation; similarly, an unrecognized net actuarial gain is recognized immediately, up to a maximum of the related increase in the accrued benefit obligation. The unrecognized net actuarial loss or gain, relating to the obligation that is curtailed or settled, is recognized immediately upon a plan curtailment or settlement.

Plan assets include investments held by the Public Sector Pension Investment Board (PSPIB) which are valued at market-related value and adjusted to market value over a five-year period. Under this method, the expected return on investments is recorded immediately while the difference between the expected and the actual return on investments is recorded over a five-year period through actuarial gains and losses. The market-related value of investments is adjusted, if necessary, to ensure that it does not fall outside a limit of plus or minus 10 per cent of the market value of investments at year end; any difference is recorded immediately through actuarial gains and losses.

Contributions receivable from employees for past service buyback elections are discounted to approximate their fair value.

Contingent liabilities

Contingent liabilities, including the allowance for guarantees, are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded to other expenses. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the consolidated financial statements.

For guarantees, an allowance is recorded when it is determined that a loss is likely and the amount of the allowance is estimated taking into consideration the nature of the guarantee, loss experience and current conditions. The allowance is reviewed on an ongoing basis and changes in the allowance are recorded as expenses in the year they become known.

Environmental liabilities and asset retirement obligations

An environmental liability for the remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the Government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government's cost of borrowing, and is based on the term rate associated with the estimated number of years to complete remediation.

A liability for unexploded explosive ordnance (UXO) affected legacy sites is recognized when there is an appropriate basis for measurement and a reasonable estimate can be made. These liabilities are present obligations arising from past transactions or events, the settlement of which is expected to result in the future sacrifice of economic benefits.

Asset retirement obligations are estimated costs related to obligations associated with the retirement of tangible capital assets. A liability for an asset retirement obligation is recognized when all of the following criteria are satisfied: there is an agreement, contract, legislation, or a constructive or equitable obligation that obligates the Government to incur retirement costs in relation to a tangible capital asset, the past event or transaction giving rise to the retirement liability has occurred, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. These costs are normally capitalized and amortized over the asset's estimated useful life based on the Government's best estimates of the cost to retire the tangible asset. If the related asset is fully amortized, the asset retirement costs are expensed. The liability reflects the present value of estimated future cash flows required to retire the assets where amounts can be reasonably estimated and is expected to be settled as the related sites, facilities or assets are removed from service. The estimated future cash flows are adjusted for inflation using a rate that is derived on the basis of Consensus forecasts and Bank of Canada historical and target inflation rates. The discount rate is a weighted average rate reflecting the Government's cost of borrowing on initial recognition and on subsequent changes to expected cash flows, which is most closely associated with the period to settlement of the obligation.

The recorded liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated statements. If measurement uncertainty exists it is also disclosed in the notes to the consolidated statements.

Foreign currency translation

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates in effect at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated using rates at March 31. Gains and losses resulting from foreign currency translation are reported on the Consolidated Statement of Operations and Accumulated Deficit according to the activities to which they relate. Net gains and losses relating to the foreign exchange accounts, foreign debt, swap and foreign exchange forward agreement revaluations are presented with investment revenues from foreign exchange accounts under net foreign exchange revenues. Net gains and losses relating to loans, investments and advances are presented with the return on investments from these loans, investments and advances under other revenues. Net gains and losses relating to transfer payments are reported in the transfer payment expenses under other transfer payments. Net gains and losses relating to departmental sale or purchase of goods or services in foreign currency are reported under other expenses.

Measurement uncertainty

The preparation of consolidated financial statements requires the Government to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. Estimates and underlying assumptions are reviewed annually at March 31. Revisions to accounting estimates are recognized in the period in which estimates are revised if revisions affect only that period or in the period of revision and future periods if revisions affect both current and future periods.

A material measurement uncertainty exists when it is reasonably possible that a material variance could occur in the reported or disclosed amount in the near term. Near term is defined as a period of time not to exceed one year from March 31. The Government has determined that a material measurement uncertainty exists with respect to the reported amounts for public sector pensions and other employee and veteran future benefits. Measurement uncertainty due to estimates and assumptions also exists in the provision for contingent liabilities (Note 6), the accrual of tax revenues, the related amounts receivable and payable, and the allowance for doubtful accounts; and environmental liabilities. It is reasonably possible that the Government's reassessments of these estimates and assumptions could require a material change in reported amounts or disclosures in the consolidated financial statements.

Obligations for public sector pensions and other employee and veteran future benefits are actuarially determined and the actual experience may differ significantly from the assumptions used in the calculation of the plans' accrued benefits. At March 31, 2017, net future benefit liabilities of $243,474 million ($236,269 million in 2016) in regards to obligations for public sector pensions and other employee and veteran future benefits are recorded in the financial statements. The significant actuarial assumptions used in measuring the benefit obligations as well as a sensitivity analysis of the impact on the consolidated financial statements of changes in the most significant assumptions are found in Note 9.

Tax revenues, the related amounts receivable and payable and the allowance for doubtful accounts are subject to measurement uncertainty due to the use of estimates of amounts not yet assessed/reassessed based on cash received. Key assumptions used in estimating tax revenues are that tax instalments, historical information on refund rates, payments received on filing tax returns, and amounts receivable assessed are good indicators of tax revenue earned to March 31 that has not yet been assessed. The key assumption used to estimate the general allowance for doubtful accounts is historical collection information as described in Note 12. The estimates are subject to back-testing and are refined as required. In addition, tax revenues are subject to measurement uncertainty resulting from objections where the taxpayer filed a notice of objection. As of March 31, 2017, $16,409 million of federal taxes was under objection ($18,579 million for 2016). An amount is recognized as a reduction of tax revenues for cases where it has been determined that the government had little or no discretion to avoid settlement. The methodologies used to determine the estimates were applied consistently with those of the previous year.

Environmental liabilities and asset retirement obligations are subject to measurement uncertainty as discussed in Note 7 due to the evolving technologies used in remediation activities of contaminated sites or asset retirements, the use of discounted present value of future estimated costs, and the fact that not all sites have had a complete assessment of the extent and nature of remediation or asset retirement costs. Changes to underlying assumptions, the timing of the expenditures, the technology employed, the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the environmental liabilities recorded.

Other comprehensive income or loss

Other comprehensive income or loss, resulting from the accounting of enterprise Crown corporations and other government business enterprises under the modified equity method, is excluded from the calculation of the Government's annual deficit and is recorded directly to the Government's accumulated deficit and net debt.

2. Comparative information

Certain comparative figures for 2016 have been reclassified to conform to the 2017 presentation.

The revised presentation classifies the revenues and expenses of consolidated Crown corporations and other entities with the revenues and expenses of other consolidated government units. This change results in the reclassification of $4,544 million of Crown corporation revenues to other revenues and the merging of $8,358 million of Crown corporation expenses with other expenses and public debt charges, as well as the reclassification of $177 million from other accounts payable and accrued liabilities to deferred revenues. The tables in Note 4, Note 5 and Note 19 have also been adjusted to reflect this new classification.

A distinct line item was added this year in the Consolidated Statement of Financial Position in order to separately present the provision for contingent liabilities. This has resulted in a reclassification of $12,562 million to this new line item from the other accounts payable and accrued liabilities line item. Note 6 has been adjusted to reflect this change.

In addition, on the Consolidated Statement of Cash Flow, $1,483 million was reclassified from change in accounts payable and accrued liabilities to net change in other accounts to accurately exclude the impact of non-cash items on those line items.

3. Spending and borrowing authorities

a. Spending authorities

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes. The Government uses the full accrual method of accounting to prepare its Budget and present its current consolidated financial statements. However, the spending authorities voted by Parliament remain on an expenditure basis, which uses only a partial accrual method of accounting. During the year, expenditures were made under the authorities indicated in the following table:

(in millions of dollars)

  2017 2016
Annual spending limits voted by Parliament 103,671 95,358
Expenditures permitted under other legislation 155,466 158,135
Total budgetary expenditures authorized 259,137 253,493
Less: amounts available for use in subsequent years and amounts that have lapsed 13,183 12,094
Total net expenditures 245,955 241,399
Effect of consolidation and full accrual accounting 65,310 55,041
Total expenses 311,265 296,440

The use of budgetary expenditure authorities reported in the preceding table differs from the total expenses reported in the Consolidated Statement of Operations and Accumulated Deficit. The difference is due to various factors. Spending authorities are presented on a partial accrual basis, while the Consolidated Statement of Operations and Accumulated Deficit is prepared on a full accrual basis. The transactions of consolidated specified purpose accounts and of certain Crown corporations or other controlled entities are consolidated in the financial statements but are not included in the budgetary expenditure authorities available for use. Transfer payments to organizations within the Government reporting entity are recorded against a budgetary expenditure authority in the year they are disbursed to the organization, but they are recorded as a consolidated expense only when they are disbursed to the ultimate recipient outside of the Government reporting entity. Provisions for valuation of assets and liabilities are also not included in spending authorities.

In addition to the authorities for budgetary expenditures, non-budgetary spending of $217,341 million ($206,895 million in 2016) was authorized for loans, investments and advances. A net amount of $51,913 million ($55,446 million in 2016) was used, an amount of $145 million ($71 million in 2016) lapsed and an amount of $165,283 million ($151,378 million in 2016) is available for use in subsequent years.

Details about the source and disposition of authorities (unaudited) and the details of ministerial expenditures are provided in Volume II of the Public Accounts of Canada.

b. Over-expenditure of spending authorities

There were no over-expenditures of spending authorities in 2016–2017.

c. Borrowing authorities

The Government may borrow only on the authority of Parliament which is contained in Part IV of the Financial Administration Act. Section 43.1 of the Financial Administration Act empowers the Governor in Council to authorize the Minister of Finance to borrow money on behalf of Her Majesty in right of Canada. In 2017, the Governor in Council specified $325,000 million ($270,000 million in 2016) to be the maximum aggregate amount of principal that may be borrowed during the fiscal year. The maximum aggregate amount of principal is the sum of i) the maximum stock of treasury bills anticipated to be outstanding during the year, ii) the total value of refinanced and anticipated new issuances of marketable bonds and retail debt and iii) an amount to facilitate intra-year management of the debt and foreign exchange accounts. During the year, $276,216 million ($237,867 million in 2016) of the borrowing authority was used.

d. Source of budget amounts

The budget amounts included in the Consolidated Statement of Operations and Accumulated Deficit and the Consolidated Statement of Change in Net Debt are derived from the amounts that were budgeted for 2016–2017 in the March 2016 Budget Plan (Budget 2016). To enhance comparability with actual 2016–2017 results, Budget 2016 amounts have been reclassified to conform to the current year's presentation in the consolidated financial statements, with no overall impact on the budgeted 2016–2017 annual deficit.

Since actual opening balances of the accumulated deficit and net debt were not available at the time of preparation of Budget 2016, the corresponding amounts in the budget column have been adjusted to the actual closing balances of the previous year.

4. Expenses

Expenses in the Consolidated Statement of Operations and Accumulated Deficit include:

a. Major transfer payments to other levels of government

(in millions of dollars)

  2017 2016
Canada health transfer 36,057 34,025
Canada social transfer 13,348 12,959
Fiscal arrangements 17,145 16,893
Other major transfers 2,102 1,973
Total major transfer payments to other levels of government 68,652 65,850

b. Other transfer payments

Other transfer payments totalling $41,580 million ($34,874 million in 2016) include various amounts paid through federal programs to stabilize market prices for commodities, to develop new technologies, to conduct research, provide international development assistance, support health care and infrastructure of First Nations and Inuit communities, support social housing and families and to promote educational and cultural activities. Also included are expenses of other consolidated entities and other miscellaneous payments. The various types of transfer payments are being delivered by departments according to their departmental legislative mandates. Details can be found in Table 3.6 of Section 3 (unaudited) of this volume.

c. Public debt charges

(in millions of dollars)

  2017 2016
Public debt charges related to unmatured debt
Interest on unmatured debt 12,527 13,203
Amortization of discounts on Canada and Treasury bills 765 871
Amortization of premiums and discounts on all other debts 1,171 1,503
Cross currency swap revaluation (negative 335) (negative 487)
Servicing costs and costs of issuing new borrowings 10 11
Capital lease obligations 200 209
Other unmatured debt 82 83
Total 14,420 15,393
Interest expense related to pensions and other future benefits 9,482 9,843
Other liabilities 207 207
Total public debt charges 24,109 25,443

d. Total expenses by segment

The Government has defined segments as Ministries which groups the activities of departments, agencies and consolidated Crown corporations and other entities for which a Minister is responsible to Parliament. Additional segmented information is provided in Note 19. The following table presents the total expenses by segment after the elimination of internal transactions:

(in millions of dollars)

  2017 2016
Ministries
Agriculture and Agri-Food 3,003 2,240
Canadian Heritage 4,088 3,703
Environment and Climate Change 1,803 1,642
Families, Children and Social Development 82,191 81,743
Finance 91,377 90,176
Fisheries, Oceans and the Canadian Coast Guard 2,034 1,638
Global Affairs 8,740 9,339
Health 6,748 6,325
Immigration, Refugees and Citizenship 2,304 2,221
Indigenous and Northern Affairs 12,435 9,251
Infrastructure and Communities 3,628 3,411
Innovation, Science and Economic Development 7,389 4,566
Justice 1,651 1,615
National Defence 25,813 28,759
National Revenue 30,804 22,199
Natural Resources 2,011 2,486
Office of the Governor General's Secretary 22 21
Parliament 628 571
Privy Council 308 671
Public Safety and Emergency Preparedness 11,469 10,996
Public Services and Procurement 4,415 4,344
Transport 2,275 3,146
Treasury Board 3,140 4,214
Veterans Affairs 953 929
Provision for valuation and other items 2,036 234
Total expenses 311,265 296,440

e. Total expenses by type of resource used in operations

The Consolidated Statement of Operations and Accumulated Deficit and the previous table present a breakdown of expenses by segment, which represent the expenses incurred for each of the main functions of the Government. The following table presents the detail of these expenses by main objects of expense:

(in millions of dollars)

Objects of expense 2017 2016
Transfer payments 201,170 183,629
Other expenses
Personnel 50,108 51,837
Transportation and communications 2,770 2,638
Information 278 302
Professional and special services 9,702 9,336
Rentals 2,293 2,268
Repair and maintenance 3,334 3,044
Utilities, materials and supplies 3,129 3,061
Other subsidies and expenses 9,047 9,689
Amortization of tangible capital assets 5,168 5,049
Net loss on disposal of assets 157 144
Total other expenses 85,986 87,368
Total program expenses 287,156 270,997
Public debt charges 24,109 25,443
Total expenses 311,265 296,440

5. Accumulated deficit

The Government includes in its revenues and expenses certain accounts established for specified purposes. Legislation requires that revenues received for purposes specified in the legislation be credited to these accounts and that related payments be charged to the accounts. Any deficiency of revenues over payments must be met through future revenues or transfers credited to these accounts. The following table shows the balance of these consolidated accounts and accumulated other comprehensive income included in the accumulated deficit:

(in millions of dollars)

  2017 2016
Accumulated deficit, excluding consolidated specified purpose accounts and accumulated other comprehensive incomeLink to footnote 1 (negative 637,236) (negative 621,196)
Consolidated specified purpose accounts
Employment Insurance Operating Account 2,999 2,915
Other insurance accounts 716 711
Other consolidated accounts 328 326
Subtotal (negative 633,193) (negative 617,244)
Accumulated other comprehensive income 1,294 1,258
Accumulated deficit (negative 631,899) (negative 615,986)

Accumulated other comprehensive income

For enterprise Crown corporations and other government business enterprises recorded under the modified equity method, certain unrealized gains and losses on financial instruments and certain actuarial gains and losses related to pensions and other employee future benefits are recorded in other comprehensive loss or income in accordance with International Financial Reporting Standards (IFRS). The unrealized gains and losses on financial instruments reflect changes in the fair value of financial assets classified as available-for-sale or derivative instruments used in hedging activities and are excluded from the calculation of profit or loss until realized. Actuarial gains and losses related to pensions and other employee future benefits reflect differences between the actual and expected returns on plan assets as well as the difference between actual and expected experience and changes in actuarial assumptions used to determine the present value of the benefit obligations. These actuarial gains and losses are recorded directly to retained earnings without reclassification to profit or loss in a subsequent period.

Other comprehensive loss or income is excluded from the calculation of the Government's annual deficit. It is instead recorded directly to the Government's accumulated deficit. Upon realization of the gains and losses on financial instruments, the associated amounts are reclassified to the profit or loss of enterprise Crown corporations and other government business enterprises and then reflected in the Government's annual deficit. The actuarial gains and losses related to pensions and other employee future benefits are not reclassified.

The following table presents the different components of other comprehensive income as well as accumulated other comprehensive income included in the Government's accumulated deficit:

(in millions of dollars)

  2017 2016
Accumulated other comprehensive income at beginning of year 1,258 3,859
Other comprehensive income (loss)
Net change in unrealized gains (losses) on available-for-sale financial instruments 54 (negative 2,577)
Net change in fair value of derivatives designated as hedges (negative 18) (negative 24)
Actuarial gains (losses) on pensions and other employee future benefits 1,821 (negative 68)
Total 1,857 (negative 2,669)
Less: Actuarial gains (losses) on pensions and other employee future benefits recorded directly to accumulated deficit 1,821 (negative 68)
Accumulated other comprehensive income at end of year 1,294 1,258

6. Provisions and contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. A provision is recorded when the potential liabilities are assessed as likely to become an actual liability and a reasonable estimate of the loss can be made. They are grouped into contingent liabilities related to: guarantees provided by the Government, international organizations, claims and pending and threatened litigation, and insurance programs of agent enterprise Crown corporations.

a. Guarantees provided by the Government

Guarantees provided by the Government include guarantees on the borrowings of enterprise Crown corporations and other government business enterprises, loan guarantees, insurance programs managed by the Government, and other explicit guarantees. At March 31, 2017, the principal amount outstanding for guarantees provided by the Government is $544,549 million ($490,557 million in 2016) for which an allowance of $282 million ($312 million in 2016) has been recorded under provision for contingent liabilities in the Consolidated Statement of Financial Position. The authorized limit, where applicable, is established at $404,482 million ($357,360 million in 2016) for an amount of $267,990 million ($224,095 million in 2016) of guarantees provided by the Government. Of the total amount guaranteed, $276,559 million ($266,434 million in 2016) relates to guarantees on the borrowings of agent enterprise Crown corporations for which no authorized limit has been set and no allowance (nil in 2016) has been recorded.

b. International organizations

The Government has callable share capital in certain international organizations that could require payments to those agencies. As at March 31, 2017, the callable share capital amounts to $31,780 million ($31,041 million in 2016). No payments have been requested by international organizations or paid by the Government in the year related to the callable share capital (nil in 2016).

c. Claims and pending and threatened litigation

There are thousands of claims and pending and threatened litigation cases outstanding against the Government. These claims include items with pleading amounts and items where an amount is not specified. While the total amount claimed in these actions is significant, their outcomes are not determinable in all cases. As a result, provisions are recorded based on management's best estimate of the potential loss on a case by case basis. The Government has recorded an allowance for claims and litigation where it is likely that there will be a future payment and a reasonable estimate of the loss can be made. In situations where the estimate of loss is based on a range of amounts, the amount accrued within the range is management's best estimate of the potential loss which may be at an amount lesser than the maximum of the range. Significant exposure to a liability could exist in excess of what has been recorded. Claims and litigation for which the outcome is not determinable and for which an amount has not been accrued, are estimated at approximately $9,354 million ($8,679 million in 2016). Certain large and significant claims are described below:

Comprehensive land claims: Comprehensive land claims arise in areas of the country where Aboriginal rights and title have not been resolved by treaty or by other legal means. There are currently 70 (76 in 2016) comprehensive land claims under negotiation, accepted for negotiation or under review. A liability of $5,276 million ($5,158 million in 2016) is estimated and recorded for claims that have progressed to a point where quantification is possible. This estimate includes projections based on historical rates and costs of settlement for similar claims.

Specific claims: Specific claims deal with the past grievances of First Nations related to Canada's obligations under historic treaties or the way it managed First Nations' funds or other assets. The Government of Canada will pursue a settlement agreement with the First Nation when a claim demonstrates an outstanding lawful obligation. There are currently 528 (503 in 2016) specific claims under negotiation, accepted for negotiation or under review. A liability of $5,311 million ($4,531 million in 2016) is estimated and recorded for claims that have progressed to a point where quantification is possible. This estimate includes projections based on historical rates and costs of settlement for similar claims.

Assessed taxes under appeal: Contingent liabilities include previously assessed federal taxes where amounts are being appealed to the Tax Court of Canada, the Federal Court of Canada, or the Supreme Court of Canada. As of March 31, 2017, $5,588 million ($5,780 million in 2016) was being appealed to the courts. The Government has recorded, in the amounts payable to taxpayers or in reduction of the amounts receivable from taxpayers, as applicable, the estimated amount of appeals that are considered likely to be lost and that can be reasonably estimated.

d. Insurance programs of agent enterprise Crown corporations

Four agent enterprise Crown corporations operate insurance programs for the Government. In the event that the corporations have insufficient funds, the Government will have to provide financing. The Canada Deposit Insurance Corporation operates the Deposit Insurance Fund which provides basic protection coverage to depositors for up to $100,000 deposited with each member bank, trust or loan company; the Canada Mortgage and Housing Corporation operates the Mortgage Insurance Fund which provides insurance for mortgage lending on Canadian housing by private institutions and the Mortgage-Backed Securities Guarantee Fund which guarantees the timely payment of the principal and interest for investors of securities based on the National Housing Act through the Mortgage-Backed Securities program and the bonds issued by the Canada Housing Trust through the Canada Mortgage Bond program; Export Development Canada provides export and foreign investment insurance to help with export trade; and Farm Credit Canada sells group creditor life and accident insurance to its customers through a program administered by a major insurance provider. At March 31, 2017, total insurance in force amounts to $1,728,312 million ($1,672,619 million in 2016). The Government expects that all four corporations will cover the cost of both current claims and possible future claims.

Further details on contingent liabilities can be found in Section 11 (unaudited) of this volume.

7. Environmental liabilities and asset retirement obligations

Environmental liabilities and asset retirement obligations include:

(in millions of dollars)

  2017 2016
Gross remediation liability for contaminated sites 5,944 6,274
Less expected recoveries (negative 27) (negative 31)
Net remediation liability for contaminated sites 5,917 6,243
Other environmental liabilities 184 272
Asset retirement obligations 6,498 6,767
Total environmental liabilities and asset retirement obligations 12,599 13,282

a. Remediation of contaminated sites

The Government has developed a "Federal Approach to Contaminated Sites" which incorporates a risk-based approach to the management of contaminated sites. Under this approach the Government has inventoried the contaminated sites on federal lands that have been identified, allowing them to be classified, managed and recorded in a consistent manner. This systematic approach aids in the identification of the high risk sites in order to allocate limited resources to those sites which pose the highest risk to the environment and human health.

The Government has identified approximately 7,500 sites (7,900 sites in 2016) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Government has identified approximately 2,400 sites (2,400 sites in 2016), where action is possible and for which a gross liability of $5,705 million ($5,954 million in 2016) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts. In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there are 4,100 unassessed sites (4,300 sites in 2016) where a liability estimate of $239 million ($320 million in 2016) has been recorded using this model. These two estimates combined, totalling $5,944 million ($6,274 million in 2016), represents the Government's best estimate of the costs required to remediate sites to the current minimum standard for its use prior to contamination, based on information available on March 31.

For the remaining 1,000 sites (1,200 sites in 2016), no liability for remediation has been recognized. Some of these sites are at various stages of testing and evaluation and if remediation is required, liabilities will be reported as soon as a reasonable estimate can be determined. For other sites, the Government does not expect to give up any future economic benefits (there is likely no significant environmental impact or human health threats). These sites will be re-examined and a liability for remediation will be recognized if future economic benefits will be given up.

The following table presents the total estimated amounts of these liabilities by nature and source, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2017 and March 31, 2016. When the liability estimate is based on a future cash requirement, the amount is adjusted for inflation using a forecast CPI rate of 2 per cent (2 per cent in 2016). Inflation is included in the undiscounted amount. The Government of Canada's Consolidated Revenue Fund lending rate applicable to loans with similar terms to maturity has been used to discount the estimated future expenditures. For remediation costs with estimated future cash flows spanning more than 25 years, the Government of Canada's 25-year Consolidated Revenue Fund lending rate is used as the discount rate.

March 2017 discount rates range from 0.89 per cent (0.62 per cent in 2016) for 2 year term to 2.55 per cent (2.13 per cent in 2016) for a 25 or greater year term.

(in millions of dollars)

  2017 2016
Number of sites Estimated liability Estimated total undiscounted expenditures Estimated recoveries Number of sites Estimated liability Estimated total undiscounted expenditures Estimated recoveries
Former mineral exploration sitesLink to footnote 2 113 2,942 5,828 27 111 3,160 5,954 31
Radioactive materialLink to footnote 3 8 1,088 1,220 5 1,116 1,298
Military and former military sitesLink to footnote 4 252 519 535 288 574 594
Fuel related practicesLink to footnote 5 1,331 367 377 1,203 385 393
Marine facilities/aquatic sitesLink to footnote 6 2,894 369 399 3,294 290 301
Landfill/waste sitesLink to footnote 7 971 292 303 938 359 370
OtherLink to footnote 8 892 367 373 900 390 393
Total 6,461 5,944 9,035 27 6,739 6,274 9,303 31

Also during the year 800 sites (1,200 sites in 2016) were closed as they were either remediated or assessed to confirm that they no longer meet all the criteria required to record a liability for contaminated sites.

b. Other environmental liabilities

The Government has identified approximately 635 UXO suspected sites (893 in 2016) for which clearance action may be necessary. Of these sites, 68 (61 in 2016) are confirmed UXO affected sites. Based on the Government's best estimates, a liability of $184 million ($272 million in 2016) has been recorded for clearance action on 10 of the confirmed UXO sites (10 in 2016). Remediation has been done on one of the sites (14 in 2016) and it will be closed in the next fiscal year. The remaining 624 suspect sites are currently in the assessment stage and a reasonable estimate cannot yet be determined. Of these sites, the obligation for clearance action is likely for 68 of them, indeterminable for 146 and unlikely for the 410 remaining.

c. Asset retirement obligations

The asset retirement obligation is $6,498 million ($6,767 million in 2016) of which Atomic Energy of Canada Ltd. has recorded $6,492 million ($6,763 million in 2016) for nuclear facility decommissioning.

The changes in the asset retirement obligations during the year are as follows:

(in millions of dollars)

  2017 2016
Opening balance 6,767 6,502
Liabilities settled (negative 251) (negative 219)
Revision in estimate (negative 280) 233
Accretion expenseLink to footnote 9 262 251
Closing balance 6,498 6,767

The undiscounted future expenditures, adjusted for inflation, for the plan projects comprising the liability are $16,546 million ($17,614 million at March 31, 2016).

Key assumptions used in determining the provision are as follows:

  2017 2016
Weighted average discount rate 3.88% 3.88%
Discount period 147 years 148 years
Long-term rate of inflation 1.70% 1.70%

The Government's ongoing efforts to assess contaminated sites, UXO affected sites and asset retirement obligations may result in additional environmental liabilities.

8. Unmatured debt

Unmatured debt includes:

(in millions of dollars)

  2017 2016
Market debt
Payable in Canadian currency 677,513 647,244
Payable in foreign currencies 17,609 22,482
Total 695,122 669,726
Unamortized discounts and premiums on market debt 5,322 5,047
Market debt including unamortized discounts and premiums 700,444 674,773
Cross currency swap revaluations 7,764 8,391
Obligation related to capital leases 3,226 3,477
Other unmatured debt 2,199 1,570
Total unmatured debt 713,633 688,211

Unamortized discounts result from Treasury bills and Canada bills which are issued at a discount in lieu of interest. Discounts or premiums also result from the Government's bond buyback program and from issuance of market debt when the face value of the instrument issued differs from the proceeds received. The unamortized portion represents the amount of premium and discount that has not yet been recorded to public debt charges.

At March 31, 2017, the fair value of market debt including unamortized discounts and premiums is $751,856 million ($742,648 million in 2016). For marketable bonds denominated in Canadian dollars and foreign currencies, treasury bills issued in Canadian dollars, Canada bills and medium-term notes issued in US dollars and Euros, fair values are established using market quotes or the discounted cash flow calculated using year-end market interest and exchange rates.

The Government has entered into individual cross-currency swap contracts with various counterparties. Terms and conditions associated with these outstanding contracts are established using International Swaps and Derivatives Association (ISDA) master agreements, which are in place with each counterparty. Cross-currency swaps are used primarily to fund foreign-denominated asset levels in the foreign exchange accounts.

Included in Cross-currency swap revaluations is $1,636 million ($757 million at March 31, 2016) related to individual cross-currency swap contracts that have a net foreign-exchange asset value to the Government upon revaluation and $9,400 million ($9,148 million at March 31, 2016) relating to individual cross-currency swap contracts that have a net foreign-exchange liability value, resulting in an overall cross-currency swap net liability revaluation of $7,764 million ($8,391 million at March 31, 2016).

a. Market debt

The following table presents the contractual maturity of debt issues and interest rates by currency and type of instrument at gross value (in Canadian dollars) and the effective average annual interest rates as at March 31, 2017:

(in millions of dollars)

Maturing year Marketable bonds Treasury bills Retail debtLink to footnote 10 Canada bills Medium-term notes Total
CAD USD Euro USD USD Euro
2018 68,132 4,654 136,700 920 3,521 213,927
2019 91,357 4,011 1,682 332 97,382
2020 69,250 5 2,838 1,260 1,230 74,583
2021 40,467 321 765 213 41,766
2022 49,851 350 67 50,268
2023 and subsequent 216,805 216,805
Subtotal 535,862 8,670 2,838 136,700 4,533 3,521 2,394 213 694,731
Less: Government holdings of unmatured debt and consolidation adjustmentLink to footnote 11 (negative 418) 27 (negative 391)
Total market debt 536,280 8,643 2,838 136,700 4,533 3,521 2,394 213 695,122
Nature of interest rateLink to footnote 12 FixedLink to footnote 13 Fixed Fixed Variable Variable Variable Fixed and variable Fixed  
Effective weighted average annual interest rates 2.26 1.38 3.50 0.54 0.66 0.77 1.14 0.15
Range of interest rates 0.25 – 10.50 1.13 – 9.70 3.50 0.46 – 0.65 0.50 – 1.40 0.42 – 1.02 0.95 – 2.30 0.15

b. Obligation related to capital leases

The total obligation related to capital leases as at March 31, 2017, is $3,226 million ($3,477 million in 2016). Interest on this obligation of $200 million ($209 million in 2016) is reported in the Consolidated Statement of Operations and Accumulated Deficit as part of public debt charges. Future minimum lease payments are summarized as follows:

(in millions of dollars)

Year 2017
2018 495
2019 464
2020 358
2021 302
2022 287
2023 and subsequent 3,159
Total minimum lease payments 5,065
Less: imputed interest at the average discount rate of 5.58 per cent 1,839
Obligation related to capital leases 3,226

A significant number of leases have a duration from inception that falls within the range of 10 to 25 years.

9. Public sector pensions and other employee and veteran future benefits

a. Overview of benefit plans

i. Pension benefits

The Government sponsors a number of defined benefit pension plans covering substantially all the employees of the federal public service, as well as certain Public Service corporations as defined in the Public Service Superannuation Act, territorial governments, members of the Canadian Forces (including the Reserve Force), members of the Royal Canadian Mounted Police, federally appointed judges and Members of Parliament, including Senators. The public service, Canadian Forces—Regular Force and Royal Canadian Mounted Police pension plans represent the three main public sector pension plans sponsored by the Government. In addition, some of the consolidated Crown corporations and other entities maintain their own defined benefit pension plans covering substantially all of their employees. In this note, the term "employees" is used in a general manner to apply to plan members of the different groups.

The defined benefit pension plans are designed to provide employees with a retirement income during their lifetime and, in the case of Government-sponsored plans, are indexed to inflation. The indexation for Crown corporations and other entities pension plans varies depending on the specific plan. In the event of death, the pension plans also provide an income for a plan member's eligible survivors and dependants.

Pension benefits generally accrue as follows:

ii. Other future benefits

In addition to pension plans, the Government and the consolidated Crown corporations and other entities sponsor different types of future benefit plans, with varying terms and conditions. The benefits are available to employees during or after employment or upon retirement. Other future benefits include disability and associated benefits available to war veterans, current and retired members of the Canadian Forces and the Royal Canadian Mounted Police, their survivors and dependants, health care and dental benefits available to retired employees and their dependants, accumulated sick leave entitlements, severance benefits and workers' compensation benefits.

b. Financing arrangements

The Government has a statutory obligation to pay the pension benefits it sponsors. Pursuant to pension legislation, the transactions for funded and unfunded pension benefits are tracked in the pension accounts within the accounts of Canada. The details (unaudited) of the pension accounts can be found in Section 6 of this volume.

i. Funded pension benefits

The pension plans are generally financed from employee and employer contributions, as well as investment earnings. Pension benefits funded by the Government relate to post March 2000 service that falls within the Income Tax Act limits for the three main public sector pension plans and all service for the Canadian Forces—Reserve Force pension plan. An amount equal to contributions less benefit payments and other charges is invested by the Public Sector Pension Investment Board (PSPIB). Funded pension benefits also relate to consolidated Crown corporations and other entities where pension plans' funds are held in external trusts that are legally separate from Crown corporations and other entities.

ii. Unfunded pension benefits

For unfunded pension benefits, separate market invested funds are not maintained. These relate to all pre April 2000 service, and only to post March 2000 service that falls above the Income Tax Act limits for the three main public sector pension plans, all service periods for the pension plans of the federally appointed judges and Members of Parliament, and some of the consolidated Crown corporation and other entity pension plans. Employee and employer contributions for unfunded pension benefits sponsored by the Government are part of general government funds. Contributions amounted to $408 million ($1,036 million in 2016) of which $352 million ($979 million in 2016) represents employer contributions and $56 million ($57 million in 2016) represents employee contributions.

iii. Other future benefits

Other employee and veteran future benefit plans sponsored by the Government and almost all of the other employee future benefits sponsored by the consolidated Crown corporations and other entities are unfunded. The health care and dental plans for retired employees are contributory plans, whereby contributions by retired plan members are made to obtain coverage. These contributions amounted to $332 million ($277 million in 2016). The cost of benefits earned and benefits paid are presented net of these contributions. Additional details can be found in Section 6 (unaudited) of this volume.

c. Actuarial valuations

i. For funding purposes

Pursuant to the Public Pensions Reporting Act, actuarial valuations of the pension plans sponsored by the Government are performed at least every three years to determine the state of the pension plans, as well as to assist in making informed decisions regarding the financing of the Government's pension benefit obligations. The actuarial assumptions underlying the valuations are based on the actuary's best estimates.

The most recent triennial actuarial valuations were conducted as at March 31, 2014, for the public service pension plan; as at March 31, 2015, for the Royal Canadian Mounted Police pension plan; and as at March 31, 2016, for the Canadian Forces—Regular Force, Canadian Forces—Reserve Force, the Members of Parliament and the federally appointed judges pension plans, for which the valuations are currently in-progress.

Federally regulated private pension plans sponsored by consolidated Crown corporations and other entities are governed by the provisions of the Pension Benefits Standards Act, 1985 and are required to adhere to the directives of the Superintendent of Financial Institutions. The actuarial valuations are conducted at least every three years, or more often depending on the financial situation of the plan.

ii. For accounting purposes

Actuarial valuations of the public sector pension and other employee and veteran future benefit plans are performed every year to measure and report the obligations and to attribute the costs of the benefits to the period. Actuarial valuations are conducted as at March 31, except for some of the consolidated Crown corporations and other entities for which the actuarial valuations are conducted as at December 31. The actuarial valuations are based on the most recent or any in-progress actuarial valuation for funding purposes, as applicable, in regards to the majority of the demographic assumptions. The other assumptions underlying the valuations are based on best estimates of the Government or of management of the consolidated Crown corporations and other entities.

d. Changes to benefit plans

i. Plan amendments

In 2017, amendments were made to veteran future benefits, thereby improving and expanding access for certain benefits. These include:

These amendments resulted in one-time past service costs of $353 million. Amendments were also made to the pension plan of a Crown corporation resulting in a one-time past service cost of $28 million and the immediate recognition of a previously unrecognized net actuarial gain of $12 million. With respect to the employee severance benefit plan, an amendment resulted in a one-time past service cost of $7 million.

In 2016, amendments to veteran future benefits resulted in one-time past service costs of $3,750 million and the immediate recognition of a previously unrecognized net actuarial gain of $8 million. Amendments to the pension plan of a Crown corporation resulted in a one-time past service cost of $19 million and the immediate recognition of a previously unrecognized net actuarial gain of $17 million. An amendment to employee severance benefits resulted in a one-time past service cost of $3 million and the immediate recognition of a previously unrecognized net actuarial gain of $3 million.

ii. Plan curtailments

On April 26, 2018, Civilian members of the RCMP will be deemed to be employees appointed under the Public Service Employment Act. Upon the deeming date, a transfer of RCMP Civilian member's pension entitlements accrued under the RCMP pension plan will be transferred to the public service pension plan. Although the transfer will not occur until fiscal year 2019, the impact of the decision has been reflected this year as a curtailment within the RCMP pension plan. This has resulted in a one-time past service cost reduction of $26 million in the RCMP pension plan and the immediate recognition of a previously unrecognized net actuarial gain of $12 million.

In 2011, the accumulation of severance benefits for voluntary departures ceased for certain employee groups. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. The curtailments this year resulted in a one-time past-service cost reduction of $48 million (nil in 2016) and the immediate recognition of a previously unrecognized net actuarial loss of $109 million ($2 million in 2016), representing the portion related to the obligation for employees subject to the curtailments.

iii. Plan settlements

In 2017, payments of $3 million ($63 million in 2016) were made to employees affected by the curtailments of severance benefits who opted to cash out the full or partial value of their accumulated benefits. The settlements did not result in the immediate recognition of a previously unrecognized net actuarial gain or loss (net actuarial loss of $28 million in 2016, representing the portion related to the obligation for employees subject to the settlements).

e. Net future benefit liabilities

The accrued benefit obligations in respect of public sector pension and other employee and veteran future benefit plans are presented net of pension assets and unrecognized net actuarial gain or loss, as well as contributions and benefits paid by some of the consolidated Crown corporations and other entities after their measurement date of December 31 up to March 31, in the ConsolidatedStatement of Financial Position. The details are as follows:

i. Accrued benefit obligations

The changes in the accrued benefit obligations during the year were as follows:

(in millions of dollars)

  2017 2016
Pension benefits Other future benefits Pension benefits Other future benefits
Funded Unfunded Total Funded Unfunded Total
Accrued benefit obligations at beginning of year 118,061 165,665 283,726 120,690 109,375 163,088 272,463 106,263
Benefits earned 6,552 313 6,865 5,350 6,510 297 6,807 4,452
Interest on average accrued benefit obligations 5,585 6,907 12,492 2,783 4,781 7,412 12,193 2,549
Benefits paid (negative 2,944) (negative 8,817) (negative 11,761) (negative 4,697) (negative 2,623) (negative 8,813) (negative 11,436) (negative 4,617)
Administrative expenses (negative 78) (negative 91) (negative 169) (negative 74) (negative 87) (negative 104) (negative 191) (negative 70)
Net transfers to other plans (negative 548) (negative 88) (negative 636) (negative 575) (negative 106) (negative 681)
Plan amendments 28 28 360 19 19 3,750
Plan curtailments (negative 22) (negative 4) (negative 26) (negative 48)
Actuarial losses 3,722 2,597 6,319 5,516 661 3,891 4,552 8,363
Accrued benefit obligations at end of year 130,356 166,482 296,838 129,880 118,061 165,665 283,726 120,690
ii. Pension assets

Pension assets include investments held by the PSPIB that are valued at market-related value; consolidated Crown corporations and other entities' investments, the majority of which are valued at fair value; and contributions receivable from employees for past service buyback elections.

The changes in pension assets during the year were as follows:

(in millions of dollars)

  2017 2016
Funded pension benefits Other future benefits Funded pension benefits Other future benefits
Investments at beginning of year 121,692 2 110,760 3
Expected return on average value of investments 5,793 4,899
Contributions
Employees 2,912 2,718
Public Service corporations, territorial governments and Crown corporations and other entities 333 2 360 1
Government 3,644 3,860
Benefits paid, transfers and others (negative 3,531) (negative 2) (negative 3,183) (negative 2)
Actuarial gains 5,100 2,278
Investments at end of year 135,943 2 121,692 2
Contributions receivable from employees for past service 643 601
Total pension assets at end of year 136,586 2 122,293 2

No actuarial gain (nil in 2016) was incorporated in the market-related value of the investments to adjust for the limit of plus or minus 10 per cent in the difference between the market-related value and the market value of the investments at the end of the year.

At March 31, 2017, the market value of the investments is $145,565 million ($126,561 million in 2016). The actual rate of return of investments calculated on a time-weighted basis was 12.8 per cent (1.1 per cent in 2016) during the year.

iii. Net future benefit liabilities

A reconciliation of the accrued benefit obligations to the amounts of net future benefit liabilities follows:

(in millions of dollars)

  2017 2016
Pension benefits Other future benefits Pension benefits Other future benefits
Funded Unfunded Total Funded Unfunded Total
Accrued benefit obligations 130,356 166,482 296,838 129,880 118,061 165,665 283,726 120,690
Less: Pension assets 136,586 136,586 2 122,293 122,293 2
Subtotal (negative 6,230) 166,482 160,252 129,878 (negative 4,232) 165,665 161,433 120,688
Plus: Unrecognized net actuarial gain (less loss) 8,682 (negative 19,015) (negative 10,333) (negative 36,308) 7,752 (negative 18,557) (negative 10,805) (negative 35,005)
Less:
Contributions after measurement date up to March 31 13 13 40 40
Benefits paid after measurement date up to March 31 2 2
Net future benefit liabilities 2,439 147,467 149,906 93,568 3,480 147,108 150,588 85,681
The net future benefit liabilities were recognized and presented in the Consolidated Statement of Financial Position as follows:
Public sector pension liabilities 4,339 147,467 151,806 5,119 147,108 152,227
Other employee and veteran future benefit liabilities 93,568 85,681
Total pensions and other future benefit liabilities 4,339 147,467 151,806 93,568 5,119 147,108 152,227 85,681
Less: Public sector pension assets 1,900 1,900 1,639 1,639
Net future benefit liabilities 2,439 147,467 149,906 93,568 3,480 147,108 150,588 85,681

f. Future benefit and interest expenses

The cost of public sector pension and other employee and veteran future benefit plans is comprised of benefit and interest expenses. Benefit expense of $15,215 million ($16,648 million in 2016) and interest expense of $9,482 million ($9,843 million in 2016) are included in the Consolidated Statement of Operations and Accumulated Deficit. The components of the benefit and interest expenses are as follows:

(in millions of dollars)

  2017 2016
Pension benefits Other future benefits Pension benefits Other future benefits
Funded Unfunded Total Funded Unfunded Total
Benefit expense
Benefits earned, net of employee contributions 3,434 256 3,690 5,350 3,586 239 3,825 4,452
Actuarial (gains) losses recognized during the year (negative 451) 2,124 1,673 4,103 (negative 338) 1,481 1,143 3,454
Plan amendments 28 28 360 19 19 3,750
Plan curtailments (negative 22) (negative 4) (negative 26) (negative 48)
Actuarial (gains) losses recognized following plan amendments, curtailments and settlements (negative 39) 15 (negative 24) 109 (negative 17) (negative 17) 22
Total 2,950 2,391 5,341 9,874 3,250 1,720 4,970 11,678
Interest expense
Interest on average accrued benefit obligations 5,585 6,907 12,492 2,783 4,781 7,412 12,193 2,549
Expected return on average market-related value of investments (negative 5,793) (negative 5,793) (negative 4,899) (negative 4,899)
Total (negative 208) 6,907 6,699 2,783 (negative 118) 7,412 7,294 2,549

g. Actuarial assumptions

The assumptions used in the actuarial valuations for accounting purposes are based on the Government's or the consolidated Crown corporations and other entities management's best estimates of expected long-term experience and short-term forecasts, as well as the majority of the demographic assumptions underlying the most recent or any in-progress actuarial valuations for funding purposes. The assumptions include estimates of future inflation, interest rates, returns on investments, general wage increases, workforce composition, retirement rates and mortality rates.

The discount rates used to measure the present value of the accrued benefit obligations, as well as the costs of benefits earned, plan amendments, plan curtailments, plan settlements and the interest expense, for public sector pensions and other employee and veteran future benefits sponsored by the Government are as follows:

The streamed weighted average of Government of Canada long-term bond rates is a calculated 20-year weighted moving average of Government of Canada long-term bond rates projected over time. The streamed rates take into account historical Government of Canada long-term bond rates and, over time, reflect expected Government of Canada long-term bond rates.

The principal actuarial assumptions used in measuring the accrued benefit obligations as at March 31 for Government-sponsored plans, as well as the related future benefit and interest expenses for the year, were as follows:

  2017 2016
Accrued benefit obligations Benefit and interest expenses Accrued benefit obligations Benefit and interest expenses
Discount ratesLink to footnote 14
Funded pension benefits 5.7% 4.6% 5.8% 4.2%
Unfunded pension benefits 3.7% 4.4% 3.9% 4.8%
Other employee and veteran future benefits 2.4% 2.3% 2.3% 2.4%
Expected rate of return on investments 4.6% 4.2%
Long-term rate of inflation 2.0% 2.0% 2.0% 2.0%
Long-term general wage increase 2.6% 2.6% 2.6% 2.6%
Assumed health care cost trend rates
Initial health care cost trend rate 5.4% 5.0% 5.0% 4.5%
Cost trend rate is expected to stabilize at 4.8% 4.8% 4.8% 4.8%
Year that the rate is expected to stabilize 2027 2026 2026 2024

The discount rates used to measure the significant classes of pensions and other employee future benefits sponsored by the consolidated Crown corporations and other entities are based on a variety of methodologies. To measure the present value of their accrued benefit obligations, these consolidated Crown corporations and other entities used expected rates of return on invested funds ranging from 5.3 per cent to 6.0 per cent (5.2 to 6.0 per cent in 2016) for the funded pension benefits, discount rates ranging from 2.2 per cent to 3.8 per cent (2.0 to 3.8 per cent in 2016) for the unfunded pension benefits and discount rates ranging from 2.1 per cent to 3.8 per cent (2.0 to 3.8 per cent in 2016) for the other employee future benefits.The long-term general wage increase ranged from 2.8 per cent to 3.8 per cent (2.8 to 3.8 per cent in 2016). The long-term inflation rate has remained consistent at 2.0 per cent (2.0 per cent in 2016).

The expected average remaining service life (EARSL) of the employees represent periods ranging from 4 to 23 years (4 to 23 years in 2016) according to the plan in question; more specifically, from 11 to 15 years (11 to 15 years in 2016) for the three main public sector pension plans. The average remaining life expectancy (ARLE) of the benefit recipients under wartime veteran plans represent periods ranging from 6 years to 11 years (6 to 11 years in 2016).

h. Sensitivity analysis

Changes in assumptions can result in significantly higher or lower estimates of the accrued benefit obligations. The table below illustrates the possible impact of a one per cent change in the principal actuarial assumptions. Note that for the sensitivity to the discount rates, the one per cent change was considered only for the future expected Government of Canada long-term bond rates and not for the historical Government of Canada long-term bond rates included in the determination of the streamed discount rates used to measure the unfunded pension benefits sponsored by the Government.

(in millions of dollars)

  2017 2016
Pension benefits Other future benefits Pension benefits Other future benefits
Funded Unfunded Funded Unfunded
Possible impact on the accrued benefit obligations due to:
Increase of 1% in discount rates (negative 20,000) (negative 6,400) (negative 21,300) (negative 18,100) (negative 8,700) (negative 19,800)
Decrease of 1% in discount rates 26,100 7,700 29,100 23,900 9,600 27,200
Increase of 1% in rate of inflation 17,200 21,200 25,800 15,500 21,200 24,500
Decrease of 1% in rate of inflation (negative 14,100) (negative 17,700) (negative 19,300) (negative 12,800) (negative 17,600) (negative 18,300)
Increase of 1% in general wage increase 6,500 1,000 300 6,200 1,100 400
Decrease of 1% in general wage increase (negative 5,800) (negative 800) (negative 300) (negative 5,500) (negative 1,000) (negative 400)
Increase of 1% in assumed health care cost trend rates 8,500 8,800
Decrease of 1% in assumed health care cost trend rates (negative 6,200) (negative 6,400)

10. Other liabilities

Other liabilities include:

(in millions of dollars)

  2017 2016
Due to Canada Pension Plan 106 35
Others
Government Annuities Account 120 134
Deposit and trust accounts 1,345 1,445
Other specified purpose accounts 4,118 3,988
Subtotal 5,583 5,567
Total other liabilities 5,689 5,602

a. Due to Canada Pension Plan

As explained in Note 1, the financial activities of the Canada Pension Plan (CPP) are not included in these consolidated financial statements.

The CPP is a federal/provincial social insurance program established by an Act of Parliament. It is compulsory and in operation in all parts of Canada, except for the Province of Quebec. The objective of the program is to provide a measure of protection to workers and their families against the loss of earnings due to retirement, disability or death. The CPP is financed from employees, employers and self-employed workers contributions, as well as investments earnings. The CPP's investments are held and managed by the Canada Pension Plan Investment Board (CPPIB). As administrator of the CPP, the Government's authority to provide benefits is limited to the consolidated net assets of the CPP. At March 31, 2017, the fair value of the CPP's consolidated net assets is $320,895 million ($283,575 million in 2016).

Pursuant to the Canada Pension Plan Act, the transactions of the CPP are recorded in the Canada Pension Plan Account (the Account) within the accounts of Canada. The Account also records the amounts transferred to or received from the CPPIB. The $106 million ($35 million in 2016) balance in the Account represents the CPP's deposit with the Receiver General for Canada and, therefore, is reported as a liability to the CPP.

b. Others

Deposit and trust accounts are a group of liabilities representing the Government's financial obligations in its role as administrator of certain funds that it has received or collected for specified purposes and that it will pay out accordingly. To the extent that the funds received are represented by negotiable securities, these are deducted from the corresponding accounts to show the Government's net liability. Certain accounts earn interest which is charged to interest on the public debt. One of the largest deposit and trust accounts is the Indian band funds account in the amount of $645 million ($710 million in 2016). This account was established to record funds belonging to Indian bands throughout Canada pursuant to the Indian Act.

Other specified purpose accounts are liability accounts that are used to record transactions made under authorities obtained from Parliament through either the Financial Administration Act or other specific legislation. Certain accounts earn interest which is charged to interest on the public debt. The largest other specified purpose account is the Public Service Death Benefit Account totalling $3,627 million ($3,527 million in 2016). This account was established under the Public Service Superannuation Act to provide life insurance to contributing members of the public service.

11. Cash and cash equivalents

Cash and cash equivalents are as follows:

(in millions of dollars)

  2017 2016
CashLink to footnote 15 30,175 32,335
Cash equivalents 6,325 6,235
Total cash and cash equivalents 36,500 38,570

12. Taxes and other accounts receivable

Taxes receivable represent tax revenues that were assessed by year end as well as amounts receivable due to the accrual of tax revenues as at March 31. These accrued receivables are not due until the next fiscal year. They also include other receivables for amounts collectible through the tax system such as provincial and territorial taxes, Employment Insurance premiums and Canada Pension Plan contributions.

The Government has established an allowance for doubtful accounts of $14,253 million ($14,330 million in 2016) and has recorded a bad debt expense of $2,759 million ($3,833 million in 2016). The allowance for doubtful accounts is management's best estimate of the collectability of amounts that have been assessed, including the related interest and penalties. The allowance for doubtful accounts has two components. A general allowance is calculated based on the age and type of tax accounts using rates based on historical collection experience. A specific allowance is calculated based on an annual review of all accounts over $10 million. The allowance for doubtful accounts is adjusted every year through a provision for doubtful accounts and is reduced by amounts written off as uncollectible during the year. The annual provision is reported as a bad debt expense which is charged against other expenses. The details of the taxes receivable and allowance for doubtful accounts are as follows:

(in millions of dollars)

  2017 2016
Total taxes receivable Allowance for doubtful accounts Net Total taxes receivable Allowance for doubtful accounts Net
Income taxes receivable
Individuals 59,811 7,062 52,749 60,869 6,997 53,872
Employers 21,592 1,181 20,411 19,569 1,135 18,434
Corporations 18,916 2,814 16,102 18,184 2,529 15,655
Non-residents 1,729 142 1,587 1,511 132 1,379
Goods and services tax receivable 20,281 2,502 17,779 17,959 2,962 14,997
Customs duties receivable 604 38 566 268 103 165
Excise taxes and duties receivable 1,834 514 1,320 1,818 472 1,346
Total 124,767 14,253 110,514 120,178 14,330 105,848

Other accounts receivable represent billed or accrued financial claims arising from amounts owed to the Government at year end, and cash collateral pledged to counterparties.

Billed or accrued financial claims arising from amounts owed to the Government total $6,535 million ($6,311 million in 2016) and are presented net of an allowance for doubtful accounts of $2,367 million ($2,598 million in 2016). Further details can be found in Section 7 (unaudited) of this volume.

Cash collateral pledged to counterparties of $6,873 million ($6,557 million in 2016) represents collateral support under International Swaps and Derivatives Association (ISDA) master agreements in respect of outstanding cross-currency swap arrangements. Further details can be found in Note 16.

13. Foreign exchange accounts

Foreign exchange accounts represent financial claims and obligations of the Government as a result of Canada's foreign exchange operations.

The Government holds certain investments in its Exchange Fund Account to provide general liquidity and to promote orderly conditions in the foreign exchange market for the Canadian dollar. As at March 31, 2017, the fair value of the marketable securities held in the Exchange Fund Account is $82,512 million ($87,347 million in 2016), established using market quotes or other available market information. Further details on these investments are provided in the unaudited financial statements of the Exchange Fund Account in Section 8 of this volume.

Subscriptions and loans to the International Monetary Fund (IMF) and special drawing rights allocations are denominated in special drawing rights (SDR). The SDR serves as the unit of account for the IMF and its value is based on a basket of key international currencies (US dollar, Euro, Japanese yen, British pound sterling and Chinese renminbi (as of October 1, 2016)). Canada participates in three lending arrangements with the IMF along with a group of other member countries. Collectively, maximum direct lending under the arrangements is limited to no more than the equivalent of SDR 12,967 million ($23,399 million) at March 31, 2017.

The following table presents the balances of the foreign exchange accounts:

(in millions of dollars)

  2017 2016
International reserves held in the Exchange Fund Account
Cash and cash equivalents
US dollar 11,819 5,303
Euro 2,188 304
British pound sterling 131 114
Japanese yen 8 181
Short-term deposit 67
Total 14,213 5,902
Marketable securities
US dollar 53,723 56,638
Euro 17,937 20,162
British pound sterling 9,294 7,534
Japanese yen 1,323 712
Total 82,277 85,046
Special drawing rights 10,178 10,431
Total international reserves held in the Exchange Fund Account 106,668 101,379
International Monetary Fund
Subscriptions 19,892 20,170
Loans 1,125 1,278
Total 127,685 122,827
Less: International Monetary Fund
Special drawing rights allocations 10,806 10,956
Notes payable 18,082 18,332
Total 28,888 29,288
Total foreign exchange accounts 98,797 93,539

14. Enterprise Crown corporations and other government business enterprises

a. Enterprise Crown corporations and other government business enterprises

The following table presents the Government's recorded loans, investments and advances in significant enterprise Crown corporations and other government business enterprises:

(in millions of dollars)

  2017 2016
Investments
Canada Mortgage and Housing Corporation 21,406 19,939
Export Development Canada 9,091 8,889
Farm Credit Canada 5,741 5,354
Business Development Bank of Canada 5,917 5,323
Canada Port Authorities 2,931 2,710
Canada Deposit Insurance Corporation 2,236 2,116
Canada Development Investment Corporation 486 461
Canada Post Corporation (negative 600) (negative 2,157)
Other 854 845
Total investments 48,062 43,480
Loans and advances
Farm Credit Canada 25,684 23,438
Business Development Bank of Canada 18,811 16,942
Canada Mortgage and Housing Corporation 9,811 10,531
Other 455 340
Total loans and advances 54,761 51,251
Less:
Loans expected to be repaid from future appropriations 3,353 3,571
Unamortized discounts and premiums 43 44
Subtotal 3,396 3,615
Total loans, investments and advances to enterprise Crown corporations and other government business enterprises 99,427 91,116

The following table presents the summary financial position and results of enterprise Crown corporations and other government business enterprises:

(in millions of dollars)

  2017 2016
Third parties Government, Crown corporations and other entities Total Third Parties Government, Crown corporations and other entities Total
Assets
Financial assets 393,207 106,668 499,875 376,128 101,099 477,227
Non-financial assets 9,277 9,277 8,907 8,907
Total assets 402,484 106,668 509,152 385,035 101,099 486,134
Liabilities 382,180 78,298 460,478 367,154 74,878 442,032
Equity of Canada as reported 48,674 44,102
Elimination adjustments (negative 612) (negative 622)
Equity of Canada 48,062 43,480
Revenues 23,787 5,240 29,027 26,296 4,319 30,615
Expenses 22,421 1,516 23,937 21,630 1,534 23,164
Profit as reported 5,090 7,451
Adjustments and others (negative 170) (negative 135)
Profit 4,920 7,316
Other changes in equity
Other comprehensive income (loss) 1,857 (negative 2,669)
DividendsLink to footnote 16 (negative 2,320) (negative 4,002)
CapitalLink to footnote 17 125 (negative 973)
Total 4,582 (negative 328)
Equity of Canada at beginning of year 43,480 43,808
Equity of Canada at end of year 48,062 43,480
Contractual obligations 45,835 47,222
Contingent liabilities 3,196 2,957

b. Non-public property

Non-public property (NPP), as defined under the National Defence Act, consists of money and property contributed to or by Canadian Forces members and is administered for their benefit and welfare by the Canadian Forces Morale and Welfare Services (CFMWS). The CFMWS is responsible for delivering selected morale and welfare programs, services and activities through three operational divisions, Canadian Forces Exchange System (CANEX), Personnel Support Programs and Service Income Security Insurance Plan (SISIP) Financial Services. Under the National Defence Act, NPP is explicitly excluded from the Financial Administration Act. The Government provides some services related to NPP activities such as accommodation and security for which no amount is charged. The cost of providing these services is included in the consolidated financial statements of the Government of Canada. In 2017, CFMWS administered estimated revenues and expenses of $420 million ($303 million in 2016) and $396 million ($301 million in 2016) respectively and had net equity of $755 million at March 31, 2017 ($740 million at March 31, 2016). These amounts are excluded from the consolidated financial statements of the Government of Canada.

15. Other loans, investments and advances

The following table presents a summary of the balances of other loans, investments and advances by category:

(in millions of dollars)

  2017 2016
National governments, including developing countries and international organizations
National governments including developing countries 1,015 966
International organizations 21,864 21,161
Total 22,879 22,127
Other loans, investments and advances
Provincial and territorial governments 293 419
Other loans, investments and advances 29,639 29,671
Total 29,932 30,090
Total 52,811 52,217
Less: allowance for valuation 28,232 27,376
Total other loans, investments and advances 24,579 24,841

The following table presents a summary of the balances of other loans, investments and advances by currency:

(in millions of dollars)

  2017 2016
Loans, investments and advances in base currency Foreign exchange rate Loans, investments and advances in CAD Loans, investments and advances in CAD
Canadian dollar 47,302 47,302 46,756
US dollar 3,934 1.32990 5,232 5,166
Special drawing rights 143 1.80447 258 273
Various other currencies 19 22
Total 52,811 52,217

Loans to national governments consist mainly of loans for financial assistance totalling $400 million ($400 million in 2016), international development assistance to developing countries totalling $125 million ($155 million in 2016), and development of export trade totalling $489 million ($411 million in 2016) which are administered by Export Development Canada. Certain loans are non-interest bearing and others bear interest at rates varying from 0.1 per cent to 10.3 per cent. These loans are repayable over 1 to 29 years, with final instalments due in 2045.

Loans, investments and advances to international organizations include subscriptions to the share capital of international banks totalling $13,677 million ($13,191 million in 2016) as well as loans and advances to associations and other international organizations totalling $8,189 million ($7,970 million in 2016). These subscriptions are composed of both paid-in and callable capital. They do not provide a return on investment but are repayable on termination of the organization or withdrawal from it. Most loans and advances to international organizations are made to banks and associations that use these funds to make loans to developing countries at significant concessionary terms.

Loans to provinces and territories include loans made under relief acts and other legislation. Loans totalling $290 million ($416 million in 2016) are non-interest bearing and will be repaid by reducing transfer payments over 1 to 9 years.

Other loans, investments and advances include loans under the Canada Student Loans Program, loans for the development of export trade administered by Export Development Canada, unconditionally repayable contributions, and other investments in bonds, market funds and fixed income securities. Loans under the Canada Student Loans Program of $18,783 million ($18,235 million in 2016) are provided interest-free to full-time students and afterward bear interest at either a variable prime rate plus 2.5 per cent or a fixed prime rate plus 5.0 per cent. The repayment period is generally 10 years. Loans for the development of export trade of $2,533 million ($2,667 million in 2016) are either non-interest bearing or bear interest at rates varying from 1.0 per cent to 9.0 per cent. Collateral of $243 million ($291 million in 2016) is held on these loans and they are repayable over 1 to 5 years with final instalments due in 2022. At March 31, 2017, unconditionally repayable contributions were $3,398 million ($3,431 million in 2016) and other investments were $2,364 million ($2,651 million in 2016).

16. Tangible capital assets

Tangible capital assets consist of acquired, built, developed or improved tangible assets whose useful life extends beyond the fiscal year and which are intended to be used on an ongoing basis for producing goods or delivering services, including military activities. Tangible capital assets include: land; buildings; works and infrastructure; machinery and equipment including computer hardware and software; vehicles including ships, aircraft and others; leasehold improvements; and assets under construction. Tangible capital assets also include assets under capital lease. Renewal options for assets under capital leases are typically for periods of 3 to 5 years and are exercisable at the discretion of the lessee. Detailed information on tangible capital assets is provided in Section 10 (unaudited) of this volume.

Except for land, the cost of tangible capital assets used in Government operations is generally amortized on a straight-line basis over the estimated useful life of the asset as follows:

Buildings 10 to 60 years
Works and infrastructureLink to footnote 18 10 to 80 years
Machinery and equipment 2 to 30 years
Vehicles 2 to 40 years
Leasehold improvements lesser of useful life of improvement or lease term
Assets under construction once in service, in accordance with asset type
Assets under capital leases in accordance with asset type or over the lease term

The following table presents a summary of the transactions and balances for the main categories of tangible capital assets:

(in millions of dollars)

  Cost Accumulated amortization Net book value 2017 Net book value 2016
Opening balance Acquisitions Disposals AdjustmentsLink to footnote 19 Closing balance Opening balance Amortization expense Disposals Adjustments Closing balance
Land 1,665 25 (negative 9) 37 1,718 1,718 1,665
Buildings 30,578 65 (negative 392) 1,435 31,686 15,629 816 (negative 329) 107 16,223 15,463 14,949
Works and infrastructure 15,072 262 (negative 159) 1,391 16,566 8,638 453 (negative 119) 94 9,066 7,500 6,434
Machinery and equipment 35,585 804 (negative 871) 2,125 37,643 25,734 1,703 (negative 682) 350 27,105 10,538 9,851
Vehicles 41,031 257 (negative 511) 1,212 41,989 24,664 1,770 (negative 458) (negative 19) 25,957 16,032 16,367
Leasehold improvements 3,124 18 (negative 16) 121 3,247 1,953 180 (negative 14) 2,119 1,128 1,171
Assets under construction 12,574 7,042Link to footnote 20 (negative 76) (negative 4,888) 14,652 14,652 12,574
Assets under capital leases 4,965 74Link to footnote 20 (negative 33) (negative 104) 4,902 2,138 246 (negative 31) (negative 96) 2,257 2,645 2,827
Total 144,594 8,547 (negative 2,067) 1,329 152,403 78,756 5,168 (negative 1,633) 436 82,727 69,676 65,838

17. Financial instruments

The Government uses various financial instruments to manage financial risks associated with its financial assets and liabilities. The Government does not hold or use derivative instruments for trading or speculative purposes.

a. Derivative financial instruments

i. Swap agreements

Government debt is issued at both fixed and variable interest rates and is denominated in Canadian dollars, US dollars and Euros. The Government has entered into cross currency swap agreements to facilitate management of its debt structure. Using cross currency swap agreements, Canadian dollar and other foreign currency debt has been converted into US dollars or other foreign currencies with either fixed interest rates or variable interest rates. As a normal practice, the Government's swap positions are held to maturity.

The interest paid or payable and the interest received or receivable on all swap transactions are recorded as part of public debt charges. Unrealized gains or losses due to fluctuations in the foreign exchange value of the swaps are presented in the cross currency swap revaluation account and are recognized as part of net foreign exchange revenues in the Consolidated Statement of Operations and Accumulated Deficit.

The Government enters into two-way Credit Support Annex agreements for cross currency swaps with certain counterparties pursuant to International Swaps and Derivatives Association (ISDA) master agreements. Under the terms of those agreements, the Government may be required to pledge and/or receive eligible collateral relating to obligations to the counterparties. In the normal course of business, these pledged collateral amounts (which may include cash and/or securities) will be returned to the pledgor when there are no longer any outstanding obligations. At March 31, 2017, cash collateral pledged of $6,873 million ($6,557 million in 2016) is recorded in other accounts receivable, and cash collateral received of $94 million ($128 million in 2016) is recorded in other liabilities. In addition, the Government holds collateral in securities from counterparties with a nominal amount of $2,002 million and fair value of $2,539 million (nominal amount of $1,572 million and fair value of $2,017 million in 2016), which has not been recognized in the statement of financial position as the Government does not obtain economic ownership unless the pledgor defaults.

Cross currency swaps with contractual principal amounts outstanding at March 31, stated in Canadian dollars, are as follows:

(in millions of dollars)

Maturing year 2017
2018 6,515
2019 6,545
2020 6,712
2021 11,193
2022 7,004
2023 and subsequent 42,156
Total 80,125
ii. Foreign-exchange forward agreements

The Government's lending arrangements with the IMF, included in the foreign exchange accounts, are denominated in SDRs. However, the Government typically funds these loans with US dollars. Consequently, since the value of the SDR is based upon a basket of key international currencies (US dollar, Euro, Japanese yen, British pound sterling and Chinese renminbi), a currency mismatch results, whereby fluctuations in the value of the loan asset are not equally offset by fluctuations in the value of the related funding liability. Therefore, the Government enters into forward agreements to hedge this foreign exchange risk.

Unrealized gains or losses due to fluctuations in the foreign exchange value of these agreements are recorded in accounts payable and accrued liabilities and are recognized as part of the net foreign exchange revenues in the Consolidated Statement of Operations and Accumulated Deficit.

The notional principal amount of a foreign-exchange forward agreement refers to the principal amount used to calculate contractual cash flows. This amount does not represent an asset or liability, and is not included in the Consolidated Statement of Financial Position. Foreign-exchange forward agreements outstanding at March 31, with notional principal amounts in Canadian dollars of $1,364 million ($1,359 million at March 31, 2016), mature during the next fiscal year.

iii. Credit risk related to swap and foreign-exchange forward agreements

The Government manages its exposure to credit risk by dealing principally with financial institutions having acceptable credit ratings.

Credit risk is also managed through collateral provisions in swap and foreign-exchange forward agreements. Collateral pledged by counterparties to the Government may be liquidated in the event of default to mitigate credit losses.

The Government does not have a significant concentration of credit risk with any individual institution and does not anticipate any counterparty credit loss with respect to its swap and foreign-exchange forward agreements.

The following table presents the contractual or notional principal amounts of the swap and foreign-exchange forward agreements organized by credit ratings based on published Standard & Poor's credit ratings and stand-alone credit profiles at year end:

(in millions of dollars)

Credit ratings 2017 2016
A+ 26,602 21,854
A 22,010 18,980
A- 32,811 29,786
BBB+
BBB 66 2,603
Total 81,489 73,223

b. Managing foreign currency risk and sensitivity analysis to foreign currency exposures

Interest rate and foreign currency risks are managed using a strategy of matching the duration and the currency of the foreign exchange accounts assets and the related foreign currency borrowings of the Government. At March 31, 2017, assets within the foreign exchange accounts and their related foreign currency borrowings substantially offset each other on a market value basis. Accordingly, the impact of price changes affecting these assets and the liabilities funding these assets naturally offset each other, resulting in no significant impact to the Government's net debt.

Assets related to the IMF are only partially matched by related foreign currency borrowings as they are denominated in SDRs, however, foreign-exchange risks relating to loans to the IMF have been managed through entering into various foreign-exchange forward agreements.

The majority of the government foreign currency assets and related liabilities are held in four currency portfolios: the US dollar, the Euro, the British pound sterling and the Japanese yen. At March 31, 2017, a one per cent appreciation in the Canadian dollar as compared to the US dollar, the Euro, the British pound sterling and the Japanese yen would result in a foreign exchange loss of $5 million due to the exposure of the US dollar portfolio, a foreign exchange loss of $8 million due to the exposure of the Euro portfolio and a foreign exchange gain of $1 million due to the exposure of the British pound sterling. There is no significant exposure related to the Japanese yen portfolio.

The net foreign exchange gain included in net foreign exchange revenues, other revenues and other expenses on the Consolidated Statement of Operations and Accumulated Deficit amounts to $91 million (net foreign exchange gain of $269 million in 2016).

c. Fair value information

The carrying values of other accounts payable and accrued liabilities, interest and matured debt, cash and cash equivalents, other accounts receivable and other loans, investments and advances are assumed to approximate their fair values due to their short-term to maturity or allowances recorded to reduce their carrying values to amounts that approximate their estimated realizable values.

The following table presents the fair value of derivative financial instruments with contractual or notional principal amounts outstanding at March 31:

(in millions of dollars)

  2017 2016
Principal amount Fair value Principal amount Fair value
Cross currency swaps 80,125 (negative 6,949) 71,864 (negative 7,196)
Foreign-exchange forward agreements 1,364 (negative 19) 1,359 (negative 47)
Total 81,489 (negative 6,968) 73,223 (negative 7,243)

Fair values of the swap and foreign-exchange forward agreements are the estimated amount that the Government would receive or pay, based on market factors, if the agreements were terminated on March 31. They are established by discounting the expected cash flows of the swap and foreign-exchange forward agreements, calculated from the contractual or notional principal amounts, using year-end market interest and exchange rates. A positive (negative) fair value indicates that the Government would receive (make) a payment if the agreements were terminated on March 31.

18. Contractual obligations

The nature of government activities results in large multi-year contracts and agreements, including international treaties, protocols and agreements of various size and importance. Any financial obligations resulting from these are recorded as a liability when the terms of these contracts or agreements for the acquisition of goods and services or the provision of transfer payments are met. Major contractual obligations that will generate expenditures in future years and that can be reasonably estimated are summarized as follows:

(in millions of dollars)

Minimum payments to be made in: Transfer payment agreements Capital assets and purchases Operating leases International organizationsLink to footnote 21 Total
2018 21,360 14,061 398 1,920 37,739
2019 11,666 11,935 400 1,658 25,659
2020 7,136 11,114 396 1,169 19,815
2021 3,345 7,996 371 392 12,104
2022 1,777 4,180 320 112 6,389
2023 and subsequent 1,708 15,672 1,570 1,062 20,012
Total 46,992 64,958 3,455 6,313 121,718

19. Segmented information

The Government segmented information is based on the ministry structure, which groups the activities of departments, agencies and consolidated Crown corporations and other entities for which a Minister is responsible, and the enterprise Crown corporations and other government business enterprises as described in Note 1 and Note 14. The five main ministries are reported separately and the others are grouped together with the provision for valuation and other items. The presentation by segment is based on the same accounting policies as those described in the Summary of significant accounting policies in Note 1. Inter-segment transfers are measured at the exchange amount. The following tables present the segmented information by Ministry and enterprise Crown corporations and other government business enterprises before the elimination of internal transactions that are eliminated in the adjustments column before arriving at the total for the year ended March 31:

(in millions of dollars)

  2017
Families, Children and Social Development Finance National Defence National Revenue Public Safety and Emergency Preparedness Other ministries Enterprise Crown corporations and other government business enterprises AdjustmentsLink to footnote 22 Total
Revenues
Tax revenues
Income tax revenues 192,967 192,967
Other taxes and duties 20,538 30,810 51,348
Total tax revenues 213,505 30,810 244,315
Employment insurance premiums 22,538 (negative 413) 22,125
Other revenues
Enterprise Crown corporations and other government business enterprises 5,655 5,655
Other 2,772 774 442 4,699 2,431 21,482 (negative 13,333) 19,267
Net foreign exchange 2,133 2,133
Total other revenues 2,772 2,907 442 4,699 2,431 21,482 5,655 (negative 13,333) 27,055
Total revenues 25,310 2,907 442 218,204 33,241 21,482 5,655 (negative 13,746) 293,495
Expenses
Program expenses
Transfer payments
Old age security benefits, guaranteed income supplement and spouse's allowance 48,162 48,162
Major transfer payments to other levels of government 66,550 2,102 68,652
Employment insurance 20,711 20,711
Children's benefits 1,966 20,099 22,065
Other transfer payments 8,489 495 153 3,540 894 28,240 (negative 231) 41,580
Total transfer payments 79,328 67,045 153 23,639 894 30,342 (negative 231) 201,170
Other expenses 4,618 502 25,909 7,460 10,807 50,202 (negative 13,512) 85,986
Total program expenses 83,946 67,547 26,062 31,099 11,701 80,544 (negative 13,743) 287,156
Public debt charges 23,831 84 1 196 (negative 3) 24,109
Total expenses 83,946 91,378 26,146 31,099 11,702 80,740 (negative 13,746) 311,265

(in millions of dollars)

  2016
Families, Children and Social Development Finance National Defence National Revenue Public Safety and Emergency Preparedness Other ministries Enterprise Crown corporations and other government business enterprises AdjustmentsLink to footnote 22 Total
Revenues
Tax revenues
Income tax revenues 192,846 192,846
Other taxes and duties 19,218 30,587 49,805
Total tax revenues 212,064 30,587 242,651
Employment insurance premiums 23,491 (negative 421) 23,070
Other revenues
Enterprise Crown corporations and other government business enterprises 7,916 7,916
Other 2,667 722 576 4,912 2,336 20,305 (negative 12,024) 19,494
Net foreign exchange 2,322 2,322
Total other revenues 2,667 3,044 576 4,912 2,336 20,305 7,916 (negative 12,024) 29,732
Total revenues 26,158 3,044 576 216,976 32,923 20,305 7,916 (negative 12,445) 295,453
Expenses
Program expenses
Transfer payments
Old age security benefits, guaranteed income supplement and spouse's allowance 45,461 45,461
Major transfer payments to other levels of government 63,877 1,973 65,850
Employment insurance 19,419 19,419
Children's benefits 7,516 10,509 18,025
Other transfer payments 6,465 512 152 3,701 620 23,601 (negative 177) 34,874
Total transfer payments 78,861 64,389 152 14,210 620 25,574 (negative 177) 183,629
Other expenses 4,584 501 28,826 8,251 10,622 46,849 (negative 12,265) 87,368
Total program expenses 83,445 64,890 28,978 22,461 11,242 72,423 (negative 12,442) 270,997
Public debt charges 25,306 88 1 51 (negative 3) 25,443
Total expenses 83,445 90,196 29,066 22,461 11,243 72,474 (negative 12,445) 296,440

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