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(a) Loans are made by government departments to a large
variety of recipients, including Crown corporations, national
governments such as those of developing countries, provincial and
territorial governments, international organizations, private
corporations, federal government employees, groups of citizens,
and individuals for a variety of purposes and in accordance with
a variety of different terms and conditions. Generally,
classification of loans as non-budgetary implies that repayment
is expected with a high degree of certainty. Where there is no
fixed repayment schedule or where repayment is conditional on
some future event, a loan may not be issued. Instead some other
form of financial assistance, such as a repayable contribution,
or a grant or contribution must be used. Departments must
determine what mechanism is best suited to the particular
circumstances at hand.
(b) While some statutes and Appropriation Acts name a single
recipient and set a fixed amount, there are other instances where
classes of recipients are identified and no fixed amounts are
established. In those cases, departments must establish and
document policies and eligibility criteria for selecting
recipients, determining the amounts, and negotiating the terms
and conditions which are often required to be approved by the
Governor in Council. If the authorizing legislation does not
detail the terms and conditions, Governor in Council approval
will be required.
(c) A non-budgetary loan or advance is treated as an asset
rather than an expenditure and thus it does not affect the
deficit unless it is either written down through a year-end
valuation adjustment, forgiven or written off as uncollectible.
If a loan has already been totally written-down through a
year-end valuation adjustment, any subsequent forgiveness or
write-off has no net effect on the deficit although it will
increase gross expenditures for the year.
(d) Whenever loans are made, the departmental accounting
records must display at all times the net balance owing to the
government from each recipient, including a repayment schedule
and any applicable interest provisions. When conditions provide
for repayment less frequently than quarterly, claims for
instalments or other repayments of loans should be made in
writing prior to the due date, so that repayments will be
received on the due date. Claims for interest due on loans should
likewise be issued prior to the due date when payable less
frequently than quarterly.
(e) Unless the loan agreement specifies otherwise or provides
for the conditional forgiveness or deferment of interest, the
amount of any repayment must be applied first to the entire sum
of interest due at the time of each instalment and then to the
principal.
(f) The collectibility of loans must be reviewed as soon as
the first payment is missed or the department has other grounds
to doubt the ability of the debtor to repay a loan and thereafter
periodically. In addition, at year-end, all loans must be
examined to determine if a valuation adjustment is required (see
Chapter 4-6 of the Comptrollership volume of the Treasury
Board Manual). Write-off action must be taken as a last
resort after all attempts, as indicated in Chapter 3-5 of the
Comptrollership volume of the Treasury Board Manual, have
been pursued.
(a) A loan guarantee is not a loan per se but a guarantee to a
lender, such as a bank or other financial institution providing
credit or funding to another party, that the government will
repay the amount guaranteed, subject to the terms and conditions
of an agreement, if the borrower defaults. The guarantee will
reduce the lender's risk and should enable the borrower to obtain
a loan at a lower interest rate or obtain a loan that might not
otherwise have been obtainable.
(b) The approval of the Minister of Finance is required for
all contingent liability commitments of the Crown, such as loan
guarantees. Parliamentary authority is also required to guarantee
a loan. Loan guarantee programs such as the Canada Student Loan
Program, must be supported by separate program legislation.
However, pursuant to section 29(2) of the Financial
Administration Act, specific loan guarantees may be
authorized through an Appropriation Act when such
guarantees can be listed individually in the Estimates.
(c) Pursuant to section 29(1) of the Financial
Administration Act, any payments made to honour loan
guarantees, regardless of whether the guarantee was authorized
through program legislation or an Appropriation Act, are
statutory budgetary expenditures. From a cash-management
perspective, it is important to ensure that lenders advise the
department in a timely manner of any potential default
situations. The department can then begin to take whatever action
is necessary to ensure that the loan is recovered to the fullest
extent practicable.
(d) Once a borrower has defaulted and the government has
honoured the guarantee by paying the lender, all of the lender's
rights and interests concerning the loan are subrogated to the
Crown. Subject to any provisions to the contrary in the guarantee
agreement or relevant statute, the balance of the loan and any
interest payable thereon are now payable to the department
concerned and must be recorded in the departmental accounts as
such. Departments must then employ the appropriate collection
measures as specified in chapter 3-5 of the Comptrollership
volume, Treasury Board Manual. Should the balance of the
loan subsequently prove uncollectible, it must be written off in
accordance with the Debt Write-Off Regulations.
Enquiries about this policy should be directed to your
departmental headquarters. For interpretation of this policy,
departmental headquarters should contact:
Financial & Contract Management Sector
Comptroller General Branch
Treasury Board Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
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