Department of Finance Canada Financial Statements (Unaudited): 2024

For the year ended March 31, 2024

Statement of Management Responsibility including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2024, and all information contained in these financial statements rests with the management of the Department of Finance Canada (the department). These financial statements have been prepared by management using the Government of Canada's accounting policies, which are based on Canadian public sector accounting standards.

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 fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department's Departmental Results Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training, and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the department and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments. A risk-based assessment of the system of ICFR for the year ended March 31, 2024 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the Annex.
The effectiveness and adequacy of the department's system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the department's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting.

The financial statements of the department have not been audited.

Chris Forbes, Deputy Minister
Christopher Veilleux, Chief Financial Officer
Ottawa, Canada.
December 13, 2024 

Chris Forbes, Deputy Minister
Christopher Veilleux, Chief Financial Officer
Ottawa, Canada.
December 13, 2024

 

Department of Finance Canada
Statement of Change in Departmental Net Debt (Unaudited)
For the Year Ended March 31

 

Notes to the Financial Statements (Unaudited)

1. Authority and objectives

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

The department is responsible for the overall stewardship of the Canadian economy. This includes preparing the annual federal budget, as well as advising the government on economic and fiscal matters, tax and tariff policy, social measures, security issues, financial stability and Canada's international commitments. The department plays an important central agency role, working with other departments to ensure that the government's agenda is carried out and that ministers are supported with high-quality analysis and advice.

The department's responsibilities include the following:

• preparing the federal budget and the Update of Economic and Fiscal Projections;
• developing tax and tariff policy and legislation;
• managing federal borrowing on financial markets;
• designing and administering major transfers of federal funds to the provinces and territories;
• developing financial sector policy and legislation;
• representing Canada in various international financial institutions and groups; and
• preparing the Annual Financial Report of the Government of Canada and, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for Canada, the Public Accounts of Canada.

To achieve its strategic outcome the department articulates its plans and priorities based on its core responsibility of Economic and Fiscal Policy, determined in accordance with the Departmental Results Framework, and its Internal Services functions.

Economic and Fiscal Policy: To develop the federal budget and Economic and Fiscal Update, as well as provide analysis and advice to the government on economic, fiscal and social policy; federal-provincial relations, including the transfer and taxation payments; the financial sector; tax policy; and international trade and finance.

Internal Services: Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet the corporate obligations of an organization. Internal Services are comprised of the following 10 service categories: acquisition management, communications, financial management, human resources management, information management, information technology, legal, management and oversight, materiel management, and real property management.

2. Summary of significant accounting policies

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

Measurement basis

These financial statements have been prepared on a historical cost basis, except for the following:

• financial instruments, other than derivatives, are measured at cost or amortized cost; and
• derivatives are measured at fair value.

The department's significant accounting policies are as follows:

a) Parliamentary authorities

The department is financed by the government through parliamentary authorities. Financial reporting of authorities provided to the department does not parallel financial reporting under generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position (Statement of Operations) and the Statement of Financial Position are not necessarily the same as those provided through authorities from the Parliament of Canada. Note 4 provides a reconciliation between these financial statements and the parliamentary authorities provided to the department.

The planned results presented in the Statement of Operations are the amounts reported in the Future-oriented Statement of Operations included in the 2023-24 Departmental Plan.

b) Net cash provided (to) by government

The department 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 (to) by government is the difference between all cash receipts and all cash disbursements, including transactions between departments of the government and with Crown corporations.

c) Due from Consolidated Revenue Fund

Amounts due from the CRF result from timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the department is entitled to draw from the CRF without further authorities to discharge its liabilities.

d) Financial instruments

Classification and measurement

The department classifies its financial instruments according to their measurement bases, in the following categories:  i) cost or amortized cost; and ii) fair value.

Financial instrument classification as at March 31, 2024 is summarized in the following table.

Recognition and derecognition

Financial assets and liabilities are recognized when the department becomes party to the contractual provisions of instruments.

Purchases and sales of securities through a recognized exchange or securities market are recognized at the trade date.

For financial instruments measured at cost or amortized cost, transaction costs are included in the carrying value upon initial recognition, while for instruments measured at fair value, transactions costs are expensed.

The department derecognizes a financial liability, or parts thereof, when the liability is extinguished through payment of the obligation or the department is otherwise legally released from the liability.

Statement of remeasurement gains and losses

The Statement of Remeasurement Gains and Losses records changes in the fair value of financial instruments classified in the fair value category until the instruments are derecognized. When instruments are derecognized, the accumulated remeasurement gains or losses are removed from the Statement of remeasurement gains and losses and reclassified to the Statement of operations.

Effective interest method

Interest revenue and interest expense are determined using the effective interest method.

The effective interest method (EIM) allocates interest revenue and expense over the life of the related instrument. Under the EIM, interest revenue and expense is calculated by applying the effective interest rate (EIR) to the carrying amount of the instrument. The EIR is the rate that exactly discounts the estimated future cash receipts or payments through the expected life of the instrument or, when appropriate, a shorter period to the net carrying amount of the instrument.

Fair value measurements

Fair value measurements for financial instruments in the fair value category are classified according to a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy classifies fair value measurements in one of three levels, as follows:

• Level 1:  unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2:  inputs other than quoted prices included in Level 1, which are observable for the assets or liabilities either directly or indirectly (e.g., interest rates, credit spreads); and
• Level 3:  unobservable inputs for the assets or liabilities that are not based on observable market data (e.g., market participant assumptions).

The department uses observable market inputs to measure fair value where such inputs exist. A financial instrument is classified based on the lowest level input that is considered significant to the fair value measurement.

e) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollars using rates of exchange in effect at the time of the transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect at the year-end date. Gains and losses resulting from foreign currency transactions are included in revenues or expenses in the Statement of Operations. 

The department elects to recognize all exchange gains and losses resulting from foreign currency transactions in the Statement of Operations including those exchange gains and losses arising prior to settlement or derecognition.

f) Revenues

• Revenues are reported on an accrual basis.
• Interest income is recognized using the effective interest method.
• Interest on bank deposits is recognized as revenue when earned.
• Investment income other than interest income is recognized as revenue in accordance with the terms and conditions of underlying agreements or relevant legislation, as applicable.
• Sales of domestic coinage are recognized in the period in which the sales occur.
• Net foreign currency gains are determined by reference to prevailing exchange rates at the time of the transaction and at the year-end date, as applicable, on foreign-currency denominated items.
• Fees for risk exposure are recognized when earned and are determined by reference to the terms of the guarantee program or underlying contract.
• Uncashed Receiver General cheques, warrants and bank account cheques for all departments and agencies are recognized as revenue of the department if they remain outstanding for 10 years after the date of issue.
• Unclaimed matured bonds are recognized as revenue if they remain unredeemed for 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 for balances under $1,000, and for 100 years for balances over $1,000.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
• Revenues earned on behalf of government are non-respendable revenues which are not available to discharge the department's liabilities. While the Deputy Minister of the department is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are presented as a reduction of the department's gross revenues.

g) Expenses

• Expenses are reported on an accrual basis.
• Interest expense is recognized using the effective interest method (EIM). For debt classified as cost or amortized cost, transaction costs (including debt issuance costs), if any, are included net in the carrying amount at initial recognition and amortized to interest expense using the EIM. Debt servicing costs are expensed as incurred and presented in interest and other costs.
• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established therefore. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
• Operating expenses are recognized as incurred.
• The cost of domestic coinage sold is recognized in the period in which the related sale occurs.
• Net foreign currency losses are determined by reference to prevailing exchange rates at the time of the transaction and at the year-end date, as applicable, on foreign-currency denominated items.
• Vacation pay and compensatory leave are accrued as they are earned by employees under their respective terms of employment.
• Services provided without charge by other Government departments for accommodation, employer contributions to health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.
• Expenses include amortization of tangible capital assets used in operations, which are amortized on a straight-line basis over the estimated useful life of the assets.

h) Employee future benefits

Employee future benefits include pension benefits and severance benefits.

Pension benefits: Eligible employees participate in the Public Service Pension Plan (the plan), a multiemployer pension plan sponsored and administered by the government. The department's financial obligation with regard to the plan is limited to its contributions. The department's contributions to the plan are charged to expenses in the year incurred and represent the department's total obligation to the plan. Actuarial surpluses or deficiencies are recognized in the financial statements of the government, the plan sponsor.

Severance benefits: The accumulation of severance benefits for voluntary departures ceased for applicable employee groups. The remaining obligation for employees who did not withdraw benefits in cash is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the government as a whole.

i) Coin inventory

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

j) Accounts receivable

Accounts receivable are stated at the lower of amortized cost and net recoverable value. A valuation allowance is recorded for accounts receivable where recovery is considered uncertain.

k) Foreign exchange accounts

Short-term deposits, marketable securities, and special drawing rights held in the foreign exchange accounts are recorded at amortized cost using the effective interest method. Purchases and sales of securities are recognized at the trade date.  Write-downs to reflect other than temporary impairment in the fair value of securities, if any, are included in the net foreign currency gain or loss in the Statement of Operations.

Subscriptions to, allocation of special drawing rights by, notes payable to, and loans receivable from the International Monetary Fund are recorded at cost.

l) Loans receivable

Loans receivable, including loans to Crown corporations and other loans receivable, are initially recorded at cost and, where applicable, are adjusted to reflect the concessionary terms of those loans made on a long-term, low interest, and/or interest-free basis. An allowance for valuation is used to reduce the carrying value of loans receivable to the amount that approximates their net recoverable value. The allowance is determined based on estimated probable losses that exist for the remaining portfolio.

Loans receivable are measured at amortized cost subsequent to initial recognition.

When the terms of a loan are concessionary, such as those provided with low or no interest, the loan is initially recorded at its estimated net present value, with an immediate loss recognized in the Statement of Operations. The resulting discount is amortized to revenue to reflect the change in the present value of loans outstanding.

m) Investments and capital share subscriptions

Investments and capital share subscriptions are recorded at cost, net of valuation allowances. Allowances are determined based on a combination of expected return and likelihood of capital recovery. Given their nature, investments in certain international institutions are not expected to generate direct financial returns, and hence are not expected to be recovered. In such cases, allowances for non-recovery are established against the investments.

n) Derivative financial instruments

Derivative financial instruments (derivatives) are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates, fair values or other specified financial measures. The derivatives to which the department is party include cross-currency swap agreements, foreign exchange forward contracts, and certain indemnity agreements between the department and the Bank of Canada under which the department will receive (reimburse) any gains (losses) the Bank incurs on dispositions of securities by the Bank under the Government of Canada Bond, Corporate Bond and Provincial Bond Purchase Programs (bond purchase programs).

Derivatives are measured at fair value in the Statement of Financial Position, with changes in fair value, except for any related exchange gain or loss components, recognized in the Statement of Remeasurement Gains and Losses. Exchange gains or losses are recognized in the Statement of Operations. When derivatives are derecognized, any cumulative gain or loss, other than that relating to foreign exchange, is transferred from the Statement of Remeasurement Gains and Losses to the Statement of Operations.

In the Statement of Operations,interest income and expense on cross-currency swaps are presented in interest on unmatured debt.

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 investments held by the Exchange Fund Account. For foreign exchange forward contracts, any exchange gains or losses are offset by the exchange gains or losses on loan balances with the International Monetary Fund.

Embedded derivatives

Embedded derivatives are recognized separately from host contracts and accounted for as derivatives assets or liabilities when all of the following conditions are met: (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the combined instrument is not measured at fair value.

o) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are initially recorded in the Statement of Financial Position at their acquisition cost. The department does not capitalize intangibles; works of art and historical treasures that have cultural, aesthetic or historical value; assets located on reserves as defined in the Indian Act; and museum collections.

Amortization of tangible capital assets is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

p) Debt

Debt is initially recognized in the Statement of Financial Positionat the net proceeds received from issuance and net of transaction costs, which include debt issuance costs, if any.

Resulting premiums and discounts are amortized using the effective interest method over the period to maturity.
For each series of real-return bonds issued, semi-annual interest and the principal payable upon maturity are indexed to the cumulative change in the consumer price index (CPI) for Canada relative to the CPI applicable to the original issue date of the series.

The estimated future cash flows of interest and principal are revised as at each reporting period using the latest available CPI applicable to each series. The carrying amount of the real-return bonds liability recognized in the Statement of Financial Position is adjusted to be the present value of the revised cash flows as at each reporting date, discounted using the effective interest rate. The resulting adjustment to the carrying amount of the liability is recognized as a gain or loss in Interest on unmatured debt in the Statement of Operations.

Debt that has reached its contractual maturity but which has not yet been repaid is reclassified at its face value from unmatured debt to matured debt.

Exchange or repurchase of debt

When a marketable bond is exchanged or repurchased, and the transaction results in an extinguishment of the debt, the difference between the carrying amount of the debt and the net consideration paid is recognized in the Statement of Operations.

An extinguishment occurs on the repurchase of bonds, or when there is an exchange of bonds with an existing bond holder and the terms of the original debt and the replacement debt are substantially different. Exchanged bonds are considered to have substantially different terms when the discounted present value of the cash flows under the new terms, including any amounts paid on the exchange and discounted using the average effective interest rate of the original debt, is at least 10% different from the discounted present value of the remaining cash flows of the original debt.

If an exchange of bonds with an existing bond holder does not result in an extinguishment, the carrying amount of the debt is adjusted for any amounts paid on the exchange, and the unamortized premiums or discounts relating to the original debt and arising on the exchange transaction are amortized over the remaining term to maturity of the replacement debt. The effective interest method is used to amortize unamortized premiums or discounts.

q) Long-term annuity liability

The long-term annuity liability is measured at amortized cost in the Statement of Financial Position using the effective interest method.  At initial recognition, the long-term annuity liability was measured as the present value of estimated future net cash flows, discounted using the applicable rates as at the date of initial recognition. Changes in estimated future cash flows adjust the long-term annuity liability by the present value of the changes, discounted using the original effective interest rate, with a corresponding adjustment recognized in the Statement of Operations. Interest expense from the accretion of the liability each period is recognized as an expense in the Statement of Operations. For presentation purposes, the adjustments in estimated future cash flows and interest expense are included in transfer payments expense in the segmented information note (note 28). 

r) Collateral under cross-currency swap agreements

Where the government receives collateral from a swap counterparty in the form of cash, deposit liabilities are recognized in the Statement of Financial Position until the collateral is either returned to the counterparty or the counterparty defaults under the swap agreement. Collateral received by the government in the form of securities pledged by a counterparty are not recognized as assets. Collateral provided by the government in the form of cash is recorded as a separate asset, cash held as collateral, in the Statement of Financial Position. Where the government posts collateral in the form of securities, the securities remain recognized in the Statement of Financial Position.

s) Deposit liabilities

Deposits that are repayable on demand, and collateral in the form of cash received by the government under its cross-currency swap agreements, are recorded as deposit liabilities at cost.

t) Liabilities owed and financial assets held on behalf of government

Liabilities owed and financial assets held on behalf of government are presented in these financial statements as the Deputy Minister of the department must maintain accounting control over them. However, deductions are made for these items in arriving at the department's net liabilities and net financial assets in the Statement of Financial Position.

The classification of financial assets as being held on behalf of the government is determined based on the (i) availability of the assets to discharge the department's liabilities; and (ii) the ability to increase holdings of the assets without further authority from parliament. Financial assets that do not meet both of these criteria are considered to be held on behalf of the government. Certain liabilities that directly fund such assets are considered to be owed on behalf of the government.

u) Related party transactions

Related party transactions, other than inter-entity transactions, are recorded at the exchange amount.

Inter-entity transactions are transactions between entities under common control. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and measured at the carrying amount, except for the following:

• services provided or received on a recovery basis are recognized as revenues and expenses, respectively, on a gross basis and measured at the exchange amount; and
• certain services received on a without-charge basis are recognized as expenses at the estimated cost of the services received.

v) Contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occurs or fails 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.

Provisions for liabilities arising under the terms of a loan guarantee program are established when it is likely that a payment will be made and an amount can be estimated.

w) Contingent assets

Contingent assets are possible assets which may become actual assets when one or more future events occurs or fails to occur. If the future confirming event is likely to occur, the contingent asset is disclosed in the notes to the financial statements.

x) Measurement uncertainty

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities, revenues and expenses. At the time of preparation of these statements, management believes these estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, valuation allowances for loans receivable, valuation allowances for investments and capital share subscriptions, discounts on loans receivable, accruals of taxes receivable and taxes payable under tax collection agreements, the liability for employee future benefits, the estimated future cash flows of the long-term annuity liability, and the fair value of financial instruments. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and any necessary adjustments are recognized or disclosed in the financial statements in the year they become known.

3. Parliamentary authorities

a) Reconciliation of net cost of operations with authorities used

The department's net cost of operations before government funding and transfers in the Statement of Operations is reconciled with the current-year authorities used by the department in the following table.

b) Authorities provided and used

The department receives most of its funding through annual parliamentary authorities. The authorities provided to and used by the department are presented in the following table.

4. Deposit liabilities

Deposit liabilities as at March 31 are presented in the following table.

5. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities as at March 31 are presented in the following table.

6. Taxes payable and receivable under tax collection agreements

The Canada Revenue Agency (CRA), an agency of the government, collects and administers personal income taxes, corporate taxes, harmonized sales tax, sales tax, goods and services tax, and cannabis excise duties on behalf of certain provinces, territories and Indigenous governments pursuant to various tax collection agreements. The department ultimately transfers the taxes collected directly to the participating provinces, territories and Indigenous governments in accordance with established payment schedules.

Taxes payable under tax collection agreements

Given that the government 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 Indigenous governments.

The changes in taxes collectible and payable to provinces, territories and Indigenous governments under tax collection agreements during 2024 were as follows:

Taxes receivable under tax collection agreements

Taxes receivable under tax collection agreements include taxes collected or collectible by the CRA on behalf of provincial, territorial or Indigenous governments that have not yet been remitted to the department.

The changes in taxes receivable under tax collection agreements during 2024 were as follows:

7. Notes payable to international organizations

Notes payable to international organizations are non-interest bearing demand notes issued in lieu of cash in respect of subscriptions and contributions. The notes may be presented for encashment according to the terms of the related agreements.

Notes payable to international organizations as at March 31 are presented in the following table.

8. Matured debt

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

The balance of matured debt as at March 31 is presented in the following table.

9. Unmatured debt

The department borrows mostly in the domestic market, but also borrows in international markets on behalf of the government.

Domestic debt

Domestic debt consists of treasury bills, marketable bonds and retail debt denominated in Canadian dollars.

Treasury bills consist of non-callable Government of Canada discount instruments. Treasury bills are issued with terms to maturity of 3 months, 6 months, or 12 months; the Government of Canada may also issue treasury bills with terms to maturity ranging from 1 day to 3 months for cash management purposes (cash management bills).

Domestic marketable bonds consist of non-callable Government of Canada bonds paying a fixed rate of interest semi-annually. As at March 31, 2024, outstanding domestic marketable bonds have remaining terms to maturity ranging from within 1 year to 41 years (2023 – within 1 year to 42 years). Certain marketable bonds (real return bonds) pay semi-annual interest based on a real rate of interest (interest payments are adjusted for changes in the consumer price index). At maturity real return bondholders will receive, in addition to a coupon interest payment, a final payment equal to the sum of the principal amount and the inflation compensation accrued from the original issue date.

Retail debt includes Canada Savings Bonds, which are redeemable on demand by the holder. As at March 31, 2024, all retail debt has reached maturity; consequently all unredeemed retail debt outstanding as at that date is included in matured debt.

Foreign debt

Foreign debt is issued by the government under its foreign currency borrowing program. Foreign debt consists of marketable bonds, negotiable medium-term bills and Canada bills.

Foreign marketable bonds are either issued in US dollars or euros to provide long-term foreign funds. As at March 31, 2024, outstanding foreign marketable bonds have remaining terms to maturity ranging from within 1 year to 5 years (2023 - within 2 years to 4 years).

Canada bills are short-term certificates of indebtedness issued in the US money market. These discount instruments mature not more than 270 days from issuance.

Unmatured debt as at March 31 is presented in the following table.

Contractual maturities of unmatured debt by currency, at face value, are as follows:

The average effective annual interest rates of unmatured debt as at March 31 are as follows:

10. Derivative financial instruments

Derivatives as at March 31 are presented in the following table.

Bank of Canada bond purchase program indemnity agreements

The department and the Bank of Canada have entered into indemnity agreements which are accounted for as derivatives. Under the terms of these agreements, the department has indemnified the Bank of Canada for any losses incurred by the Bank on the disposition of securities under the Bank's Government of Canada Bond, Provincial Bond and Corporate Bond purchase programs (bond purchase programs). The Bank of Canada will also pay to the department any realized gains it earns on the disposition of securities under the bond purchase programs. The bond purchase programs were introduced by the Bank of Canada during fiscal year 2020-21 to support the liquidity and proper functioning of debt markets during the COVID-19 pandemic. No consideration was paid by either party upon entering into the agreements.

The fair value of the bond purchase program indemnity agreement derivatives is calculated as the difference between the fair value and the amortized cost of the securities held by the Bank of Canada under the bond purchase programs as at March 31. The fair value is equivalent to the amount accruing to (from) the department under the derivatives if the securities were disposed of at their fair value by the Bank of Canada as at March 31. The department determines fair value using the prices of the bonds held by the Bank as at March 31, which are quoted market prices for identical bonds, and, of less significance, the Bank of Canada's amortized cost of the bonds. The department classifies the fair value measurement for the bond purchase program indemnity agreement derivatives as Level 2 in the fair value hierarchy.

Details of the securities held by the Bank of Canada under the bond purchase programs as at March 31 are presented in the following table. Fair value represents the gain (loss) realized (sustained) by the ministry for the derivatives if the Bank of Canada had disposed of the securities on March 31.

The fair value of the indemnity agreement derivatives (net) relates to certain securities that are in a gain position and certain securities that are in a loss position, are presented in the following table.

As at March 31, 2024, the bonds held by the Bank of Canada that are subject to the indemnity agreements had the following maturity profile, stated in terms of the fair value of the associated indemnity derivative:

Losses paid and gains received by the department under the bond purchase program indemnity agreements in 2024 were negligible (2023 - negligible).

Cross-currency swaps

The government has entered into cross-currency swap agreements with various counterparties to facilitate the management of its debt structure. The terms and conditions of the swaps are established using International Swaps and Derivatives Association (ISDA) master agreements with each counterparty.

Cross-currency swaps are used primarily to fund foreign-denominated asset levels in the foreign exchange accounts. Government debt is issued at both fixed and variable interest rates and may be denominated in Canadian dollars, US dollars, euros or British pounds sterling. Using cross-currency swaps, Canadian dollar and foreign currency debt are 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.

At inception of a cross-currency swap, the department and the counterparty exchange amounts in different currencies on which interest, in the currencies exchanged, will be received and paid over the term of the swaps. In this exchange, the department pays to the counterparty an amount in one currency (generally the Canadian dollar) and receives from the counterparty an amount in another currency (generally either the US dollar, euro, Japanese yen or British pound sterling). Over the term of the swap, the department is entitled to receive interest in the currency paid to the counterparty at inception (generally the Canadian dollar) and is obligated to pay interest in the currency received from the counterparty at inception (generally either the US dollar, euro, Japanese yen or British pound sterling). The interest rates at which interest is to be received and paid are independent of each other and may be either fixed or variable. At maturity of a cross-currency swap, the department re-exchanges with the counterparty by paying the currency amount received at inception (generally either the US dollar, euro, Japanese yen or British pound sterling) and receiving the currency amount paid at inception (generally the Canadian dollar).

The fair value of cross-currency swaps represents the estimated amounts that the government would receive or pay if the contracts were terminated on March 31, based on market factors as at that date. The fair values are established by discounting the expected future cash flows of the swaps, calculated from the contractual or notional amounts and year-end market interest and exchange rates. A positive (negative) fair value indicates that the government would receive (make) a net payment if the agreements were terminated on March 31. Overall, the department classifies the fair value measurement for cross-currency swaps as level 2 in the fair value hierarchy.

The remaining terms to maturity of the cross-currency swaps outstanding as at March 31, 2024 range from within 1 year to 10 years (2023 - within 1 year to 10 years). The fair value of cross-currency swaps as at March 31, 2024, stated in terms of maturity date and currency of the payable-legs of the swaps, are as follows:

The notional amounts and weighted average rates for the payable and receivable legs of cross-currency swaps as at March 31, 2024 are presented in the following table.

Foreign exchange forward contracts

In the foreign exchange accounts, the government funds certain to the International Monetary Fund (IMF), which are denominated in special drawing rights (SDRs) with US dollars or SDRs. Since the currency value of the SDR is based upon a basket of key international currencies (the US dollar, euro, Japanese yen, British pound sterling and Chinese renminbi), a foreign exchange mismatch results whereby fluctuations in the value of the loan assets are not equally offset by fluctuations in the value of the related funding liabilities. The government enters into forward contracts to hedge the resulting foreign exchange risk. Under the department's foreign exchange forward contracts, on a stated future date the department is entitled to receive from the counterparty a fixed amount of a foreign currency (generally US dollars), and is obligated to pay to the counterparty a fixed amount of another foreign currency (generally either euros, yen, pound sterling or renminbi).

The fair values of the foreign exchange forward contracts represent the estimated amounts that the government would receive or pay if the contracts were terminated on March 31, based on market factors as at that date. The fair values are established by discounting the expected future cash flows of the forward contracts, calculated from the contractual or notional amounts and yearend market interest and exchange rates. A positive (negative) fair value indicates that the Government would receive (make) a payment if the agreements were terminated on March 31.

The forward contracts outstanding had remaining terms to maturity of under 2 months as at March 31, 2024 (2023 - under 2 months).

The notional amount of the forward contracts outstanding as at March 31, 2024, are presented in the following table.

11. Long-term annuity liability

The government and the province of Newfoundland and Labrador entered into the Hibernia Dividend Backed Annuity Agreement (HDBA) effective April 1, 2019. Under the HDBA, both parties are obligated to make certain payments through 2056. The department's obligation under the HDBA is to pay Newfoundland and Labrador each year a stated annual payment, which over the entire term of the HDBA total $3.3 billion, less the provincial taxes payable to Newfoundland and Labrador in respect of that year by Canada Hibernia Holding Corporation (CHHC). The government indirectly owns all of the issued and outstanding shares of CHHC through the Canada Development Investment Corporation (CDEV), a wholly-owned federal Crown corporation.

Newfoundland and Labrador is obligated under the HDBA to pay the Government of Canada 8 fixed annual payments of $100 million each, starting in 2045 and ending in 2052. At the government's discretion, the payments may be made by way of set-off against (i) the taxes payable to Newfoundland and Labrador under tax collection agreements; or (ii) the department's obligation otherwise payable.

Amounts recognized in the financial statements

The long-term annuity liability as at March 31 is presented in the following table.

Interest expense of $39.7 million (2023 - $40.0 million) and interest revenue of $9.4 million (2023 - $9.3 million) were recognized in the Statement of Operations. In 2024, there were no changes in the estimated future cash flows under the long-term annuity liability (2023 - a change of $24 million resulted in a decrease in the carrying value, and corresponding reduction of expenses of $24 million).

Contractual payments

The estimated contractual payments to be made (received) by the department under the long-term annuity arrangement are presented in the following table.

12. Employee future benefits

a) Pension benefits

The department's employees participate in the public service pension plan (the plan), a defined benefit pension plan sponsored and administered by the government. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best 5 consecutive years of earnings. Benefits under the plan are integrated with Canada/Québec Pension Plan benefits and are indexed to inflation. The department's financial obligations with regard to the plan is limited to its contributions.

Employees and the department both make contributions to the plan. Employees who were existing plan members as at December 31, 2012 (group 1 employees) are subject to different Public Service Superannuation Act rules and contribution rates (employee and employer rates) than those who became plan members on or after January 1, 2013 (group 2 employees). 

The expense related to the plan was $9.7 million (2023 - $9.4 million). For group 1 members, the expense represents approximately 1.02 times the employee contributions (2023 - 1.02) and, for group 2 members, approximately 1.00 times the employee contributions (2023 - 1.00 times).

b) Severance benefits

Severance benefits provided to the department's employees were previously based on an employee's eligibility, years of service and salary upon termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees were given the option to be paid the full or partial value of benefits earned or to collect the full or remaining value of benefits upon departure from the public service. All settlements for immediate cash-out are complete. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligation for severance benefits during the year were as follows:

13. Liabilities owed and financial assets held on behalf of government

a) Liabilities owed on behalf of government

Notes payable to international organizations are used in lieu of cash to fund investments in those entities. Since the investments are considered to be financial assets held on behalf of government, the notes payable funding those investments are considered to be liabilities owed on behalf of the government.

b) Financial assets held on behalf of government

Financial assets held on behalf of government include amounts related to non-respendable revenues, such as accounts receivable, as well as other loans receivable and investments and capital share subscriptions which, if repaid, could not be used to discharge other liabilities.

The liabilities owed and financial assets held on behalf of government as at March 31 are presented in the following table.

14. Cash held as collateral

Cash held as collateral is cash deposited by the government as credit support under collateral agreements with financial institutions. Interest is received on the balance. As at March 31, 2024 the department had pledged total collateral of $2,293.8 million (2023 - $2,400.7 million) in the form of cash.

15. Accounts receivable

Accounts receivable as at March 31 are presented in the following table.

16. Foreign exchange accounts

The foreign exchange accounts represent the largest component of the official international reserves of the government and consist of the following as at March 31, stated in terms of carrying value:

a) Investments held in Exchange Fund Account

The Exchange Fund Account is operated pursuant to Section 19 of the Currency Act. Total advances to the Exchange Fund Account are limited to US$150 billion.

The total investments held in the Exchange Fund Account as at March 31 are presented in the following table.

Collateral pledged

As part of its operations, the Exchange Fund Account is required to pledge collateral with respect to credit facilities granted by its European clearing house. Collateral pledged must have a fair value of a minimum of US$250 million, post a reduction applied to the value of an asset commensurate with its risk, in equivalent securities. As at March 31, 2024, the Exchange Fund Account had pledged collateral of marketable securities having a carrying value of $441 million and fair value of $419 million (2023 - carrying value of $442 million and fair value of $438 million).

b) Subscriptions to the International Monetary Fund

Subscriptions to the IMF consist of Canada's subscription ("quota") to the capital of the IMF, an organization of 190 member countries that operates in accordance with its Articles of Agreement.

The amount by which the sum of Canada's subscriptions plus loans to the IMF under special facilities exceeds the IMF's holdings of Canadian dollars represents the amount of foreign exchange which Canada is entitled to draw from the IMF on demand for balance of payments purposes. The subscription is expressed in terms of SDRs, a unit of account defined in terms of a "basket" of the following 5 currencies: the US dollar, euro, Japanese yen, British pound sterling and Chinese renminbi.

Canada has accumulated its subscriptions through settlements to the IMF in Canadian dollars, gold and SDRs. Annual maintenance of value payments are made to, or received from, the IMF when the Canadian dollar depreciates or appreciates against the SDR, in order to maintain the SDR value of the IMF's holdings of Canadian dollars.
Subscriptions to the IMF during 2024 decreased by $286.1 million (2023 – increased by $991.5 million) due to foreign exchange revaluation.

c) Loans receivable from the International Monetary Fund

Loans receivable from the IMF consist of loans made to trusts established by the IMF and interest-bearing loans under Canada's multilateral and bilateral lending arrangements with the IMF. The purpose of these arrangements is to provide temporary resources to the IMF, to support low-income and middle-income countries, promote economic growth, and safeguard the stability of the international monetary system.

There are two outstanding lending arrangements with the IMF outside of the quota system: the New Arrangements to Borrow (NAB) and the temporary Bilateral Borrowing Agreement (BBA). Collectively, the outstanding loans under multilateral and bilateral arrangements with the IMF cannot exceed SDR 13 billion or any other amount that may be fixed by the Governor in Council at any given time. Commitments under the NAB and BBA fall within this limit. Amounts advanced under these arrangements are considered part of the Official International Reserves of Canada.

Canada also lends to two trusts established by the IMF: the Resilience and Sustainability Trust (RST) and the Poverty Reduction and Growth Trust (PRGT). For these trusts, the total revolving loan authority pursuant to the Bretton Woods and Related Agreements Act is set at SDR 1 billion, or such greater amount as may be fixed by the Governor in Council. The amount was fixed at SDR 4.2 billion by the Governor in Council on February 19, 2024.

The carrying value of loans receivable from the IMF changed during the years ended March 31 as described in the following table.

New Arrangements to Borrow (NAB)

Canada's current participation in the NAB is governed by the October 2020 NAB Decision, which took effect in January 2021 and remains in effect through the end of 2025. Canada's maximum commitment under the NAB as at March 31, 2024 is SDR 7,747.4 million or $13,884.9 million (2023 - SDR 7,747.4 million or $14,085.5 million). As of March 31, 2024, the amount was fully reimbursed under the NAB (2023 - SDR 37.1 million or $67.5 million).

Bilateral Borrowing Agreement (BBA)

Canada participates in the BBA, which future increases the financial resources the IMF can borrow from member countries. Canada's commitment under the BBA as at March 31, 2024 is SDR 3,532 million or $6,330.1 million (March 31, 2023 - SDR 3,532 or $6,421.5). As at March 31, 2024, no lending (2023 - nil) had been provided to the IMF under the BBA.

Resilience and Sustainability Trust (RST)

Canada entered into an agreement with the RST in September 2022 to lend SDRs to the RST, up to the equivalent of $2,000 million. Drawings upon the facility may be made by the RST through November 30, 2030. The RST helps low-income and vulnerable middle-income countries address longer-term challenges, such as those related to climate change and pandemic preparedness.

RST loan account

Under the agreement, in December 2023, Canada lent SDR 37.0 million to the RST loan account, an amount equivalent to $66.4 million.  The loan earns interest, which is paid quarterly, and has a maturity date of December 2043.

RST deposit account

Under the agreement, in October 2022 Canada deposited with the RST SDR 227.5 million, an amount equivalent to $400 million. The amount deposited by Canada earns interest, which is paid quarterly, and matures November 30, 2050. Further, Canada's deposit, and amounts so deposited by other contributors to the RST, are invested by the RST, with investment gains and losses being allocated to Canada's deposit on a pro-rata basis.

Contribution to RST reserve account

Also under the agreement, in October 2022 Canada made a contribution of SDR 22.7 million, an amount equivalent to $40 million, to the RST reserve account, which is meant to cover the RST's credit and liquidity risk, and administration costs. Canada's contribution to the RST reserve account does not earn interest, has no fixed maturity, and was recognized as a transfer payment expense.

Poverty Reduction and Growth Trust (PRGT)

PRGT loan account

Canada lends funds to the PRGT, which provides financial assistance to qualifying low-income countries as authorized by the Bretton Woods and Related Agreements Act. Of Canada's SDR 2,000 million revolving commitment to the PRGT loan account, the total outstanding loans included in the foreign exchange accounts as at March 31, 2024, are SDR 275.6 million or $493.9 million (2023 - nil).

PRGT deposit and investment account

In March 2024, Canada and the IMF signed an agreement to provide a loan to the PRGT deposit and investment account of SDR 700 million, an amount equivalent to $1,254 million, with issuance scheduled for April 2024. The amount lent by Canada will earn interest and matures March 15, 2034. Further, Canada's loan, and amounts lent by other contributors to the PRGT, will be invested by the IMF, with investment gains and losses being allocated to Canada's loan on a pro-rata basis.

d) Notes payable to the International Monetary Fund

Notes payable to the IMF are 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 reissue, depending on the needs of the IMF for Canadian currency.

Canadian dollar holdings of the IMF include these notes and a small working balance (initially equal to one quarter of 1% of Canada's subscription) held on deposit at the Bank of Canada.

Notes payable to the IMF increased during 2024 by $384.8 million (2023 – increase of $410.7 million)  due to $1,434.9 million in net issuances (2023 – net repayments of $637.3 million) partially offset by $1,050.1 in foreign exchange revaluation (2023 – $1,047.9 million).

e) Special drawing rights allocations

Special drawing rights allocations represent the SDRs allocated to Canada by the IMF. They represent a liability of Canada as circumstances could arise whereby Canada could be called upon to repay these allocations, in part or in total. The SDR is an international currency created by the IMF and allocated to countries participating in its Special Drawing Rights Department.

As an asset, SDRs represent rights to purchase currencies of other countries participating in the IMF's Special Drawing Rights Department, as well as to make payments to the IMF itself. All SDRs allocated to Canada by the IMF have either been used to settle subscriptions in the IMF or have been advanced to the Exchange Fund Account.

As at March 31, 2024, SDR allocations to Canada are SDR 16,554.0­ million, which translated into Canadian dollars of $29,667.9 million at that date (March 31, 2023 - SDR 16,554.0 million or $30,097.6 million), a decrease of $429.7 million during the year due to foreign exchange revaluation (2023 - $1,488.9 million).

17. Loans to Crown corporations

Loans to Crown corporations as at March 31 are presented in the following table.

The interest rates on loans to Crown corporations are presented in the following table, classified by term to maturity at inception (short-term or long-term) and type of interest rate (fixed or floating).

The carrying value of loans to Crown corporations changed during the years ending March 31 as described in the following table.

Contractual maturities of outstanding loans to Crown corporations, at face value, are as follows:

18. Other loans receivable

Other loans receivable as at March 31 are presented in the following table.

The currencies in which other loans receivable are denominated and the Canadian dollar equivalent as at March 31, 2024, stated in terms of face value, are presented in the following table.

The carrying value of other loans receivable changed during the years ending March 31 as described in the following tables.

 

Government business enterprises

The Canada Lands Company CLC Limited and Parc Downsview Park Inc. are wholly owned subsidiaries of the Canada Lands Company Limited, a self-financing federal Crown corporation incorporated under the Canada Business Corporations Act.

a) Canada Lands Company CLC Limited

Canada Lands Company CLC Limited 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.

b) Parc Downsview Park Inc.

Parc Downsview Park Inc. owns a unique urban recreational green space located in Toronto, Ontario. The loan receivable from Parc Downsview Park Inc. is non-interest bearing and repayable in full on July 31, 2050.

Provincial and territorial governments

c) Federal-Provincial fiscal arrangements

Amounts receivable under federal-provincial fiscal arrangements represent net overpayments in respect of transfer payments to provinces under the Constitutions Acts 1867 to 1982, the Federal-Provincial Arrangements Act, and other statutory authorities. These loans are non-interest bearing and will be repaid by reducing transfer payments in subsequent years.

d) Winter Capital Projects Fund

Loans have been made to provinces, provincial agencies and municipalities to assist in the creation of employment. The loans bear interest at rates from 7.4% to 9.5% per year and are repayable either in annual installments over 5 to 20 years, or at maturity.

e) Municipal Development and Loan Board

Loans have been made to provinces and municipalities to augment or accelerate municipal capital works programs. The loans bear interest at rates from 5.25% to 5.38% per year and are repayable in annual or semiannual installments over 15 to 50 years.

National governments

f) National government loans

A loan of $2 billion to Ukraine was made by Canada under the Bretton Woods and Related Agreements Act and various Orders in Council. The loan was provided through the Administered Account for Ukraine at the International Monetary Fund.  

These loans were provided on either Commercial Interest Reference Rates (CIRR) or concessional rates and have repayment terms ranging from 5 to 10 years.

International and other organizations

g) International Monetary Fund Poverty Reduction and Growth Trust

Canada has made loans denominated in SDR to the IMF's Poverty Reduction and Growth Trust in order to provide assistance to qualifying low-income countries as authorized by the Bretton Woods and Related Agreements Act. The total revolving loan authority relating to the Poverty Reduction and Growth Trust pursuant to the Bretton Woods and Related Agreements Act is set at 1 billion SDR, or such greater amount as may be fixed by the Governor in Council. The amount was fixed at 4.2 billion SDR by the Governor in Council on February 19, 2024.

h) International Development Association (IDA) – concessional partner loan

In connection with the 19th replenishment of the resources of the IDA, Canada provided a total loan of US$575.4 million under the IDA's concessional partner loan program. The loan bears interest at 1.2% per year. Loan principal is repayable in 40 equal semi-annual instalments beginning in 2027 and ending in 2047. At Canada's request and with agreement of the IDA, the loan may be converted into Canadian dollars, which would entail a modification to the interest rate, and would require the payment by Canada of a transaction fee and the reimbursement of any fees, costs or losses incurred by the IDA.

i) Orphan Well Association

Canada made an unconditionally repayable contribution of $200 million to the Alberta Oil and Gas Orphan Abandonment and Reclamation Association Canada (the Orphan Well Association) to support the association's efforts in cleaning up oil and gas properties. The contribution does not bear interest and is repayable in 16 equal quarterly instalments starting in 2032 and ending in 2035. Earlier repayment is permitted.

j) International Finance Corporation Catalyst Fund

Canada has provided financing for the IFC's Catalyst Fund, as authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. The Catalyst Fund supports private sector engagement in climate change mitigation and adaptation activities through the provision of concessional and commercial financing arrangements.

k) Canadian Commercial Bank (CCB)

Canada has provided financial assistance in respect of the CCB as authorized by the Canadian Commercial Bank Financial Assistance Act. The amounts reported as other loans receivable represent the government's participation in the loan portfolio that was acquired from the CCB and the purchase of outstanding debentures from existing holders.

l) Global Environment Facility (GEF)

Canada has provided funding for developing countries in the areas of ozone, climate change biodiversity and international waters as authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. Advances to the GEF are made in non-negotiable, non-interest bearing demand notes that are later encashed.

19. Investment in Canada Mortgage Bonds

The Canada Mortgage Bond (CMB) program was implemented in 2001. Under this program, bonds are issued by a special purpose trust known as Canada Housing Trust (CHT) and sold to investors in denominations as low as $1,000. The proceeds of the bonds are used to purchase mortgages packaged into newly issued National Housing Act Mortgage Backed Securities (NHA MBS). Canada Mortgage Bonds, including accrued interest, issued by the Trust carry the full faith and credit of the Government of Canada. The timely payment of semi-annual interest and principal at maturity is guaranteed by the Government of Canada through CMHC.

The federal government acquired $7.5 billion of CHT-issued Canada Mortgage Bonds in 2023-24. The government will purchase up to an annual maximum of $30 billion under this program. The investments bear interest at rates from 3.72% to 3.99% per annum.

The investment in Canada Mortgage Bonds as at March 31 is presented in the following table.

Contractual maturities of the investments in CMB, in face value, occur in 2030 ($4 billion) and 2034 ($3.5 billion).

20. Investments and capital share subscriptions

Investments and capital share subscriptions as at March 31 are presented in the following table.

Changes in the carrying value for investments and capital share subscriptions are as follows:

Certain capital share subscriptions have both a paid-in portion and a portion which is callable, as summarized in the following table. Only under certain circumstances, such as an investee's inability to otherwise meet its obligations, would the department be required to pay some or all of the callable portion.

International Development Association (IDA)

Canada's contributions and subscriptions to the IDA (part of the World Bank Group) are authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. The contributions and subscriptions to the IDA are used to lend funds to developing countries at highly favourable terms. 

International Bank for Reconstruction and Development (IBRD)

Canada's subscription to the capital of the IBRD (part of the World Bank Group) is authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. The IBRD provides loans, guarantees, risk management products and advisory services to middle-income and creditworthy low-income countries, and also coordinates responses to regional and global challenges.

International Finance Corporation (IFC)

Canada's subscription to the capital of the IFC (part of the World Bank Group) is authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. The IFC works to further economic development by encouraging the growth of productive private enterprise, particularly in less developed areas.

European Bank for Reconstruction and Development (EBRD)

Canada's subscription to the capital of the EBRD is authorized by the European Bank for Reconstruction and Development Agreement Act and various appropriation acts. The EBRD provides financing for well-structured and financially robust projects of all sizes, with the objective of making economies more competitive, well governed, green, inclusive, resilient, and integrated. Each payment to the EBRD is comprised of cash and a promissory note.

Asian Infrastructure Investment Bank (AIIB)

Canada is a member of the AIIB pursuant to the Asian Infrastructure Investment Bank Agreement Act and as noted in various appropriation acts. The AIIB invests in infrastructure and other productive sectors in Asia and promotes regional cooperation in addressing development challenges. Canada issued a note payable to the AIIB in consideration for its paid-in capital contribution.

On June 14, 2023, the Government of Canada halted all government-led activity at the Asian Infrastructure Investment Bank until further notice and initiated a review of Canada's involvement in the Bank. This review is ongoing.

Multilateral Investment Guarantee Agency (MIGA)

Canada's subscription to the capital of the MIGA (part of the World Bank Group) is authorized by the Bretton Woods and Related Agreements Act and various appropriation acts. The MIGA provides political risk insurance and credit enhancement for projects in developing countries covering all regions of the world.

21. Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The department is mainly exposed to credit risk through its loans to Crown corporations, other loans receivable, investments held in the Exchange Fund Account, investments in Canada Mortgage Bonds (CMB), and derivatives. The department is also exposed to credit risk through its loan guarantees and money market purchase program indemnity agreements.

For loans, the maximum exposure to credit risk is the principal and accrued interest amount outstanding, less any valuation allowances recognized. For investments, the department considers its maximum exposure to credit risk to be the carrying amount of the investments held. For swaps and foreign currency forward contracts, the department considers the maximum exposure to credit risk to be the positive net carrying amount of contracts, aggregated by counterparty. For the Bank of Canada purchase program indemnities, the maximum exposure to credit risk is considered to be, for bond purchase program indemnities (derivatives), the Bank of Canada's amortized cost, and for the money market purchase program indemnities (contingent liabilities), the principal and accrued interest outstanding of the subject securities as at March 31, 2024. The department considers the maximum exposure to credit risk for loan guarantees is the total amounts guaranteed, including any undrawn amounts subject to the guarantee.

The maximum exposure to credit risk as at March 31, 2024 is presented in the following table for the department's most significant exposures to credit risk.

Loans to Crown corporations

The department considers the credit risk arising from loans to Crown corporations to be minimal. The Crown corporations to which the department has loaned funds are Canadian federal enterprise Crown corporation, whose long-term credit ratings are AAA.

Other loans receivable

The department has made loans to Canadian federal government business enterprises, provincial and territorial governments, national governments and international and other organizations. The department may assume credit risk related to other loans receivable to support various policy objectives of the Government of Canada. Valuation allowances for collectability are applied accordingly to reflect these accounts at their net recoverable value. In assessing the credit risk of other loans receivable, and establishing valuation allowances for collectability, the department considers the nature of the counterparty and the terms and conditions of the other loan. Of the total face value of $9,846.3 million outstanding as at March 31, 2024 (2023 - $7,914.6 million), unamortized discounts of $963.5 million (2023 - $733.0 million) and valuation allowances for collectability of $2,957.7 million (2023 - $4,372.7 million) were recognized.

Investments held in the Exchange Fund Account

As specified in the Statement of Investment Policy for the Government of Canada governing the Exchange Fund Account, to help achieve the objective of preserving capital value, an entity must be deemed to have a credit rating of A- or higher to be eligible for investment in the Exchange Fund Account. As of March 31, 2024, the majority of Exchange Fund Account investments are given a rating of AAA by external credit rating agencies, as indicated in the following table. The external ratings are based on the second highest rating among those provided by Moody's Investors Service, Standard & Poor's (S&P), Fitch Ratings and Dominion Bond Rating Service.

Concentrations of credit risk occur when a significant proportion is invested in securities subject to credit risk with similar characteristics or subject to similar economic, political or other conditions. The Exchange Fund Account may hold fixed income securities of highly rated sovereigns, central banks, government-supported entities and supranational organizations. The Exchange Fund Account may also make deposits and execute other transactions, up to prescribed limits, with commercial financial institutions that meet the same rating criteria.

The following table presents the concentration of credit risk of the marketable securities held by the Exchange Fund Account as at March 31, by type of issuer and stated in terms of the carrying amount of the securities. 

Investment in Canada Mortgage Bonds

The department considers the credit risk associated with the investment in CMBs to be minimal. CMBs have a credit rating of AAA, the same rating as Government of Canada Bonds and CMHC's debt securities. Investments Canada Mortgage Bonds are fully guaranteed by CMHC.

Bank of Canada purchase program indemnity agreements

The credit ratings of the securities held by the Bank of Canada as at March 31 under its purchase program indemnity agreements and indemnified by the department are presented in the following table according to the associated maximum exposure to credit risk. The credit ratings are based on published Standard & Poor's credit ratings and standalone credit profiles.

Cross-currency swaps and foreign exchange forward contracts

For cross-currency swaps and foreign exchange forward contracts, the department manages its exposure to credit risk by dealing with counterparties with acceptable credit ratings. Credit risk is also managed through collateral provisions in cross-currency swap and foreign exchange forward contracts. The government participates in a 2-way collateral program in accordance with Credit Support Annex (CSA) agreements for its cross-currency swap portfolio. Under the CSA agreements, the department and the counterparty are required to provide collateral, either in the form of securities or cash (CAD or USD), based on the terms and conditions of the agreements, such as when the fair value of a contract exceeds a minimum threshold. The collateral pledged to the government by a counterparty could be liquidated to mitigate credit losses in the event of that counterparty's default.

The following table presents the notional principal amounts of swap and foreign exchange forward contracts grouped by published S&P credit ratings and standalone credit profiles at year-end.

Collateral pledged by the government and by counterparties under 2-way CSA agreements as at March 31 is presented in the following table.

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

22. Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or currency risk.

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The department is exposed to currency risk through fluctuations in foreign-denominated future cash flows, namely those related to investments in the Exchange Fund Account, foreign debt, loans to international organizations and derivatives including collateral.

Currency risk of Exchange Fund Account

Currency risk is managed using a strategy of matching the currency and the duration of the Exchange Fund Account assets and the related foreign currency borrowings of the government. As at March 31, the impact of exchange rate changes affecting the Exchange Fund Account assets and the liabilities funding the assets naturally offset each other, resulting in no significant impacts to the government's net debt. Assets related to the IMF are only partially matched by related foreign currency borrowings, as the assets are denominated in SDR; however, foreign exchange risks relating to loans to the IMF have been mitigated by entering into foreign exchange forward contracts.

The majority of the Exchange Fund Account foreign currency assets and liabilities are held in 4 currency portfolios: US dollar, euro, British pound sterling, and Japanese yen. The following table presents the net impact to the Exchange Fund Account, and the related foreign-denominated debt, cross-currency swaps and foreign exchange forward contracts of a 1% appreciation in the Canadian dollar as at March 31, as compared to the US dollar, euro, British pound sterling and the Japanese yen.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The department's exposure to interest rate risk principally arises from fluctuations in the fair value of the Bank of Canada bond purchase program indemnity derivatives and cross-currency swaps, and future cash flows related to variable-rate cross-currency swaps, loans to Crown corporation and assets held by the Exchange Fund Account, because of changes in market interest rates. Interest rate risk for the Exchange Fund Account is managed using a strategy of matching the duration of the assets with the related borrowings. Other interest-bearing assets and liabilities bear fixed rates of interest. Although subject to interest rate risk because the fair value of these instruments will be affected by changes in market interest rates. there is no impact on the consolidated financial statements as these financial instruments are measured at cost or amortized cost.

The table below shows the effect of an increase in interest rates of 100 basis points (bps) as at March 31, 2024.

Inflation risk

The department is exposed to inflation risk through its real return bonds, as interest and principal payments are adjusted for changes in the consumer price index (CPI). If the CPI applicable to real return bonds were to increase by 5% at March 31, 2024, the carrying amount of the bonds as at that date would increase by $3,768.6 million (2023 - $3,670.5 million), with the adjustment recognized immediately as an expense charge. Such a change would increase annual interest expense by $79.0 million (2023 - $75.9 million). A decrease in the CPI would have the opposite effect, by decreasing the carrying amount of the bonds, with the adjustment recognized immediately as income, and by decreasing annual interest expense.

23. Liquidity risk

Liquidity risk is the risk that the department will encounter difficulty in meeting obligations associated with financial liabilities.

To discharge its financial liabilities, the department may access, with the authority of parliament, the Consolidated Revenue Fund (CRF) of the Government of Canada (the aggregate of all public moneys that are one deposit at the credit of the government). The department also has the ability to borrow on behalf of the Government of Canada for its purposes and the government's requirements overall.

Authority to borrow

The Government of Canada has access to multiple active borrowing programs, including those in the domestic Canadian market and those in foreign currency markets. Through the Borrowing Authority Act ("BAA") and the Financial Administration Act ("FAA"), parliament authorizes the Minister of Finance to borrow money on behalf of His Majesty in right of Canada.

Subject to limited exceptions, borrowings undertaken by the Minister – together with amounts borrowed by agent Crown corporations and Canada Mortgage Bonds guaranteed by the Canada Mortgage and Housing Corporation – may not exceed the maximum amount specified in the BAA, which was $1,831,000 million for the period from April 1, 2023 to March 31, 2024 ($1,831,000 million for the period from April 1, 2022 to March 31, 2023).

Debt management and liquidity strategy

In conjunction with the Bank of Canada, the department manages the government's unmatured debt and associated risks. The fundamental objectives of debt management are to raise stable and low-cost funding to meet the financial obligations and liquidity needs of the Government of Canada.

Liquidity risk for the Government of Canada is managed centrally. Under its prudential liquidity plan, the government's overall liquidity levels are managed to normally cover at least one month of net projected cash flows, including coupon payments and debt refinancing needs. The one month requirement is a forward-looking measure that changes daily due to daily actual cash balances and new projected cash requirements.

The government holds liquid financial assets in the form of domestic cash deposits, including $20 billion in cash expressly designed for prudential liquidity, and foreign exchange reserves to safeguard its ability to meet payment obligations in situations where normal access to funding markets may be disrupted or delayed. Further, proceeds of the Government's foreign currency borrowings are held in the Exchange Fund Account to provide liquidity and provide funds needed to promote orderly conditions for the Canadian dollar in foreign exchange markets.

Maturity analysis of financial liabilities

The following table presents a maturity analysis of the department's financial liabilities. The balances in the table may not correspond to the balances in the Statement of Financial Position because the table presents estimated cash flows on an undiscounted basis.

24. Tangible capital assets

The change in tangible capital assets during 2024 is presented in the following table.

25. Contractual obligations

Contractual obligations are financial obligations of the government that will become liabilities when the terms of the related contracts or agreements for the acquisition of goods and services or the provision of transfer payments are met. The expected payments to be made under the department's significant contractual obligations that can be reasonably estimated are summarized as follows:

26. Contingent liabilities

Contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into 3 categories as follows:

a) Callable share capital

The department has subscribed to callable share capital in certain international organizations. In the event of the capital being called, the likelihood of which is low, payments to these organizations would be required. Callable share capital as at March 31 is presented in the following table.

b) Loan guarantees

Mortgage or hypothecary insurance protection

The Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA), which came into force on January 1, 2013, authorizes the Minister of Finance to provide protection in respect of certain mortgage or hypothecary insurance contracts written by approved mortgage insurers. As at March 31, 2024 there are two approved mortgage insurers under the PRMHIA: Sagen Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. 

Under the PRMHIA, payments in respect of the guarantee would only be required if a winding-up order were made in respect of an approved mortgage insurer. Where this is the case, the Minister would honour lender claims for insured mortgages in default, subject to: (a) any proceeds the beneficiary has received from the underlying property or the insurer's liquidation, and (b) a deductible of 10% of the original principal amount of the insured mortgage.

As of March 31, 2024, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $305.4 billion (2023 - $297.0 billion). Any payment by the Minister is subject to a deductible equal to 10% of the original principal amount of these loans, or $37.2 billion (2023 - $35.8 billion). No provision has been made in these accounts for payments under the guarantee.

International Bank for Reconstruction and Development (IBRD)

In 2017, pursuant to section 8.3(1) of the Bretton Woods and Related Agreements Act, the Minister of Finance, by order of the Governor in Council, authorized a partial loan guarantee in the amount of US$118 million to the IBRD in respect of a US$1,443.8 million loan entered into between the IBRD and the Republic of Iraq. Under this guarantee, the department would make payment to the IBRD in the event that the Republic of Iraq is more than 6 months late in meeting a scheduled interest or principal payment to the IBRD. The department would only be required to pay a pro-rata share of the loan repayment that is past due, up to the fixed aggregate amount of US$118 million (C$159.8 million translated at the March 31, 2024 exchange rate).

In the event that any portion of the guarantee is called, Canada would receive a claim from the IBRD against the Republic of Iraq and would have the option to pursue recovery. As at March 31, 2024, no losses are anticipated with respect to this guarantee and no provision has been made (2023 - no losses anticipated and no provision made).

European Bank for Reconstruction and Development (EBRD)

In October 2022, pursuant to paragraph 8.3(3)b of the Bretton Woods and Related Agreements Act, the Minister of Finance provided a partial loan guarantee in an amount up to €36.5 million to the EBRD in connection with EBRD's €300 million credit facility to Naftogaz, Ukraine's state owned oil and gas company. The EBRD's credit facility to Naftogaz also carries a full guarantee from the Government of Ukraine. Under the terms of the guarantee agreement, the Government of Canada has guaranteed a pro-rata share of any unpaid amounts by the borrower (interest and principal), up to a fixed aggregate amount of €36.5 million. As of March 25, 2024, the EBRD's credit facility with Naftogaz has been fully repaid, resulting in Canada's guarantee of the facility no longer being in effect. 

c) Bank of Canada money market purchase program indemnity agreements

In addition to the bond purchase program indemnity agreements accounted for as derivatives, the department and the Bank of Canada have entered into indemnity agreements for the Bank's Provincial Money Market and Commercial Paper Purchase Programs (money market purchase programs). These programs were introduced by the Bank of Canada to support the liquidity and proper functioning of debt markets during the COVID-19 pandemic. The Bank of Canada discontinued further purchases under the Provincial Money Market purchase program effective November 16, 2020, and discontinued the Commercial Paper purchase program effective April 2, 2021. The programs can be restarted by the Bank of Canada if necessary.

Under the money market purchase program agreements, the department has indemnified the Bank of Canada for any losses incurred by the bank on the money market securities not being paid in full by the issuers. The department is not obligated to pay for any losses or entitled to any gains sustained by the Bank of Canada on the disposition of securities under the money market purchase programs. No consideration was paid by either party upon entering into the agreements.

There were no outstanding securities held by the Bank of Canada under the money market purchase programs as at March 31, 2024 (2023 – nil). No losses were paid by the department under the money market purchase program indemnity agreements in 2024 (2023 - nil).

27. Related party transactions

The department is related as a result of common ownership to all government departments, agencies, and Crown corporations. The department enters into transactions with these entities in the normal course of business and on normal trade terms. The department also receives common services without charge from other government departments as disclosed below. Related parties also include individuals who are members of key management personnel or close family members of those individuals, and entities controlled by, or under shared control of, a member of key management personnel or a close family member of that individual.

a) Common services received without charge from other government departments

The services received without charge from other government departments have been recorded as expenses in the Statement of Operations as follows:

The government has centralized some of its administrative activities for efficiency, cost-effectiveness and economic delivery of programs to the public. In certain cases, the government uses central agencies and common service organizations whereby one organization performs services for others without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Services and Procurement Canada (PSPC) and audit services provided by the Office of the Auditor General, are not included in the Statement of Operations.

b) Other transactions with related parties

Other transactions with related parties are summarized in the following table.      

28. Segmented information

The department's segments include its core responsibility of Economic and Fiscal Policy and the Internal Services functions which support that responsibility. Segmented information is based on the same accounting policies described in the summary of significant accounting policies (note 2). The following table presents expenses and revenues for segments by major object of expense and type of revenue.

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. Transfer payments to provinces and territories are presented in the following table.

b) Interest on unmatured debt

Interest on unmatured debt includes interest incurred, amortization of debt discounts/premiums and net interest on cross-currency and interest rate swaps. Interest on unmatured debt by class of debt is presented in the following table.

c) Interest on superannuation and other accounts

The department funds interest on all interest bearing specified purpose accounts established by Government departments and agencies, including superannuation accounts and retirement compensation arrangement accounts established for the benefit of public service employees and members of the Royal Canadian Mounted Police and the Canadian Forces, the Canada Pension Plan Account, and other accounts. Interest on superannuation and other accounts is presented in the following table.

d) Operating expenses

The following table presents details of operating expenses.

29. Revenues earned on behalf of government

Revenues earned on behalf of government represent revenues which the department cannot re-spend to fund other departmental activities. The following table presents details of revenues earned on behalf of government.

30. Comparative information

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

Department of Finance Canada

Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting of the Department of Finance Canada for Fiscal Year 2023‑24 (unaudited)

1. Introduction

This document provides summary information on the measures taken by the Department of Finance Canada (the Department) to maintain an effective system of internal control over financial reporting (ICFR), as well as information on internal control management, assessment results and related action plans.

Detailed information on the Department's authority, mandate and core responsibilities can be found in the 2023-24 Departmental Plan and the 2023-24 Departmental Results Report.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

The Department has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental internal control framework approved by the Deputy Minister and the Chief Financial Officer (CFO) is in place, which includes:

• Accountability structures relating to internal control management to support sound financial management, including clear roles and responsibilities for employees in their areas of responsibility for control management;
• On going communication and training on statutory requirements, policies and procedures for sound financial management and control;
• A group dedicated to ICFR under the direction of the CFO with a primary focus on maintaining documentation in support of business processes and associated key risks and control points;
• A risk based internal audit plan which includes audits and reviews related to business processes assessed under the Policy on Financial Management;
• An Office of Values and Ethics to provide service and guidance on values and ethics issues, discuss ethical dilemmas in accordance with the Values and Ethics Code for the Public Sector, Policy on Conflict of Interest and Post Employment. In addition, the Department of Finance Code of Conduct underlines the need for employees to avoid, and if necessary, resolve conflicts of interest between their official duties and their personal interests. Mandatory annual reporting is an important feature of the code;
• A Disclosure Protection Officer, housed within the Office of Values and Ethics, to facilitate protected disclosures of wrongdoing in accordance with the Public Servants Disclosure Protection Act;
• Monitoring and regular updates on internal control management plus assessment results and action plans presented to the Departmental Audit Committee (DAC) and senior management; and
• Advice is provided by the DAC to the Deputy Minister on the adequacy and functioning of the Department's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to the financial statements

The Department relies on other departments and agencies for certain information or transactions that are recorded in its financial statements, as follows:

Common-to-government arrangements:

• Public Services and Procurement Canada administers the payment of salaries, the procurement of goods and services, and provides accommodation services;
• Shared Services Canada provides information technology (IT) infrastructure services;
• Department of Justice Canada provides legal services; and
• Treasury Board of Canada Secretariat (TBS) provides information on public service insurance and centrally administers payment of the employer's share of contributions toward statutory employee benefit plans.

Specific departmental arrangements:

• The Bank of Canada has shared responsibility with the Department for maintaining the financial records and accounts for the domestic debt of Canada, Exchange Fund Account of Canada, and the purchase of Canada Mortgage Bonds, for which the Bank acts as fiscal agent. These responsibilities include ensuring all related financial systems and processes are effectively designed and operating;
• Canada Revenue Agency (CRA) provides the financial information used by the Department to determine taxes receivable from CRA under tax collection agreements, including accrual‑based methodologies to determine amounts receivable at year‑end;
• TBS provides financial management and accounting services for operating expenses, managed through a shared‑services arrangement; and
• TBS provides the Department and other departments with its SAP financial system platform, where financial transactions are captured and recorded. As the service provider, TBS is responsible for ensuring that IT‑general controls over the SAP environment, including TBS infrastructure services, are designed and operating effectively. The Department retains responsibility of certain IT‑general controls within the SAP environment, such as user access controls and segregation of duties.

Readers of this annex may refer to the annexes of the above-noted departments and agencies for a greater understanding of the systems of internal control over financial reporting related to these specific services.

3. Departmental assessment results for the 2023 to 2024 fiscal year

The following table summarizes the status of the ongoing monitoring activities according to the previous fiscal year's rotational plan.

During the 2023-24 fiscal year, the Department updated our internal control framework to include key internal control over financial management (ICFM) areas (Budgeting/Forecasting, Costing and Procurement). The Department diligently performed the essential design and operating effectiveness assessments to bring these key ICFM areas to the ongoing monitoring stage.

In addition, the Government of Canada announced in the 2023 Fall Economic Statement its intentions to purchase Canada Mortgage Bonds. These purchases are anticipated to be material; therefore, this business process was added as a key control area. Limited testing was required in 2023-24 because there were only two purchases, but a full assessment is planned for 2024-25.

3.1 New or significantly amended key controls

In the current year, there were no significantly amended key controls in existing processes that required a reassessment. Revisions to the policy on journal vouchers were introduced to reinforce quality assurance around manual journal entries.

3.2 On‑going monitoring of key controls:

The Department assesses the design and operating effectiveness^{Footnote 1} of its high‑risk business processes on an annual basis as part of its rotational on‑going monitoring of key controls. This means that key controls are tested on a rotational basis for medium and low-risk business processes.

The Department conducts walkthroughs throughout the fiscal year and selects transaction samples for testing. The testing validates that the controls in place are effective and operating as designed. The extent of testing is determined by the frequency of the control being performed.

Based on the testing, the key controls that were tested have performed as intended.

Operating Expenses

Operating expenditures are not considered a key control area for the Department because they are not material. That said, since 2016, the Department continues to use an industry-standard data analytics software to assess operating expenditures for anomalies from a compliance and/or process efficiency standpoint. The objective of this analysis is to detect operational and/or compliance risk.

The following table summarizes the areas within operating expenditures that are analyzed and the frequency:

Service arrangements relevant to the financial statements (IT General Controls)

TBS provides the Department and other departments with its SAP financial system platform where financial transactions are captured and recorded. Each year, an annual audit (CSAE 3416^{Footnote 2}) by an external auditor is performed to assess the design and operating effectiveness of the IT general controls at TBS.  

In 2023-24, the CSAE 3416 report is unqualified. This result is significant for the Department's reliance on the SAP system, as it provides assurance that the financial information in it has not been compromised or modified in any way.

4. Departmental monitoring plan of key controls

4.1 Monitoring plan for the next fiscal year and subsequent years

The Department's rotational on‑going monitoring plan of key controls over the next three years is based on an annual validation of high‑risk processes and controls as shown in the following table: