Archived - Financial Statements (unaudited)

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For the year ended March 31, 2009

Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2009, and all information contained in this report rests with the management of the Department of Finance Canada. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the Department of Finance Canada's financial transactions. Financial information submitted to the Public Accounts of Canada and included in the Department's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded, and that transactions are in accordance with theFinancial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of government funds. Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training, and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the Department of Finance Canada.

Management is supported by the Departmental Audit and Evaluation Committee. The role of the Committee is to provide to the Deputy Minister objective advice and guidance. The Committee approves the departmental audit and evaluation plans and oversees the internal audit and evaluation activities in the Department. It also reviews the results of audits and evaluations as well as management responses and action plans developed to address audit and evaluation recommendations.

The financial statements of the Department of Finance Canada have not been audited.

Sherry Harrison
Chief Financial Officer

Stephen Richardson
Acting Deputy Head

Ottawa, Canada
July 31, 2009

Department of Finance Canada
Statement of Operations
(unaudited)
For the Year Ended March 31
($ thousands)
  2009 2008

Expenses (Note 4)    
  Transfer and Taxation Payment Programs 46,517,604 45,924,372
  Treasury and Financial Affairs 30,068,575 33,345,701
  Economic and Fiscal Policy Framework 142,190 118,544
 
Total Expenses 76,728,369 79,388,617
 
Revenues (Note 5)    
  Transfer and Taxation Payment Programs 588,601 450,058
  Treasury and Financial Affairs 4,850,205 4,379,907
  Economic and Fiscal Policy Framework 252 100
 
Total Revenues 5,439,058 4,830,065
 
Net Cost of Operations 71,289,311 74,558,552

The accompanying notes form an integral part of these financial statements.    

Department of Finance Canada
Statement of Financial Position
(unaudited)
At March 31

($ thousands)
  2009 2008

Assets    
Financial assets    
   Accounts receivable and advances (Note 6) 401,609 427,197
   Taxes receivable under tax collection agreements (Note 7) 11,090,789 6,449,575
   Coin inventory 24,498 26,912
   Foreign exchange accounts (Note 8) 51,708,538 42,299,109
   Investment in Crown corporations (Note 9) 401,578 401,578
   Crown Borrowings (Note 10) 76,422,196 4,821,138
   Other loans, investments, and advances (Note 11) 3,865,989 4,097,677
 
Total financial assets 143,915,197 58,523,186
Non-financial assets    
   Prepaid expenses 120,050 14
   Tangible capital assets (Note 12) 4,044 3,584
 
Total non-financial assets 124,094 3,598
 
Total Assets 144,039,291 58,526,784
 
Liabilities    
   Accounts payable and accrued liabilities (Note 13) 1,128,905 3,416,921
   Taxes payable under tax collection agreements (Note 14) 4,943,533 5,111,494
   Interest payable (Note 15) 6,839,241 7,090,297
   Notes payable to international organizations (Note 16) 420,414 350,679
   Matured debt (Note 17) 80,130 91,698
   Unmatured debt and other financial instruments (Note 18) 510,197,055 386,776,844
   Other liabilities (Note 21) 140,642 460,839
   Employee severance benefits (Note 22) 16,096 12,800
 
  523,766,016 403,311,572
Equity of Canada (379,726,725) (344,784,788)
 
Total Liabilities and Equity 144,039,291 58,526,784
 
  Contingent liabilities (Note 23)    
  Contractual obligations (Note 24)    

The accompanying notes form an integral part of these financial statements.

Department of Finance Canada
Statement of Equity of Canada
(unaudited)
At March 31
($ thousands)
  2009 2008

Equity of Canada, beginning of year (344,784,788) (373,906,786)
Net cost of operations (71,289,311) (74,558,552)
Current year appropriations used (Note 3a) 215,640,076 86,379,638
Revenue not available for spending (5,563,923) (4,877,248)
Change in net position in the Consolidated Revenue Fund (Note 3c) (173,746,535) 22,162,139
Services received without charge from other government departments (Note 25) 17,756 16,021
 
Equity of Canada, end of year (379,726,725) (344,784,788)

The accompanying notes form an integral part of these financial statements.

Department of Finance Canada
Statement of Cash Flow
(unaudited)
For the Year Ended March 31
($ thousands)
  2009 2008

Operating activities    
   Net cost of operations 71,289,311 74,558,552
   Non-cash items:    
     Amortization of tangible capital assets (1,595) (1,632)
     Amortization for loan investments and advances 348,018 209,706
     Amortization of debt discounts (5,095,970) (6,361,347)
     Concessionary portion of other loans,
      investments, and advances
(530,832) (237,845)
     Gain on disposition of securities - 1,531
     Gain on disposal and write-down of tangible capital assets (3) -
     Unrealized foreign exchange gains and losses 58,750 (44,937)
     Services provided without charge from other
     government departments
(17,756) (16,021)
  Variations in Statement of Financial Position:    
    Increase (decrease) in assets 4,733,248 104,768
   Decrease (increase) in liabilities 3,023,934 2,232,003
 
  Cash used by operating activities 73,807,105 70,444,778
 
Capital investment activities    
   Acquisition of tangible capital assets 2,059 1,668

  Cash used by capital investment activities 2,059 1,668
 
Investing activities    
    Net advances to (settlements from) the Exchange Fund Account 3,688,615 (1,076,934)
    Issuance of notes payable to International Monetary Fund (383,023) (333,000)
    Encashment of notes payable to International Monetary Fund 1,497,000 213,120
    Issuance of loans receivable 132,244,113 5,273,968
    Repayment of loans receivable (60,873,044) (1,285,757)
 
  Cash used by investing activities 76,173,661 2,791,397
 
Financing activities    
    Encashment of notes payable to international organizations 321,266 322,604
    Issuance of notes payable to international organizations (384,280) (318,280)
    Net proceeds from cross-currency swaps (561,706) (373,718)
    Issuance of debt (539,569,672) (330,774,706)
    Repayment of debt 426,541,185 361,570,786
    Net cash provided by the Government of Canada (36,329,618) (103,664,529)
 
  Cash provided by financing activities (149,982,825) (73,237,843)

The accompanying notes form an integral part of these financial statements.

1.  Authority and Objectives

The Department of Finance Canada is established under the Financial Administration Act as a Department of the Government of Canada.

The goal of the Department of Finance Canada is to foster strong and sustainable economic growth, resulting in higher standards of living and an improved quality of life for Canadians. To achieve its strategic outcome and deliver results for Canadians, the Department of Finance Canada articulates its plans and priorities based on core program activities. These program activities were reviewed and updated for the 2008-2009 fiscal year, as approved by the Treasury Board, to better reflect the Department's operations. The 2007-2008 figured have been reclassified according to the new program activity structure for comparison purposes. The core business of the Department is organized into the following program activities:

Transfer and Taxation Payment Programs:This program activity administers transfer and taxation payments to provinces and territories. Payments are made in accordance with legislation and negotiated agreements to enable Canadian provinces and territories to provide their residents with public services. This program activity also covers commitments and agreements with international financial institutions aimed at aiding the economic advancement of developing countries. These commitments can result in payments, generally statutory transfer payments, to a variety of recipients, including individuals, organizations, and other levels of government.

Treasury and Financial Affairs:Canada's debt management activities include the funding of government operations, which involves the payment of debt service costs and investments in financial assets that are needed to establish a prudent liquidity position. This program activity supports the ongoing refinancing of government debt coming to maturity, the execution of the budget plan, and other financial operations of the government, including governance of the borrowing activities of major government-backed entities such as Crown corporations. The program is also responsible for the system of circulating Canadian currency (banknotes and coins) to meet the needs of the economy.

Economic and Fiscal Policy Framework:This program activity is the primary source of advice and recommendations to the Minister of Finance regarding issues, policies, and programs of the Government of Canada in the areas of economic, fiscal, and social policy; federal-provincial-territorial relations; financial affairs; taxation; and international trade and finance. The work conducted in this program area involves extensive research, analysis, and consultation and collaboration with partners in both the public and private sectors. In addition, it handles the negotiation of agreements and drafting of legislation

2.  Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

a)  Parliamentary appropriations

The Department of Finance Canada is financed by the Government of Canada through parliamentary appropriations. Appropriations provided to the Department of Finance Canada do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

b)  Consolidation

Investments in the Crown corporations are recorded at cost and are not consolidated.

Income from investments in Crown corporations includes dividends from the Bank of Canada and the Canada Development Investment Corporation, which are recognized when declared.

c)  Net cash provided by Government

The Department of Finance Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the Department is deposited to the CRF, and all cash disbursements made by the Department are paid from the CRF. The net cash provided by the Government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the federal government.

d)  Change in net position in the CRF

Change in net position in the CRF is the difference between the net cash provided by the government and appropriations used in a year, excluding the amount of non respendable revenue recorded by the Department of Finance Canada. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

e)  Revenues

Revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues:

  • Interest on Receiver General bank deposits is recognized as revenue when earned.
  • Uncashed Receiver General cheques and warrants and bank account cheques for all departments and agencies are recognized as revenue of the Department of Finance Canada if they remain outstanding 10 years after the date of issue.
  • Unclaimed matured bonds are recognized as revenue if they remain unredeemed 15 years after the date of call or maturity, whichever is earlier.
  • Unclaimed bank balances are recognized as revenue when there has been no owner activity in relation to the balance for a period of 40 years.

f)  Expenses

Expenses are recorded on the accrual basis:

  • Transfer payments are recorded as expenses when the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement or, in the case of transactions that do not form part of an existing program, when the government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
  • Public debt charges are recognized when incurred and include interest, amortization of debt discounts, premiums and commissions, and servicing and issue costs.
  • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
  • Services provided without charge by other government departments for accommodation, the employer's contribution to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

g)  Employee future benefits

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer defined benefit pension plan administered by the Government of Canada. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the Department to make contributions for any actuarial deficiencies of the Plan.

Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the government as a whole.

h)  Accounts receivable and advances

Accounts receivable and advances are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.

i)  Inventory

Coin inventory is valued at the lower of cost and net realizable value. Cost is determined by the average cost method.

j)  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. Write-downs to reflect other than temporary impairment in the fair value of securities are included in foreign exchange revenues on the statement of operations. Canada's subscriptions to the capital of the International Monetary Fund are recorded at cost.

k)  Translation of foreign currencies

Transactions involving foreign currencies are translated to Canadian dollars at the rate of exchange in effect at the date of those transactions. Assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the rate prevailing on March 31. The resulting gains and losses are included in revenue or expenses in Treasury and Financial Affairs and Transfer and Taxation Payment Programs in the statement of operations.

l)  Other loans, investments, and advances

Subscriptions and contributions are recorded at cost net of allowances.

Loans and advances are initially recorded at cost and are adjusted to reflect the concessionary terms of those loans made on a long-term, low interest, or interest-free basis and the portion of the loans that are expected to be repaid from future appropriations. An allowance for valuation is further used to reduce the carrying value of loans, investments, and advances to amounts that approximate their net realizable value. For loans and advances to international organizations, an allowance is established based on their concessionary terms and their collectability.

m)   Derivative financial instruments

Derivative financial instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other financial measures. Derivative financial instruments that the Department of Finance Canada currently uses include interest rate swaps and cross-currency swap agreements.

Cross-currency swaps are initially recorded at cost and are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. For cross-currency swaps where domestic debt has been converted into foreign debt, any exchange gains or losses are offset by the exchange gains or losses on foreign currency advances to the Exchange Fund Account. For cross-currency swaps where foreign debt has been converted into US dollar debt, any exchange gains or losses are offset by the exchange gains or losses on the applicable foreign debt.

Interest paid and payable, and interest received and receivable on all derivative financial instruments is included in interest on unmatured debt.

n)  Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more and that meet the criteria outlined in TBAS 3.1 Capital Assets, are recorded at their acquisition cost. The Department of Finance Canada does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections. Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

Asset class Amortization period

Machinery and equipment Three to five years
Vehicles Three years
Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
Assets under construction Once in service, in accordance with asset type

o)  Unmatured debt

Premiums and discounts on unmatured debt are amortized on a straight line basis over the term to maturity of the respective debt instrument. The corresponding amortization is recorded as part of public debt charges.

p)  Other liabilities

Deposits from Crown corporations that are repayable are recorded in "Other Liabilities" in the statement of financial position.

q)  Loan guarantees

The allowance for losses on the guarantees of the Canadian Wheat Board and Export Development Canada is determined based on the government's identification and evaluation of countries that have formally applied for debt relief, estimated probable losses that exist on the remaining portfolio, and changes in the economic conditions of sovereign debtors.

r)  Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that 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. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

s)  Measurement uncertainty

The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable.

The most significant items where estimates are used are contingent liabilities, valuation allowances for loans receivable, discounts on loans receivable, transfer payments to provinces and territories, accruals of taxes receivable and taxes payable under tax collection agreements, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3.  Parliamentary Appropriations

The Department of Finance Canada receives most of its funding through annual parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through parliamentary appropriations in prior, current, or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables.

a) Reconciliation of net cost of operations to current year appropriations used
  2009 2008

  ($ thousands)
Net cost of operations 71,289,311 74,558,552
Adjustments for items affecting net cost of operations but not affecting appropriations:    
Add (Less):    
   Revenue not available for spending 5,563,923 4,877,248
   Quebec Youth Allowances Recovery prepayment 336,000 -
   Allowance for bad debts (213,432) 80,425
   Employment Insurance enhancement measure (124,000) -
   Allowance on loan guarantees 111,208 71,733
   Services provided without charge (17,756) (16,021)
   Employee severance benefits (3,296) 804
   Inventory charged to program expense (2,414) 5,083
   Amortization of tangible capital assets (1,595) (1,632)
   Recoveries on prior year allowances 880 -
   Other (14) -
Other expenses not being charged to appropriations:    
   Transfer payment pursuant to the Budget Implementation Act 1,466,300 2,206,000
   Crown Share Adjustment - (234,400)
   Other 809 514
 
   7,116,613 6,989,754
 
Adjustments for items not affecting net cost of operations but affecting appropriations:    
Add (Less):    
   Advances and prepaid expenses 136,845,692 4,508,031
   Issuance and encashment of notes payable 386,930 322,614
   Acquisitions of tangible capital assets 1,530 687
 
   137,234,152 4,831,332
 
Current year appropriations used 215,640,076 86,379,638

b) Appropriations provided and used
  2009 2008

  ($ thousands)
Vote 1 — Operating expenditures 123,392 99,139
Vote 5 — Grants and contributions 660,200 221,200
Statutory amounts 215,025,499 86,263,305
Less :
  Appropriations available for future years
(68,574) (68,578)
  Lapsed appropriations    
    Vote 1 — Operating expenditures (12,269) (7,583)
    Vote 5 — Grants and contributions (88,166) (127,823)
    Vote 10 – Transfer payments to the territorial governments (6) -
  Spending of proceeds from disposal of surplus Crown assets - (22)
 
Current year appropriations used 215,640,076 86,379,638

c) Reconciliation of net cash provided by Government to current year appropriations used
  2009 2008

  ($ thousands)
Net cash provided by government 36,329,618 103,664,529
Revenue not available for spending 5,563,923 4,877,248
Change in net position in the Consolidated Revenue Fund:    
  Variation in assets and liabilities:    
    Unmatured and matured debt 123,408,643 (24,788,823)
    Other loans, investments, and advances (71,489,406) (3,866,291)
    Accounts payable and accrued liabilities (2,957,495) (2,576,282)
    Foreign exchange accounts (9,409,429) 1,878,990
    Accounts receivable (4,615,626) (99,670)
    Coin inventory 2,414 (5,083)
    Employee severance benefits 3,296 (804)
    Tangible capital assets (460) (36)
  Other adjustments:    
    Advances – Crown Borrowing Program 136,721,631 4,840,000
    Issuance of notes payable for subscriptions 384,280 318,280
    Allowances (101,345) 152,158
    Other expenses not being charged to appropriation at the same time 1,800,032 1,985,422
 
Total change in net position in the Consolidated Revenue Fund 173,746,535 (22,162,139)
 
Current year appropriations used 215,640,076 86,379,638

4.  Expenses

The following table presents details of expenses by category:

  2009 2008

  ($ thousands)
Transfer payments:    
  Provinces and territories (Note 4a) 45,756,464 45,575,855
  International organizations 749,206 331,212
  Allowance on loan guarantees (recovery) (111,208) (71,733)
  Employment Insurance enhancement measure 124,000 -
  Non-profit institutions and organizations 91 10
 
Total transfer payments 46,518,553 45,835,344
 
Public debt charges:    
  Interest on unmatured debt (Note 4b) 18,301,808 20,364,430
  Interest on pension liabilities and other liabilities (Note 4c) 11,610,137 12,776,471
  Other public debt charges 27,849 71,470
 
Total public debt charges 29,939,794 33,212,371
Operating expenses (Note 4d) 142,036 118,300
Cost of domestic coinage sold 128,782 177,654
Net foreign currency loss - 44,757
Other expenses (796) 191
 
Total Expenses 76,728,369 79,388,617

a)  Transfer payments to provinces and territories

Transfer payments to provinces and territories are paid pursuant to the Federal-Provincial Fiscal Relations Act, Budget Implementation Acts, and other statutory authorities.

For the period ending March 31, transfer payments to provinces and territories includes the following:

  2009 2008

  ($ thousands)
Canada Health Transfer 22,759,016 21,474,272
Fiscal Equalization 13,462,236 12,924,677
Canada Social Transfer 10,567,868 9,590,219
Alternative payments for standing programs (recovery) (2,973,912) (2,719,889)
Territorial financing 2,312,939 2,221,297
Bill C-41 Community Development Trust - 1,000,000
Youth Allowances Recovery (668,659) (607,805)
Crown Share Adjustment 95,100 234,400
Bill C-50 (An Act to implement certain provisions of the budget tabled in Parliament on February 26, 2008 ):    
  Public Transit Capital Trust 2008 - 500,000
  Police Officers Recruitment Fund - 400,000
  Payment to Nova Scotia for Carbon Capture - 245,000
  Canada Social Transfer Transition Protection Payments (91) 32,000
Bill C-52(An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007):    
  Child Care Spaces - 250,000
  Clean Air and Climate Change Trust Fund - (75)
  Transitional Trust Fund - (62)
  Incentive for the elimination of capital taxes 170,000 -
Statutory subsidies 31,967 31,821
 
Total Transfer payments to provinces and territories 45,756,464 45,575,855

b)  Interest on unmatured debt

Interest on unmatured debt includes interest incurred, amortization of debt discounts, and premiums and net interest on cross-currency and interest rate swaps:

  2009 2008

  ($ thousands)
Interest on domestic debt:    
   Marketable bonds 13,947,537 14,605,487
   Treasury bills 3,586,530 4,611,408
   Retail debt 454,236 579,186
   Bonds for Canada Pension Plan 67,453 129,685
 
   18,055,756 19,925,766
 
Interest on foreign debt:    
   Marketable bonds (US and euro) 104,331 277,215
   Euro medium-term notes (US and euro) 74,657 69,581
   Canada bills (US) 56,516 83,004
   Canada notes (yen) 10,548 8,864
 
   246,052 438,664
 
Total Interest on unmatured debt 18,301,808 20,364,430

c)  Interest on pension liabilities and other liabilities

For the period ending March 31, interest on pension liabilities and other liabilities includes interest on the following:

2009 2008

    ($ thousands)
Superannuation accounts 10,224,419 10,369,136
Employment Insurance fund 950,223 1,926,315
Other specified purpose accounts 285,165 310,179
Retirement compensation arrangement accounts 118,379 116,742
Special drawing rights allocations 26,348 46,472
Canada Pension Plan account 5,603 7,627
 
Total Interest on pension liabilities and other liabilities 11,610,137 12,776,471

d)  Operating expenses

The following table presents details of operating expenses by category:

  2009 2008

    ($ thousands)
Salaries and wages 84,128 71,876
Professional and special services 17,041 15,220
Information services 12,645 1,863
Contributions to employee benefit plans 11,431 12,104
Accommodation 7,521 7,416
Transportation and telecommunications 5,338 4,838
Amortization of tangible capital assets 1,595 1,632
Machinery and equipment 1,423 2,146
Repairs and maintenance 274 690
Rentals 640 515
 
Total Operating expenses 142,036 118,300

5.  Revenues

The following table presents details of revenues by category:

  2009 2008

    ($ thousands)
Investment income:    
  Exchange Fund Account 1,852,821 1,828,151
  Dividends from the Bank of Canada 1,757,122 1,921,014
  Canada Mortgage and Housing Corporation 525,657 -
  Dividends from Canada Development Investment Corporation 217,000 234,200
  Loan interest 173,045 197,007
  Farm Credit Canada 168,510 19,945
Business Development Bank of Canada 105,817 1,870
Interest on Subscriptions to the International Monetary Fund  8,386 9,292
 
Total investment income 4,808,358 4,211,479
Interest on bank deposits 346,700 360,661
Sales of domestic coinage 171,195 203,566
Net foreign currency gain 57,610 -
Unclaimed cheques 29,557 29,545
Mortgage insurance premiums 21,334 13,850
Loan interest - Canada Lands Company Ltd. 2,886 5,184
Other 1,418 5,780
 
Total Revenues 5,439,058 4,830,065

6.  Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

  2009 2008

    ($ thousands)
Receivables from other federal government departments and agencies 6,019 31,209
Deposits in transit to the Receiver General 68 6
Accrued investment income 278,020 395,846
Accrued interest income-Crown Borrowings 117,394 -
Receivables from external parties 108 136
 
Total Accounts receivable and advances 401,609 427,197

7.  Taxes Receivable under Tax Collection Agreements

The following table present the details of taxes receivable under tax collection agreements:

  2009 2008

  ($ thousands)
Corporate income taxes 3,999,676 1,825,549
Personal income taxes 7,033,653 4,582,081
Harmonized Sales Tax 130,030 443,448
First Nations Goods and Services Tax 870 618
First Nations Sales Tax 417  437
Various provincial benefits (73,857) (402,558)
 
Total Taxes receivable under tax collection agreements 11,090,789 6,449,575

Taxes receivable include taxes collectible by the CRA on behalf of provincial, territorial or Aboriginal governments that have not yet been remitted to the Department of Finance Canada.

8.  Foreign Exchange Accounts

The foreign exchange accounts represent the largest component of the official international reserves of the Government of Canada and consist of the following:

  2009 2008

    ($ thousands)
Investments held in the Exchange Fund Account 49,341,250 41,075,243
Accrued net revenue from Exchange Fund Account 1,852,821 1,828,151
 
Total investments held in Exchange Fund Account (Note 8a) 51,194,071 42,903,394
Subscriptions to the International Monetary Fund (Note 8b) 12,010,592 10,751,719
Notes payable to the International Monetary Fund (Note 8c) (10,026,594) (10,040,500)
Special drawing rights allocations (Note 8d) (1,469,531) (1,315,504)
 
Total Foreign Exchange Accounts 51,708,538 42,299,109
 
Market value 53,457,209 42,909,580

a)  Investments held in Exchange Fund Account

This account records the moneys advanced from the Government to the Exchange Fund Account, in Canadian and other currencies, for the purchase of gold, foreign currencies and securities, and special drawing rights (SDRs). The Exchange Fund Account is operated under the provisions of the Currency Act. The advances are limited to $60 billion by order of the Minister of Finance dated December 30, 2005.

The following table shows international reserves held in and advances to the Exchange Fund Account:

  2009 2008

    ($ thousands)
US dollar cash on deposits 547,664 213,866
US dollar short-term deposits - 1,372,017
US dollar marketable securities 27,404,794 17,281,066
Euro cash on deposits 272,496 243,965
Euro marketable securities 21,640,775 22,094,526
Japanese yen cash deposits 105,834 85,867
Japanese yen marketable securities - 515,222
Special drawing rights 1,215,313 1,090,424
Gold 7,195 6,441
 
Total Investments held in Exchange Fund Account        51,194,071 42,903,394

b)  Subscriptions to the International Monetary Fund

This account records the value of Canada's subscription ("quota") to the capital of the International Monetary Fund (IMF). The IMF is an international organization of 184 member countries that operates in accordance with its Articles of Agreement. It has a large pool of liquid assets, or resources, comprising convertible national currencies, special drawing rights, and other widely used international currencies provided by its members that it makes available to help members finance temporary balance of payments problems.

Upon joining the IMF and following periodic quota reviews, member countries are assigned a quota, based broadly on their relative size in the world economy.

c)  Notes payable to the International Monetary Fund

This account records non-marketable, non-interest bearing notes issued by the Government to the IMF. These notes are payable on demand and are subject to redemption or re-issue, depending on the needs of the IMF for Canadian currency.

At least 25 per cent of Canada's quota is held by the IMF in a Canadian-dollar cash deposit at the Bank of Canada. The IMF's remaining Canadian-dollar holdings are in the form of non-negotiable, non-interest-bearing demand notes that are cashed by the IMF subject to its requirements for Canadian currency.

d)  Special drawing rights allocations

This account records the value of special drawing rights (SDRs) allocated to Canada by the IMF. A SDR is an international reserve asset created by the IMF to supplement existing official international reserves of member countries. It represents a liability of Canada, as circumstances could arise whereby Canada could be called upon to repay these allocations, in part or in total.

SDR allocations are repayable to the IMF if they are cancelled by the IMF's Board of Governors, the Special Drawing Rights Department is liquidated, the IMF is liquidated, or if Canada chooses to withdraw from the IMF or terminate its participation in the Special Drawing Rights Department.

Canada's SDR allocations are SDR779.3 million.

e)  Notional cost

For the year ended March 31, 2009, the notional cost of funds advanced by the CRF to the Exchange Fund Account is $1,630 million ($1,792 million for the year ended March 31, 2008). The notional cost of advanced funds is comprised of the actual interest costs on foreign denominated debt and cross currency swaps for foreign currency advances, and an imputed interest cost calculated using the average funding rate of outstanding Government of Canada market debt, applicable to the net of Canadian dollar and SDR currency advances.

9.  Investment in Crown Corporations

At March 31, the investment, at cost, is as follows:

  2009 2008

    ($ thousands)
Canada Development Investment Corporation 395,658 395,658
  101 common shares without a par value. The remaining balance of the investment
   represents the Department of Finance Canada's contributed surplus of the Canada
   Hibernia Holding Corporation.
   
Bank of Canada 5,920 5,920
  100,000 shares with a par value of $50 each and $920,000 of premiums paid in
  respect of the acquisition of shares held by the public.
   
Canada Pension Plan Investment Board (CPPIB) - -
  10 shares of the CPPIB at $10 per share, which represents 100 per cent of the
  outstanding shares.
   
 
Total Investment in Crown corporations 401,578 401,578

10.  Crown Borrowings

The Consolidated Borrowing Program was officially launched on April 21, 2008. Crown corporations will no longer be issuing debt in the capital and money markets, rather will be borrowing directly from the Government of Canada. The following table presents details of the Crown Borrowings:

  Face value Unamortized
discounts
(premium)
Net book
value
2009
Net book
value
2008

  ($ thousands)
Farm Credit Canada 11,450,105 (8,016) 11,458,121 3,826,364
Business Development
 Bank of Canada
7,284,000 400 7,283,600 994,774
Canada Mortgage and Housing Corporation 57,680,825 350 57,680,475 -
 
Total Crown Borrowings 76,414,930 (7,266) 76,422,196 4,821,138
   
Market Value   79,410,557 4,828,924

Contractual maturities of unmatured loans by Crown corporations over the next five years, at face value, are as follows:

Maturing year Farm Credit Canada Business Development Bank Canada Mortgage and Housing Corporation 1 Total

  ($ thousands)
2010 6,743,105 3,403,000 316,000 10,462,105
2011 2,954,000 2,184,000 - 5,138,000
2012 424,000 605,000 531,219 1,560,219
2013 488,000 717,000 879,740 2,084,740
2014 541,000 310,000 55,245,641 56,096,641
2015 and beyond 300,000 65,000 708,225 1,073,225
 
  11,450,105 7,284,000 57,680,825 76,414,930

1.  Includes loans of $54,186,763 as of March 31, 2009 made through CMHC for the purchase of National Housing Act Mortgage Backed Securities.

The effective average annual interest rates are as follows:

Farm Credit Canada Business Development Bank Canada Mortgage and Housing Corporation

Short Term fix 0.429% 0.429% 0.497%
Long Term fix 2.918% 2.976% 3.317%
Short Term floating 0.323% 0.323% -
Long Term floating 0.554% 0.350% 1.687%

11.  Other Loans, Investments, and Advances

The following table presents details of other loans, investments, and advances by category:

  Face value Unamortized discounts Net book
value
2009

Net book
value
2008


  ($ thousands)
Government business enterprises        
Notes receivable from Canada Lands Company Ltd.
(Note 11a)
46,561 9,582 36,979 35,652
Note receivable from Parc Downsview Park Inc.
(Note 11b)
19,000 17,105 1,895 1,793
 
  65,561 26,687 38,874 37,445
 
Provincial and territorial governments        
Recoverable overpayments of transfer payments (Note 11c) 3,339,032 421,515 2,917,517 3,031,495
Recoverable overpayments of taxes payable under tax collection agreements (Note 11d) 710,456 105,519 604,937 707,344
Loans to Municipal Development and Loan Board (Note 11e) 315 - 315 360
Loans to the Winter Capital Projects Fund (Note 11f) 2,900 - 2,900 2,900
 
  4,052,703 527,034 3,525,669 3,742,099
 
International and other organizations        
Subscriptions and contributions to the International Development Association(Note 11g) 8,195,938 - 8,195,938 7,811,658
Subscriptions to the European Bank for Reconstruction and Development (Note 11h) 272,690 - 272,690 221,927
Subscriptions to the International Bank for Reconstruction and Development (Note 11i) 419,558 - 419,558 344,508
Loans to the International Monetary Fund’s Poverty Reduction and Growth Facility (Note 11j) 304,346 - 304,346 321,033
Subscriptions to the International Finance Corporation(Note 11k) 102,597 - 102,597 83,498
Subscriptions to the Multilateral Investment Guarantee Agency(Note 11l) 13,537 - 13,537 11,017
Advances to the Global Environment Facility (Note 11m) 10,000 - 10,000 10,000
Investment in loan portfolio acquired from Canadian Commercial Bank (Note 11n) 42,252 - 42,252 43,132
  9,360,918 - 9,360,918 8,846,773
Total 13,479,182 553,721 12,925,461 12,626,317
Less: Allowance for valuation 9,059,472 - 9,059,472 8,528,640
 
Total Other loans, investments, and advances 4,419,710 553,721 3,865,989 4,097,677

Government Business Enterprises

a)  Canada Lands Company Ltd. (CLC)

CLC has acquired an interest in a number of real properties from the government in consideration for the issuance of promissory notes, which bear no interest and are repayable from the proceeds of the sale of the properties in respect of which they were issued. The notes were discounted using the Consolidated Revenue Fund lending rate applicable to Crown corporations and recorded at their discounted value.

b)  ParcDownsview Park Inc.

The promissory note is non-interest bearing and is repayable in full on July 31, 2050.

Provincial and territorial governments

c)  Recoverable overpayments/underpayments of transfer payments

The underpayments / overpayments are non-interest bearing and are paid in subsequent years.

d)  Recoverable overpayments of taxes payable under tax collection agreements

Recoveries are non-interest bearing and will take place over a 10-year period, which started in 2004–05.

e)  Municipal Development and Loan Board

The loans bear interest at rates from 5.25 to 5.375 per cent per annum and are repayable in annual or semi-annual instalments over 15 to 50 years, with final instalments between April 1, 2009, and July 1, 2010.

f)  Winter Capital Projects Fund

The loans bear interest at rates from 7.4 to 9.5 per cent per annum and are repayable either in annual instalments over 5 to 20 years, or at maturity. The loans are fully provisioned.

International and other organizations

g)  International Development Association (IDA)

Contributions and subscriptions to IDA are made in non-negotiable, non-interest-bearing demand notes that are later encashed. During the year, transactions included participation through the issuance of notes payable. As at March 31, 2009, Canada's total participation in IDA amounted to C$8,195.9 million (C$7,811.7 million in 2008). The loans are fully provisioned.

h)  European Bank for Reconstruction and Development

As at March 31, 2009, Canada had paid-in shares valued at US$216,197,668 (US$216,197,668 in 2008). Canada's contingent liability for the callable portion of its shares is US$612,420,000. The loans are fully provisioned.

i)  International Bank for Reconstruction and Development (World Bank)

As at March 31, 2009, Canada subscribed to 44,795 shares. The total value of these shares is US$5,403.8 million, of which US$336 million has been paid in. The remaining portion is callable. The callable portion is subject to call by the Bank under certain circumstances. Canada's contingent liability for the callable portion of its shares is US$5,069 million. The loans are fully provisioned.

j)  International Monetary Fund—Poverty Reduction and Growth Facility

As at March 31, 2009, Canada had lent a total of SDR700,000,000 (SDR700,000,000 in 2008) to the Poverty Reduction and Growth Facility. Of this amount, SDR538,605,953 (SDR509,823,177 in 2008) has been repaid. The outstanding balance of SDR161,394,047 (SDR190,176,823 in 2008) was translated into Canadian dollars at the year-end closing rate of exchange (1 SDR = C$1.88573).

k)  International Finance Corporation

As at March 31, 2009, Canada subscribed to 81,342 shares. These shares have a total value of US$81.3 million, all of which has been paid in. The loans are fully provisioned.

l)  Multilateral Investment Guarantee Agency

As at March 31, 2009, Canada subscribed to 5,225 shares. The total value of these shares is US$56.5 million, of which US$10.7 million is paid in and the remaining portion is callable. The callable portion is subject to call by the Agency under certain circumstances. Canada's contingent liability for the callable portion of its shares is US$45.8 million. The loans are fully provisioned.

m)  Global Environment Facility

Advances to the Global Environment Facility (GEF) are made in non-negotiable, non-interest-bearing demand notes that are later encashed. As at March 31, 2009, advances to the GEF amounted to C$10,000,000. The loans are fully provisioned.

n)  Canadian Commercial Bank

These funds represent the government's participation in the loan portfolio that was acquired from the Bank and the purchase of outstanding debentures from existing holders. The loans are fully provisioned.

12.  Tangible Capital Assets

  Cost Accumulated amortization Net book value

  ($ thousands)

Capital asset class Opening balance Acquisitions Disposals and write-offs Closing balance Opening balance Amortization Disposals and write-offs Closing balance 2009 2008

Machinery and equipment 12,473 2,059 (4,978) 9,554 8,907 1,579 (4,974) 5,512 4,042 3,566
Motor vehicles 101 - (53) 48 83 16 (53) 46 2 18
Leasehold improvements 239 - - 239 239 - - 239 - -
Assets under construction - - - - - - - - - -

Total 12,813 2,059 (5,031) 9,841 9,229 1,595 (5,027) 5,797 4,044 3,584

Amortization expense for the year ended March 31, 2009 is $1,595,463 ($1,632,000 in 2008).

13.  Accounts Payable and Accrued Liabilities

The following table presents details of accounts payable and accrued liabilities:   

2009 2008

    ($ thousands)
Accounts payable—external 304,494 2,590,688
Allowance for guarantees 317,096 428,304
Accounts payable—other government departments and agencies 502,414 392,743
Accrued vacation pay 4,901 5,186
 
Total Accounts payable and accrued liabilities 1,128,905 3,416,921

The Governments of Canada and Ontario have jointly announced assistance to the automotive sector.  The loan agreement between Canada, as represented by the Department of Finance, and the Ontario Financing Authority (OFA), is to facilitate Ontario's one-third participation in the assistance package being provided in the form of loans to the automotive sector.  As of March 31, 2009, the OFA has provided funds to the Department of Finance totalling $83.3 million for the purpose of disbursing the automotive loans. The term loan to the automotive sector ($250 million) has been issued by Foreign Affairs and International Trade. As interest and principal are received by Foreign Affairs and International Trade on the term loan, the corresponding one-third will be remitted to the OFA by the Department of Finance. 

14.  Taxes Payable under Tax Collection Agreements

At March 31, the balance in the accounts pertaining to taxes collectible and payable to provinces, territories and Aboriginal governments under tax collection agreements is as follows:

  2009 2008

  ($ thousands)
Personal income taxes 1,027,223 2,050,830
Corporate income taxes 3,480,149 2,674,900
Harmonized Sales Tax 434,874 384,544
First Nations Goods and Services Tax 870 783
First Nations Sales Tax 417 437
 
Total Taxes payable under tax collection agreements 4,943,533 5,111,494

Pursuant to various tax collection agreements, the Canada Revenue Agency (CRA) collects and administers personal income tax, corporate income and capital taxes, harmonized sales tax, sales tax, and goods and services sales tax on behalf of certain provinces, territories and Aboriginal governments, and the Department of Finance Canada remits related payments to the applicable government. Given that the Government of Canada reports information on a fiscal year basis while tax information is calculated on a calendar year basis, there can be transactions related to several tax years during any given fiscal year. Taxes payable therefore include amounts assessed, estimates of assessments based upon cash received, adjustments from reassessments, and adjustments relating to previous tax years payable to provincial, territorial and Aboriginal governments.

15.  Interest Payable

The following table presents details of interest payable:

    2009 2008

    ($ thousands)
Domestic bonds 4,389,110 4,164,454
Retail debt 2,378,896 2,690,795
Foreign bonds 71,235 235,048
 
Total Interest payable 6,839,241 7,090,297

16.  Notes Payable to International Organizations

Non-interest bearing demand notes are issued in lieu of cash in respect of subscriptions and contributions to international organizations. The notes are presented for encashment according to their terms of agreement.

At March 31, the amount outstanding is as follows:

  2009 2008

  ($ thousands)
International Development Association 384,280 318,280
International Bank of Reconstruction and Development 30,250 24,618
Multilateral Investment Guarantee Agency 4,046 3,293
European Bank for Reconstruction and Development 1,838 4,488
 
Total Notes payable to international organizations 420,414 350,679

17.  Matured Debt

Matured debt consists of debt that has matured but has not yet been redeemed.

At March 31, the amount outstanding is as follows:

  2009 2008

  ($ thousands)
Retail debt (matured from 1992 to 2009) 66,078 76,641
Marketable bonds (matured from 1992 to 2009) 13,461 14,466
Treasury bills (matured from 1977 to 1996) 591 591
 
Total Matured debt 80,130 91,698

18.  Unmatured Debt and Other Financial Instruments

The Department of Finance Canada borrows in both domestic and international markets on behalf of the Government of Canada.

Domestic debt consists of Treasury bills, marketable bonds, retail debt, and bonds for Canada Pension Plan.

The Treasury bills balance at March 31, 2009, consists of $8 billion in odd issue bills, $68.6 billion in three-month bills, $44 billion in six-month bills, and $71.9 billion in 364-day bills.

Retail debts include Canada Savings Bonds which are redeemable on demand by the holder, with accrued interest calculated to the end of the previous month; no interest is paid if redeemed during the first three months following the date of issue.

Bonds for Canada Pension Plan and notes are interest-bearing certificates of indebtedness issued by the Government of Canada exclusively to the CPP Investment Fund and are redeemable at face value plus accrued interest.

Foreign debt is issued by the Government of Canada under the government's foreign currency borrowing program. It consists of marketable bonds; Canada notes; Canada bills; and euro medium-term notes. Marketable bonds include bonds assumed by Finance Canada on February 5, 2001, on the dissolution of Petro-Canada Limited.

Marketable bonds are either issued in US dollars and or in euro dollars. They are issued to provide long term foreign funds.

Canada bills are short-term certificates of indebtedness issued in the US money market.

Canada notes are issued in Japanese yen to provide additional source of medium-term foreign funds.

Euro medium-term notes are issued in the euro and thus provide Canada with an additional source of medium-term foreign funds.

At March 31, unmatured debt is composed of the following:

Face value Unamortized
discounts
(premiums) 
Net book
value
2009
Net book
value
2008

  ($ thousands)
Domestic debt:        
  Treasury bills 192,500,000 714,837 191,785,163 115,805,274
  Marketable bonds 295,321,840 4,022,183 291,299,657 248,787,623
  Retail debt 12,531,768 - 12,531,768 13,068,208
  Bonds for Canada Pension Plan 523,003 - 523,003 1,042,363
   
    500,876,611 4,737,020 496,139,591 378,703,468
   
         
Foreign debt:        
  Marketable bonds 265,780 - 265,780 6,096,489
  Canada notes - - - 515,251
  Canada bills 8,707,823 13,817 8,694,006 1,478,269
  Euro medium‑term notes 1,675,500 (62) 1,675,562 1,621,300
   
    10,649,103 13,755 10,635,348 9,711,309
   
  511,525,714 4,750,775 506,774,939 388,414,777
 
   
Less: Securities held for the retirement of unmatured foreign debt (267,863) (218,081)
       
        506,507,076 388,196,696
       
Cross‑currency revaluation :    
  Payables 40,014,072 32,722,130
  Receivables 36,324,093 34,141,982
       
  3,689,979 (1,419,852)
       
Total Unmatured debt     510,197,055 386,776,844
       
Domestic debt market value     550,969,884 422,872,124
       
Foreign debt market value     10,457,232 9,813,367

Contractual maturities of unmatured debt by currency over the next five years, at face value, are as follows:

Maturing year Canadian
dollars[1] 
US dollars[2] Euro[3] Total

2010 214,689,292 8,906,976 1,675,500 225,271,768
2011 32,535,147 - - 32,535,147
2012 30,964,195 - - 30,964,195
2013 18,485,885 - - 18,485,885
2014 26,027,199 - - 26,027,199
2015 and beyond 178,174,893 66,627 - 178,241,520
 
  500,876,611 8,973,603 1,675,500 511,525,714

1. Includes Treasury bills, marketable bonds, retail debt and bonds for Canada Pension Plan.
2. Includes marketable bonds issued in US dollars and Canada bills.
3. Includes euro medium-term notes issued in euro.

The effective average annual interest rates are as follows:

  2009 2008

  (in %)
Treasury bills 1.34 3.60
Marketable bonds—domestic 4.53 5.11
Retail debt 2.32 3.50
Bonds for Canada Pension Plan 11.03 10.62
Marketable bonds—foreign 8.63 4.65
Canada bills 0.64 2.59
Foreign currency notes 4.50 3.87

19.  Derivative Financial Instruments

a) Swap agreements

Government debt is issued at both fixed and variable interest rates and is denominated in Canadian dollars, US dollars and other currencies. The government has entered into interest rate and cross-currency swap agreements to facilitate management of its debt structure. In the case of interest rate swap agreements, fixed interest rate funding has been converted to variable rates tied to the Banker's Acceptance rates of London Interbank Offered Rates (LIBOR). In the case of 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 government does not enter into swap agreements for speculative purposes.

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.

Swaps with contractual, notional principal amounts outstanding at March 31, are as follows:

  2009 2008
 
Maturing year Interest rate swaps Cross-currency swaps Interest rate swaps Cross-currency swaps

  ($ thousands)
2009 - - 1,231,800 2,548,525
2010 - 3,893,065 - 3,592,238
2011 - 3,000,427 - 2,803,567
2012 - 2,629,852 - 2,236,428
2013 - 3,452,143 - 2,713,258
2014 - 4,285,830 - 3,144,128
2015 and beyond - 22,752,755 - 14,452,186
 
  - 40,014,072 1,231,800 31,490,330

b) Credit risk to swap agreements

The government manages its exposure to credit risk by dealing principally with financial institutions having credit ratings from at least two recognized rating agencies, one of which must be Moody's or Standard & Poor's. At the time of inception of the agreement, the credit rating of the institution must be at least A–.

The government does not have a significant concentration of credit risk with any individual institution and does not anticipate any credit loss with respect to its swap agreements.

The following table presents the notional amounts of the swap agreements by ratings assigned by Standard & Poor's:

  2009 2008

  ($ thousands)
AA+ - 5,212,000
AA 5,155,352 11,982,000
AA– 14,397,122 9,827,130
A+ 6,279,542 5,496,000
A 4,947,669 205,000
A– 3,385,135 -
BBB 5,849,252 -
40,014,072 32,722,130

c) Fair value of financial instruments

The following tables present the carrying value, notional value and the fair value of financial instruments. Fair values are government estimates and are generally calculated using market conditions at a specific point in time where a market exists. Fair values of instruments with a short lifespan or of a non-negotiable nature are assumed to approximate carrying values. Fair values may not reflect future market conditions nor the actual values obtainable should the instrument be exchanged on the market. The calculations are subjective in nature and involve inherent uncertainties due to unpredictability of future events.

  2009 2008
 

  Carrying value Fair value Difference Carrying value Fair value Difference

  ($ thousands)
Foreign exchange Accounts 51,708,538 53,457,209 1,748,671  42,299,109 42,909,580 610,471
Crown Borrowings 76,422,196 79,410,557 2,988,361 4,821,138 4,828,924 7,786
 
Unmatured debt 510,197,055 561,427,116 51,230,061 386,776,844 432,685,491    45,908,647

 

  2009 2008
 
  Notional value Fair value Notional value Fair value
Interest rate and cross-currency swaps 40,014,072 (2,225,102) 32,722,130 2,027,930

Fair value of the swap 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 future cash flows of the swap agreements by using fiscal 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.

20.  Credit Risk

Interest rate and foreign currency risks are managed using a strategy of matching the duration structure and the currency of the Exchange Fund Account (EFA) assets and the related foreign currency borrowings of the Government of Canada. As at March 31, 2009, the EFA assets and the liabilities funding these assets were effectively matched, which means that most price changes would affect both sides of the statement of financial position equally. Assets related to the International Monetary Fund are only partially matched, as they are denominated in SDRs.

The Government of Canada's foreign currency assets and liabilities are held in mainly three currency portfolios: the US dollar, the euro, and the Japanese yen. At March 31, 2009, a one per cent appreciation of the Canadian dollar versus the US dollar, the euro, and the Japanese yen would have resulted in a foreign exchange gain of $17.3 million due to the unmatched exposure of the US dollar portfolio and in a foreign exchange loss of $2.5 million to the unmatched exposure of the euro portfolio. The Japanese yen portfolio was matched in terms of currency exposure at March 31, 2009.

21.  Other Liabilities

The following table presents details of other liabilities:

  2009 2008

    ($ thousands)
Deposits:
  Canada Hibernia Holding Corporation (Note 21a) 93,506 78,478
  Canada Eldor Inc. (Note 21b) 44,275 43,500

137,781 121,978
Other Liabilities:    
  Quebec Youth Allowances Recovery prepayment - 336,000
  Common School Funds—Ontario and Quebec (Note 21c) 2,678 2,678
  Foreign Claims Fund (Note 21d) 179 179
  War Claims Fund—World War II (Note 21e) 4 4
 
Total Other Liabilities 140,642 460,839

The deposits from the two wholly owned subsidiaries of the CDIC are interest bearing and are repayable.

a)  Canada Hibernia Holding Corporation—Abandonment reserve fund

This account was established to record funds that will be used to defray the future abandonment costs that will occur at the closure of the Hibernia field.

b)  Canada Eldor Inc.—Holdback—Privatization—CDIC

This account was established pursuant to subsection 129(1) of the Financial Administration Act. This special purpose money is to be used to meet costs incurred on the sale of Crown corporations and demand for payment by purchasers pursuant to the acquisition agreement and costs incurred by the CDIC in connection with their sale.

c)  Common School Funds—Ontario and Quebec

This account was established under12 Victoria 1849, Chapter 200, to record the proceeds from the sale of lands set apart for the support and maintenance of common schools in Upper and Lower Canada, now Ontario and Quebec. Interest of $133,889—apportioned on the basis of population—is paid directly to these provinces on a semi-annual basis, at the rate of 5 per cent per annum, and is charged to interest on the public debt.

d)  Foreign Claims Fund

This account was established by Vote 22a, Appropriation Act No. 9, 1966, to record (a) such part of the money received from the Custodian of Enemy Property, proceeds of the sale of property, and the earnings of property and (b) all amounts received from governments of other countries pursuant to agreements entered into after April 1, 1966, relating to the settlement of Canadian claims and also records payment of claims submitted, including payment of the expenses incurred in investigating and reporting on such claims.

e)  War Claims Fund—World War II

This account was established by Vote 696, Appropriation Act No. 4, 1952, to record monies received from the Custodian of Enemy Property or from other sources and payments (a) to eligible claimants for compensation in respect of World War II; (b) of a supplementary award amounting to 50 per cent of the original award (PC 1958-1467, October 23, 1958); and (c) of expenses incurred in investigating and reporting on claims. The War Claims Commission was established to enquire into and report on claims made by Canadians arising out of World War II for which compensation may be paid from this fund. The expenses of the Commission are chargeable hereto.

22.  Employee Benefits

a)  Pension benefits

Employees of the Department of Finance Canada participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 per cent per year of pensionable service times the average of the best five consecutive years of earnings. The benefits are integrated with the Canada and Quebec Pension Plan benefits and they are indexed to inflation.

Employees and the Department contribute to the cost of the Plan. The expense amounted to $8,253 thousand in 2008-09 ($8,824 thousand in 2007-08), which represents approximately 2.0 times (2.1 times in 2008-09) the contributions made by employees. The responsibility of the Department of Finance Canada with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

b)  Severance benefits

The Department of Finance Canada provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows.

  2009 2008

    ($ thousands)
Accrued benefit obligation, beginning of year 12,800 13,604
Expense for the year 4,579 841
Benefits paid during the year (1,283) (1,645)
 
Accrued benefit obligation, end of year 16,096 12,800

23.  Contingent Liabilities

a)  Claims and litigations

In the normal course of its operations, the Department of Finance Canada becomes involved in various claims or legal actions. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that 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 in the financial statements.

As at March 31, 2009, the Department of Finance Canada has contingent liabilities of $75 million ($75 million in 2008 as restated) based on the Department's legal assessment of the potential exposure. The existence and amount of the liability depend upon the future outcome of these legal actions, which are not currently determinable. No accrual for these contingent liabilities has been made in the financial statements.

b)  Callable share capital

The Department of Finance Canada has callable share capital in certain international organizations that could require payments to those organizations. At March 31, 2009, callable share capital is $7,224 million ($5,879 million in 2008).

c)  Loan guarantees

Mortgage Insurance

The Department of Finance Canada guarantees loans insured by the Genworth Financial Mortgage Insurance Company Canada, AIG United Guaranty and PMI Mortgage Insurance Company Canada. At March 31, 2009, the contingent liability related to the guarantees is $1,636 million ($1,576 million in 2008). Losses on loan guarantees are recorded in the accounts when it is likely that a payment will be made to honour a guarantee and where the amount of the anticipated loss can be reasonably estimated. The amount of the allowance for losses is determined by taking into consideration historical loss experience and current economic conditions.

Canadian Wheat Board

The Department of Finance Canada manages guarantees to the Canadian Wheat Board for the repayment of the principal and interest of all receivables resulting from sales made under the Credit Grain Sale Program for an amount of $274 million ($854 million in 2008) and a portion of credit sales made under the Agri-Food Credit Facility, which amounted to $58 million ($70 million in 2008).

Export Development Canada

The Department of Finance Canada administers the government's compensation arrangement regarding Export Development Canada's sovereign loans and guarantees. Under this arrangement, the government fully compensates Export Development Canada for the cost of existing debt reduction commitments and shares losses with Export Development Canada on new debt reduction on obligations contracted before March 31, 2001. The government has also agreed to share losses with Export Development Canada in the event of unilateral debt reduction on debts contracted after March 31, 2001. Total funds covered under this agreement amount to $1,332 million ($1,286 million in 2008). A total liability of $317 million as at March 31, 2009 ($428 million in 2008) was recorded.

d)  Canadian Lenders Assurance Facility (CLAF) / Canadian Life Insurers Assurance Facility (CLIAF)

The Canadian Lenders Assurance Facility (CLAF) and the Canadian Life Insurers Assurance Facility (CLIAF) is a component of Canada's implementation of the G7 Plan of Action to stabilize financial markets, restore the flow of credit and support global economic growth.

The purpose of the CLAF is to ensure that Canadian financial institutions are not put at a competitive disadvantage when raising funds in the wholesale markets. Under the CLAF, the Government has agreed to provide a guarantee for up to three years on certain debt instruments issued by banks and other eligible deposit-taking institutions in consideration for an annual fee ranging from 110 to 155 basis points.  It is up to each institution to decide whether or not to apply to participate in the program. The period for issuance of guaranteed instruments under the CLAF expires on December 31, 2009. As at March 31, 2009 no amount has been guaranteed by the Department of Finance Canada.

The purpose of the CLIAF is to ensure that life insurers, who access credit and compete for business at a global level, are not put at a competitive disadvantage relative to foreign insurers that benefit from guarantee programs provided by their home governments. The CLIAF will provide insurance companies with the wholesale term borrowing of federally regulated life insurance companies. A fee for the guaranteed amount sought will be calculated and charged to the applicant for each Guarantee Certificate when the related guaranteed instrument is issued. The fee will range from 110 to 180 basis points. The facility will be modeled after the CLAF. As at March 31, 2009 no amount has been guaranteed by the Department of Finance Canada.

e)  Canadian Asset Backed Commercial Paper – Senior Funding Facility

On January 21, 2009, the Government of Canada, in partnership with the governments of Quebec, Alberta and Ontario and the Caisse de Dépôt et Placement du Québec confirmed their commitment to provide a Senior Funding Facility (SFF) as part of the court-approved restructuring agreement for Canadian asset-backed commercial paper (ABCP) (Montreal Accord).  The Senior Funding Facility provides a liquidity backstop in the event of collateral calls related to the restructured ABCP notes that is senior to other Margin Funding Facilities and the amount of the original notes. The notes are financial instruments with maturities that average seven years.  The new note structure is in the form of trusts called "Master Asset Vehicles", of which there are three distinct pools of investments (MAV1, MAV2, and MAV3).  The Government of Canada's commitment to the SFF is $1.85 billion of the $3.45 billion facility, of which $550 million is, if drawn, subject to guarantees of repayment from the Provinces of Ontario and Alberta.  The SFF commitment supports MAV1 and MAV2. As a supplement to other agreed liquidity facilities, the purpose of the SFF is to provide assurance to holders of the right to call for additional collateral underlying the original ABCP notes that, in the very remote event that certain credit market indices exceed agreed trigger levels, such additional collateral would be provided.  The Government will receive a commitment fee of 1.19% per annum until December 2016 in respect to its net credit commitment of $1.3 billion. The SFF facility will expire in August 2010, one month following the expiry of an agreed moratorium on collateral calls, unless an amount has been drawn down and remains unpaid at that date.  Any advances made under this facility will bear interest at a rate based on 0.3% plus the average rate for Canadian Dollar Bankers Acceptances rate for the period.  The interest and principal on any amounts drawn from the Senior Funding Facility will be repaid prior the relevant Margin Funding Facility and the notes issued by the vehicles in question.  During the post-moratorium period, from July 17, 2010 to August 16, 2010, the Government of Canada has the option, at its sole discretion, but shall not be required under any circumstances, to provide further commitments of collateral support to prevent a termination event in respect of the restructured notes.  Each additional amount would be subject to the same terms and conditions as the present commitment.

24.  Contractual Obligations

The nature of the Department's activities can result in some large multi-year contracts and obligations whereby the Department of Finance Canada will be obligated to make future payments when the services or goods are received.

Significant contractual obligations that can be reasonably estimated are summarized as follows:

  2010 2011 2012 2013 2014 and thereafter Total

  ($ thousands)
Undisbursed Loans
and Advances
           
  International Development
  Association
384,000 384,000 - - - 768,000
Transfer Payments            
  International Development   Association 51,000 51,000 51,000 51,000 1,220,000 1,424,000
  African Development Fund - - - - 416,000 416,000
 
Total Contractual
Obligations
435,000 435,000 51,000 51,000 1,636,000 2,608,000

25.  Related Party Transactions

The Department of Finance Canada is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department of Finance Canada enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, during the year, the Department received services that were obtained without charge from other government departments as presented below.

Services provided without charge

During the year, the Department of Finance Canada received without charge from other departments, accommodation, legal fees, and the employer's contribution to employee health and dental insurance plans. These services without charge have been recognized in the Department's statement of operations as follows:

The Government of Canada has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all departments without charge. The cost of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor

  2009 2008

  ($ thousands)
Accommodation 7,521 7,416
Employer's contribution to employee health and dental insurance plans 5,988 4,755
Legal services 4,247 3,850
 
Total 17,756 16,021

General, are not included as an expense in the statement of operations.

26.  Additional Information

Canadian Secured Credit Facility (CSCF)

The Canadian Secured Credit Facility (CSCF) was announced in Budget 2009 to purchase up to $12 billion of term asset-backed securities backed by loans and leases on vehicles and equipment.  The facility is managed by Business Development Bank of Canada (BDC) within parameters jointly developed by the Department of Finance, Industry Canada, and BDC following a consultation process.  The program was designed to reflect reasonable commercial terms and to encourage the return of a secondary market for this type of asset-backed security.  Allocations totaling $11 billion were made under the CSCF in two tranches in May and June. Through July 31, 2009 no drawings on these allocations had been made. The balance of available funds will be made available in a subsequent allocation to take place in August 2009.

27.  Comparative Information

Comparative figures have been reclassified to conform to the current year's presentation.

28.  Subsequent Events

International Monetary Fund (IMF) Commitment

On July 8, 2009, the Government of Canada and the IMF signed a bilateral borrowing agreement, up to US $10 billion, between Canada and the IMF for additional temporary resources for member countries requiring balance of payment assistance during the economic crisis.