Guidelines for the Financing of Crown Corporations - TB Circular 1980-46

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Annex - Guideline for Financial of Crown Corporation of the Government of Canada

l. Financing transactions of the Government of Canada with Crown corporations should be classified in the Estimates and accounts of Canada as specified by these guidelines.

Definitions

2. For the purpose of these guidelines:

(a) "Advances" are financial claims acquired by the making of payments to outside entities. Advances are normally repayable without interest and are of a short term nature (less than 18 months);

(b) "Crown corporation" or "corporation" is a wholly owned corporation of the Crown listed in Schedules C and D of the Financial Administration Act. For the purpose of these guidelines, these corporations are divided into the three following categories;

Dependent

•  Crown corporations (excluding lending institutions) which are not determined to be self-sufficient.

Self-sufficient

• Crown corporations (excluding lending institutions) which normally are determined to be self-sufficient.

Lending

• Crown corporations which are lending institutions (as identified in the Statement of Assets and Liabilities in the Public Accounts of Canada).

(c) "Investments" are the acquisition of owner's equity acquired by the purchase of shares, the conversion of loans or advances to equity, or the contribution of capital;

(d) "Loans" are financial claims acquired by the making of payments to outside entities. Loans are repayable with interest according to a predetermined agreed repayment schedule and are usually of a long term nature;

(e) "Outside entities" include Crown corporations;

(f) "Pass-through Loans" are loans made to a Crown corporation lending institution for relending to a specific outside party and for which the corporation administers payment and collection.

(g) "Transactions" include actual or proposed payments out of the Consolidated Revenue Fund, and other actual or proposed transactions which do not affect the balance of the Fund.

CLASSIFICATION 0F FINANCING TRANSACTIONS

3. Dependent Crown corporations

All transactions must be classified as budgetary.

4. Self-sufficient and Lending Crown corporations

Transactions which meet the criteria for making loans, advances or investments will be classified as non-budgetary. All other transactions will be classified as budgetary.

Note: A "self-sufficient" corporation is one that generally has internally generated funds sufficient to carry out its operations. The determination of self-sufficient status would involve such things as examination of the corporation's profits, projected cash flow, commitments, future earnings, market prospects, etc. to determine whether it can finance operations (including interest payments) and repayment of principal. Receipt of compensation payments and/or grants, contributions and subsidies (as one of an eligible class of recipients) does not change a corporation's self-sufficient status.

CRITERIA FOR MAKING LOANS, ADVANCES AND INVESTMENTS

5. Loans and Advances

Loans and advances can be made if an analysis of the corporation's financial position and prospects made by the agency responsible for approval indicates a reasonable certainty that the principal and, in the case of loans, an acceptable rate of interest can be repaid without recourse to parliamentary appropriations. An acceptable rate of interest is the "Crown corporation rate" which is current at the date of making each payment under the loan agreement and is appropriate for the term and other conditions of the loan.

Note: "Crown corporation rates", designed to reflect the Crown's cost of borrowing monies for different maturities and for both amortized and unamortized repayment conditions, are established by the Minister of Finance from time to time.

6. Where payments to a corporation in respect of loans for capital expenditure are made before the relevant construction is completed, the repayment process may be deferred until the start of operations. However, interest at the appropriate rate must be calculated from the date of each payment.

7. Investments

Investments may be made if a corporation is determined to be self-sufficient and there will be a return over time equivalent to the cost of borrowing. In addition, there should be a reasonable certainty that the investment could be recovered.

8. Crown Corporation Lending Institutions

Payments to lending institutions for pass-through loans will be classified as non-budgetary.

9. Loans, advances and investments to finance the operations of a lending institution can be made if the criteria are met.

BUDGETARY FINANCING TRANSACTIONS

10. The following financing transactions with Self-Sufficient and Lending Crown corporations should be classified as budgetary:

(a) Compensation payments - These are payments that are made following a government decision to compensate a Crown corporation for carrying out a government directive; and

(b) Grants, contributions and subsidies - These are payments made to a Crown corporation that qualifies in a class of eligible recipients.

OTHER FINANCING TRANSACTIONS

11. There are financing transactions which do not affect the balance of the Consolidated Revenue Fund. These transactions include:

• deletion or forgiveness of a debt recorded in the accounts of Canada (budgetary);
• deletion or forgiveness of a debt which is not recorded in the accounts of Canada - such as interest (authorized by a $1 budgetary vote in the Estimates, no entry in the accounts);
• conversion of a loan recorded in the accounts to an investment (non-budgetary).

CHANGES IN CATEGORY

12. Categorization of Crown corporations, as defined in section 2(b) of these guidelines will be reviewed at least annually and changed when necessary.

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