Public Accounts of Canada 2016 Volume I—Top of the page Navigation
A contingent liability is a potential liability which may become an actual liability when one or more future events occur or fail to occur. Contingent liabilities are recorded in the accounts when it becomes likely that a payment will be made and the amount of that payment can be reasonably estimated. The contingent liabilities of the Government are grouped into: guarantees provided by the Government, international organizations, claims and pending and threatened litigation, and insurance programs of agent enterprise Crown corporations. Additional information regarding each category is provided below.
For details of contingent liabilities of consolidated Crown corporations, refer to Table 4.4 in Section 4 of this volume. Particulars of contingent liabilities of enterprise Crown corporations and other government business enterprises are not consolidated with those of the Government but details of these contingencies may be found in Table 9.8 of Section 9 of this volume.
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;
- other explicit guarantees.
Losses on guarantees are recorded in the accounts when it is likely that a payment will be made to honour a guarantee and when the amount of the anticipated loss can be reasonably estimated. The amount of the allowance is determined by taking into consideration the nature of the guarantee, loss experience and the use of other measurement techniques. Borrowings of enterprise Crown corporations and other government business enterprises are recorded as liabilities for the portion not expected to be repaid directly by these corporations.
Table 11.5 lists the outstanding guarantees and is summarized in Note 18 to the consolidated financial statements in Section 2 of this volume. The authorized limits indicated in Table 11.5 represent the aggregate total of various types of authorities of Government bodies as stipulated in legislation, legal agreements or other documents that may be in force at any one time.
The table presents, in millions of dollars, the guarantees provided by the Government as at March 31 of the current year. It consists of three columns: a detailed listing of components; authorized limit (where applicable); principal amount outstanding. The first series of rows lists the individual guarantees by category and by department, followed by a total for each category. The following rows present the total gross guarantees minus the allowance for guarantees for the principal amount outstanding. A final row presents the total for this table.
|Authorized limit (where applicable)||Principal amount outstanding|
|Guaranteed borrowings of enterprise Crown corporations and other government business enterprises|
|Agent enterprise Crown corporations||–||266,434 Link to footnote 1|
|Other guarantees provided by the Government|
|Agriculture and Agri-Food|
|Advance Payments Program—Agricultural Marketing Programs Act||5,000||1,165|
|Farm Improvement Loans Act and Canadian Agricultural Loans Act||3,000||104|
|Families, Children and Social Development|
|Employment and Social Development|
|Canada Student Loans Act||10,782||6|
|Indigenous and Northern Affairs|
|Indian Affairs and Northern Development|
|Indian Economic Development Guarantee Program||60||1|
|On-Reserve Housing Guarantee Program||2,200||–|
|Canada Mortgage and Housing Corporation||–||1,431|
|Other approved lenders||–||352|
|Innovation, Science and Economic Development|
|Regional Aircraft Credit Facility||1,500||101|
|Small Business Loans Act||1,838||Link to footnote 2|
|Canada Small Business Financing Act||2,249||779|
|Capital Leasing Pilot Project||16||Link to footnote 3|
|Lower Churchill Hydro Electric Projects||6,300||3,550|
|Insurance programs managed by the Government|
|Canada Travelling Exhibitions Indemnification Act||3,000||Link to footnote 3|
|Mortgage or Hypothecary Insurance Protection||300,000||215,713|
|Foreign Affairs, Trade and Development|
|Accounts administered for the Government by Export Development Canada||20,000||155|
|Canadian Nuclear Safety Commission|
|Nuclear Liability Reinsurance Account||1,275||713|
|Aviation War Risks||–||Link to footnote 3|
|Total—Insurance programs managed by the Government||324,275||216,581|
|Other explicit guarantees|
|Agriculture and Agri-Food|
|National Biomass Ethanol Program||140||25|
|Price Pooling Program—Agricultural Marketing Programs Act||–||1|
|Consolidated Crown corporations|
|VIA Rail Canada Inc.|
|Letters of credit||–||27|
|Total—Other explicit guarantees||140||53|
|Less: allowance for guarantees||–||312|
|Net exposure under guarantees||–||490,245|
Advance Payments Program—Agricultural Marketing Programs Act
The Advance Payments Program (APP) provides producers with a cash advance on the value of their agricultural products during a specified period. By improving their cash flow throughout the year, the APP helps crop and livestock producers meet their financial obligations and benefit from the best market conditions.
Under the APP, the federal government guarantees repayment of cash advances issued to farmers by the producer organization. These guarantees help the producer organization borrow money from financial institutions at lower interest rates and issue producers a cash advance on the anticipated value of their farm product that is being produced or that is in storage. The maximum cash advance of the program is $0.4 million and the loans generally have a repayment term of 18-24 months.
Farm Improvement Loans Act and Canadian Agricultural Loans Act
The Canadian Agricultural Loans Act (CALA) program is a financial loan guarantee program that gives farmers easier access to credit. Farmers can use these loans to establish, improve, and develop farms; while Agricultural co-operatives may also access loans to process, distribute, or market the products of farming.
The CALA program builds on and replaces the previous Farm Improvement and Marketing Co-operative Loans Act (FIMCLA) program, which has helped farming operations grow their businesses by guaranteeing loans issued through financial institutions since 1988.
Through the CALA, the Government of Canada is supporting the renewal of the agricultural sector and enabling co-operatives to better seize market opportunities. This program guarantees 95 percent of the value of loans provided to farms and cooperatives by financial institutions. For individual applicants, including corporations, the maximum amount for a Canadian Agricultural Loans Act loan is $0.5 million. Most loans are repayable within ten years; for loans on land purchases, the repayment period is 15 years.
Canada Student Loans Act
Loans provided by financial institutions between 1964 and August 1995, under the Canada Student Loans Act, are fully guaranteed by Employment and Social Development (ESDC) to the lenders. ESDC reimburses the lenders for the outstanding principal, accrued interest and costs in the event of default, permanent disability or death of the borrower. ESDC bears all risks associated with guaranteed loans.
Indian Economic Development Guarantee Program
This program authorizes Indian Affairs and Northern Development Canada to guarantee loans for non-incorporated Indian businesses on a risk-sharing basis with commercial lenders because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. Guarantees are provided for various types of borrowers whose activities contribute to the economic development of Indians and enable them to develop long-term credit relationships with mainstream financial institutions.
Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of Indian Affairs and Northern Development.
On-Reserve Housing Guarantee Program
This program authorizes Indian Affairs and Northern Development Canada to guarantee loans to individuals and Indian bands to assist in the purchase of housing on reserves because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. These loan guarantees enable status Indians residing on reserves, Band councils, or their delegated authorities, to secure housing loans without giving the lending institution rights to the property.
Loans under this program are issued by registered lending institutions and Canada Mortgage and Housing Corporation. Payments of principal and interest for loans issued under this program are amortized over a period of 25 years. The interest rates on the guaranteed loans are consistent with conventional mortgage interest rates offered by the major banks.
Regional Aircraft Credit Facility
The Regional Aircraft Credit Facility Program was established in 2004 to provide sales financing assistance in the form of loan guarantees to enable domestic air carriers to acquire Canadian-built fixed-wing commercial jets.
The guarantees are provided on commercial terms and are secured by the aircraft financed by private lenders. These guarantees have a life of 15 years. This program expired on March 31, 2008.
Small Business Loans Act and Canada Small Business Financing Act
The Small Business Loans Act (SBLA) includes loans registered until March 31, 1999 and the Canada Small Business Financing Act (CSBFA) includes both the core loans component (loans registered since April 1, 1999) and the Capital Leasing Pilot Project (leases registered between April 1, 2002 and March 31, 2007). In collaboration with financial institutions, the programs offered under these Acts are designed to help Canadian small and medium-sized enterprises (SMEs) get access to loan and capital leasing financing that would not otherwise have been available, or would only have been available under less favourable terms. In the event a registered loan or lease defaults, the Government pays 85 percent of the net eligible losses. To be eligible, SMEs must be for-profit businesses with revenues not exceeding $5 million per year.
Lower Churchill Hydroelectric Projects
In 2011, the Government of Canada committed to providing a loan guarantee to support the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ((1) Muskrat Falls and Labrador Transmission Assets and (2) Labrador-Island Link) and one project sponsored by Emera Inc. (Maritime Link). The federal loan guarantee applied to the debt raised for the construction of these projects. Subsequent to signing of the Guarantee Agreements by the Minister of Natural Resources for the Muskrat Falls / Labrador Transmission Assets and for the Labrador Island Link, on December 13, 2013, the financing was completed for the Nalcor-led projects, raising $5 billion of guaranteed debt in the form of a bond financing. These bonds have a life varying from about 15 years to 40 years. After the Minister of Natural Resources signed the Guarantee Agreement for the Maritime Link on April 23, 2014, the bond financing was completed for the Maritime Link, raising $1.3 billion of guaranteed debt for a life of about 39 years. As of March 31, 2016, $3,549,839,354 of guaranteed debt has been released to the project entities. As per the terms of the bonds that were issued, initially, only interest payments are being made on the guaranteed debt. The commencement of principal payments on the guaranteed debt has been scheduled to coincide with the expected commissioning dates of the projects, with the schedule of these payments depending on the specific terms and conditions of each of the guaranteed bonds. Among the many safeguards put in place to protect Canada's interest, all of the project entities' shares, assets and agreements have been pledged as security to Canada.
Canada Travelling Exhibitions Indemnification Act
Pursuant to s. 3(1) of the Canada Travelling Exhibitions Indemnification Act (the Act) the Minister of Canadian Heritage is authorized to enter into indemnification agreements with owners of objects or appurtenances on loan to travelling exhibitions in Canada. Under the Act, maximum levels of liability are established including: no more than $600 million in respect of each travelling exhibition and; no more than $3 billion at any given time in respect of all traveling exhibitions. The Canada Travelling Exhibitions Indemnification Regulations set out specific requirements to be met when owners are seeking indemnification agreements with the Minister. The Regulations also set limitations on the scope of indemnity, establish deductibles, define maximums for and period of coverage, set requirements for condition reporting, outline a claims procedure and provide for dispute resolution, among other things. Applicants may include institutions organizing or participating in travelling exhibitions who apply on behalf of owners. Upon approval of an application by the Minister, the owner of an object or appurtenance included in the particular travelling exhibition may enter into an indemnification agreement with the Minister.
Mortgage or hypothecary insurance protection
The Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA) received Royal Assent on June 26, 2011 and came into force on January 1, 2013.
The PRMHIA authorizes the Minister of Finance to provide protection in respect of certain mortgage or hypothecary insurance contracts written by approved mortgage insurers. Under the PRMHIA, a payment in respect of this guarantee would only be made if a winding-up order were made in respect of an approved mortgage insurer that had written an insurance contract guaranteed under the PRMHIA. In that case, the Minister would honour lender claims for insured mortgages in default, subject to: (1) any proceeds the beneficiary has received from the underlying property or the insurer's liquidation, and (2) a deductible of 10 percent of the original principal amount of the insured mortgage.
As at March 31, 2016, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $242.5 billion ($205.8 billion in 2015). Any payment by the Minister is subject to a deductible equal to 10 percent of the original principal amount of these loans, or $26.8 billion ($23.3 billion in 2015). The principal amount outstanding presented within Table 11.5 does not refer to anticipated losses or payments in respect of the guarantee. No provision has been made in these accounts for payments under the guarantee. As at March 31, 2016, there are two approved mortgage insurers under the PRMHIA: Genworth Financial Mortgage Insurance Company Canada, and Canada Guaranty Mortgage Insurance Company.
Accounts administered for the Government by Export Development Canada (EDC)
The Government of Canada has authorized support for insurance and guarantee programs which on the basis of EDC's risk management practices, could not be supported under EDC's Corporate Account but are in the national interest. Canada Account transactions consist of activities undertaken by EDC pursuant to Section 23 of the Export Development Act.
Nuclear Liability Reinsurance Account
Under the Nuclear Liability Act (NLA), operators of designated nuclear installations are required to possess basic or supplementary insurance of $75 million per installation for specified liabilities. The federal government has designated the Nuclear Insurance Association of Canada (NIAC) as the sole provider of third-party liability insurance and property insurance for the nuclear industry in Canada. The NIAC provides insurance to nuclear operators under a standard policy.
The policy consists of two types of coverage:
Coverage A and Coverage B. Coverage A includes only those risks that are accepted by the insurer; that is, bodily injury and property damage. Coverage B risks include personal injury that is not bodily; for example, psychological injury, damage arising from normal emissions, and damage due to acts of terrorism.
The NIAC receives premiums from operators for both coverages; however, premiums for Coverage B risks are remitted to the federal government, which reinsures these risks under its reinsurance agreement with the NIAC. Through the reinsurance agreement, the federal government assumes the liability associated with the difference between the basic insurance coverage provided by the NIAC and the full $75 million of liability imposed by the NLA, as well as for events listed under coverage B.
The Canadian Nuclear Safety Commission (CNSC) administers the Nuclear Liability Reinsurance Account on behalf of the federal government. The CNSC receives the premiums, paid by the operators of nuclear installations, for the supplementary insurance coverage and credits these to the Nuclear Liability Reinsurance Account in the Consolidated Revenue Fund.
Aviation war risks
The Aviation War Risk Liability Program's guarantee is a blanket indemnity to the air industry for any losses arising as a result of war risks causing personal injury or property damage to third parties. Under the current program, airlines and other stakeholders are responsible for obtaining a certain threshold of third party war risk liability insurance. The Government's indemnity covers the gap between the threshold amounts and the individual policy holder's general liability policy limit. There is neither specified amount, nor amount specifiable—any given claim is up to the level of the individual participants' general insurance policy and there is no limit on the number of claims that can be made. The guarantee is in effect until June 30, 2016.
National Biomass Ethanol Program
By Agreement dated March 30, 2001 (and amended in September 1, 2003), Her Majesty the Queen in Right of Canada as represented by the Minister of Agriculture and Agri-Food and Farm Credit Canada (FCC) entered into the National Biomass Ethanol Program (NBEP). The purpose of the program is to encourage new biomass fuel ethanol production in Canada. Guarantees are provided in relation to the Line of Credit Agreements entered into by Farm Credit Canada.
Price Pooling Program—Agricultural Marketing Programs Act
The Price Pooling Program (PPP) provides a price guarantee that protects marketing agencies and producers against unanticipated declines in the market price of their products. Program participants use the price guarantee as security in obtaining credit from lending institutions. This credit allows the marketing agency to improve cash flow of producers through an initial payment for products delivered. It also provides equal returns to producers for products of like grades, varieties and types. This program is designed to assist and encourage cooperative marketing of eligible agricultural products, including processed products.
Letters of credit
VIA Rail Canada Inc. has issued letters of credit to various provincial government workers' compensation boards as security for future payment streams.
Within contingent liabilities, callable share capital represents the portion of Canada's capital subscriptions that has not yet been paid-in. Callable capital is subject to call by offshore banks in the event that they were unable to meet their obligations.
Table 11.6 details the contingent liabilities for international organizations and is summarized in Note 18 to the consolidated financial statements in Section 2 of this volume.
The table presents, in millions of dollars, a two-year comparative of the contingent liabilities for international organizations. It consists of three columns: a detailed listing of components; March 31 of the current year; March 31 of the previous year. A series of rows presents the non-budgetary share capital and loans by department, followed by subtotals for each department. A final row presents the total for this table.
|March 31, 2016||March 31, 2015|
|Non-budgetary share capital and loans|
|Callable share capital|
|European Bank for Reconstruction and Development||1,193||1,100|
|International Bank for Reconstruction and Development (World Bank)||8,580||8,367|
|Multilateral Investment Guarantee Agency||59||58|
|Foreign Affairs, Trade and Development|
|African Development Bank||4,216||4,126|
|Asian Development Bank||8,264||8,060|
|Caribbean Development Bank||159||155|
|Inter-American Development Bank||8,570||8,735|
Claims and pending and threatened litigation
Please refer to Note 18 to the consolidated financial statements in Section 2 of this volume for information on claims and pending and threatened litigation.
Insurance programs of agent enterprise Crown corporations
An insurance program is a program where the insured, an outside party, pays an insurance fee which is credited to an insurance fund or provision. The amount of the fee is based on the estimated amount of insurance fund or provision needed to meet future claims. The Canada Deposit Insurance Corporation, Canada Mortgage and Housing Corporation, Export Development Canada and Farm Credit Canada currently operate insurance programs as agents of Her Majesty. Insurance programs operated by private corporations such as employee group insurance, dental plans, etc., are not included in this definition.
The insurance programs are intended to operate on a self-sustaining basis. However, in the event the corporations have insufficient funds, the Government will have to provide financing. The Government expects that all four corporations will cover the cost of both current claims and possible future claims.
Information presented in Table 11.7 has not been audited. Additional financial information relating to these corporations may be found in the quarterly Inventory of Government of Canada Organizations. This information is also summarized in Note 18 to the consolidated financial statements in Section 2 of this volume.
The table presents, in millions of dollars, the insurance programs of agent enterprise Crown corporations for the current year. It consists of five columns: a detailed listing of components; Canada Deposit Insurance Corporation, divided into two columns—current year and previous year; Canada Mortgage and Housing Corporation, divided into two columns—Mortgage Insurance Fund and Mortgage-Backed Securities Guarantee Fund each of them sub-divided into two columns—current year and previous year; Export Development Canada, divided into two columns—current year and previous year; Farm Credit Canada, divided into two columns—current year and previous year.
|Canada Deposit Insurance CorporationLink to footnote 5||Canada Mortgage and Housing CorporationLink to footnote 6||Export Development CanadaLink to footnote 7||Farm Credit CanadaLink to footnote 8|
|Mortgage Insurance Fund||Mortgage-Backed Securities Guarantee Fund|
|Insurance in force as at reporting date||696,059||683,996||520,000||539,000||429,000||421,000||21,943||22,085||5,617||5,585|
|Opening balance of Fund||1,801||1,569||15,840||13,617||1,676||1,484||Link to footnote 7||Link to footnote 7||12||13|
|Revenues for the period|
|Premiums and fees||361||279||1,585||1,662||279||247||197||195||25||24|
|Other revenues||–||–||3||(negative 4)||6||136||–||–||–||–|
|Expenses for the period|
|Loss on/provision for claims||50||–||305||313||–||–||–||–||9||11|
|Interest on borrowing||–||–||–||–||–||126||–||–||–||–|
|Other expenses (includes taxes)||(negative 4)||50||402||763||74||66||65||14||7||8|
|Net income or (loss) for the period||315||232||1,244||2,304||224||198||132||181||2||(negative 1)|
|Adjustments||–||–||(negative 14)||(negative 81)||(negative 2)||(negative 6)||–||–||–||–|
|Closing balance of Fund||2,116||1,801||17,070||15,840||1,898||1,676||Link to footnote 7||Link to footnote 7||14||12|
|Net claims during the periodLink to footnote 9||Link to footnote a||Link to footnote a||364||410||Link to footnote a||Link to footnote a||124||70||10||11|
|Five year average of net claims paid||Link to footnote a||Link to footnote a||462||540||Link to footnote a||Link to footnote a||122||113||8||7|
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