Description
The purpose of these regulations is to prescribe the rates and
the general terms and conditions under which the government will
charge interest on overdue accounts and charge administrative
fees where a cheque or other item payable to the Crown is
returned as "NSF" or otherwise dishonoured.
Under the regulations, which come into effect on April 1,
1996, there will be one common policy and approach to charging
interest on most non-tax receivables. Exceptions include:
- loans and the like on which interest is already being
charged; and
- superannuation and socio-economic benefits that have their
own scheme for charging interest.
The main features of the regulations are:
- where an account is overdue or a payment is late, interest
will be charged and compounded monthly at the average bank rate
plus three percent from the due date to the date that payment is
received. (This is approximately the same as what the government
will be paying its suppliers on its own late payments);
- overpayments or erroneous payments that result from fraud,
falsification, wilful misrepresentation or any other offence will
incur interest charges retroactively from the date on which the overpayment or erroneous payment is made;
- in other cases of overpayment or erroneous payment, a due
date shall be set or a repayment schedule over time shall be
arranged (these are program decisions, outside of the scope of
the regulations themselves), and interest will be charged
only in respect of payments which are not made by the due date or
in accordance with the agreed repayment schedule;
- no interest will be charged on small amounts for which an
invoice or other demand for payment would normally not be issued.
However, if there are several small amounts that add up to more
than the cut-off limit, or the total outstanding exceeds that
limit, interest will be charged;
- provisions have been made for Ministers to waive or reduce
charges under certain, limited circumstances; for example where:
- recovery is to be made from subsequent entitlements,
- the government makes an error in processing a payment or
calculating the amount due, or
- there are other circumstances beyond the control of the
debtor, such as a breakdown in the electronic systems used to
transfer funds and process payments;
- an administrative charge of $25 will be levied for
dishonoured items where a financial institution has processed an
item and a payment must be issued by the government to reimburse
it for the amount initially credited to the government's account.
Where no such payment has to be issued by the government, the
administrative charge will be $15; and
- subject to any program or departmental governing legislation
or regulations, departments will still have complete flexibility
in negotiating and setting repayment terms to suit their various
programs.
Alternatives Considered
There are no practical other alternatives. No
generally-applicable policy instrument is available for charging
interest other than these regulations. Maintaining the status quo
would not provide an incentive for debtors to pay their accounts
on time or compensate the Crown for the borrowing costs that it
incurs as a result, nor would the government be permitted to
recover its administrative cost of processing NSF cheques and
other dishonoured payment items.
Benefits and Costs
Debtors who do not pay their accounts on time or who tender
cheques or other payment instruments that are returned as "NSF"
or are otherwise not honoured by the financial institution on
which they are drawn payments will incur costs in the form of
interest charges and administration fees. As a result, debtors
will have an incentive to pay their accounts on time and any
financial costs incurred by the government will be more equitably
shifted from general taxpayers to the delinquent debtors.
It is expected that debtors will pay their accounts faster
once departments begin charging interest on overdue accounts. As
at March 31, 1995, the last year for which figures are available,
the amount of overdue accounts potentially subject to interest
charges was approximately $3.3 billion. However, debtors can
avoid any interest costs by paying their accounts on time. Any
increase in departmental workload resulting from the charging of
interest will be offset by the reduced workload in managing a
smaller number of overdue accounts, as debts will be collected
more quickly.
Some departments and agencies may incur one-time start-up
costs if their current financial systems must be modified to
accommodate interest charging calculations. It is expected that
any costs incurred will be offset by additional interest
revenues.
Consultation
The proposed regulations were published in Part I of the
Canada Gazette on December 23, 1995. In addition, all
departments listed in Schedule I, I.1 and II to the Financial
Administration Act were consulted earlier.
Only one comment was received during the 30-day public
consultation period and it expressed concerns principally
about:
- problems with cost-recovery and rate-setting, especially for
mandatory services like inspections, and the adding of interest
charges on top of cost-recovery; and
- the resolution of disputes over cost-recovery fees.
However, these are not issues relating to interest-charging
per se. The charging of interest on overdue accounts is not
additional cost-recovery for the service being provided, but a
reflection of the cost of financing and collecting the accounts
receivable. Furthermore, interest on late payment can be avoided
entirely simply by paying the amount owing by the due date.
Secondly, where there is a dispute over the amount owing that is
ultimately resolved in favour of the debtor, interest can be
waived or reduced, in which case any charges paid would be
refunded. If the dispute goes the other way and is determined in
favour of the Crown, then interest should be fully enforced as
the Crown has incurred the financing costs during the period of
dispute and to do otherwise would encourage the filing of
disputes simply as a means of delaying or deferring payment.
Compliance and Enforcement
A compliance mechanism is not required as departments will
assess and collect interest and administrative charges in the
course of their normal collection activities for any amounts owed
to the government.
Contact
Robin Findlay
Director, Financial Authorities Division
Financial and Information Management Branch
Treasury Board Secretariat
L'Esplanade Laurier
8th Floor West Tower Ottawa, Ontario
K1A 1E4
(Telephone 613-957-9668)
(Facsimile 613-952-9613)
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