Quarterly Financial Report (QFR) for the quarter ended December 31, 2025

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1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board. This report should be read in conjunction with the Main Estimates – 2025–26 Estimates, Supplementary Estimates (A), 2025–26 and Supplementary Estimates (B), 2025–26. This report has not been subject to an external audit or review.

Our North, Strong and Free: A Renewed Vision for Canada is Canada’s updated defence policy that seeks to strengthen the foundations of the military as well as deter and defeat new and accelerating threats with new capabilities. The renewed vision is focused on meeting these challenges by:

The Department continues to carry out its mandate to achieve results related to six core responsibilities as well as internal services. A summary description of these core responsibilities can be found in the Departmental Plan 2025–26.

Additionally, following the transfer of the control and supervision of the Canadian Coast Guard (CCG) from Fisheries and Oceans Canada (DFO) on September 2, 2025, two new core responsibilities now exist: Marine Navigation, and Marine Operations and Response.

1.1. Basis of presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying statement of authorities includes National Defence (DND) spending authorities granted by Parliament and used by DND consistent with the Main Estimates, the Supplementary Estimates (A) and the Supplementary Estimates (B) for the 2025–26 fiscal year. This quarterly report has been prepared using a special-purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before money can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

DND uses the full accrual method of accounting to prepare and present its annual consolidated departmental financial statements, which are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis. The main difference between the quarterly financial reports and the consolidated departmental financial statements is the timing of when revenues and expenses are recognized. The quarterly financial report includes revenues only when the money is received and expenses only when the money is paid out. The consolidated departmental financial statements report revenues when they are earned and expenses when they are incurred. In the latter case, revenues are recorded even if cash has not been received and expenses are incurred even if cash has not yet been paid out.

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2. Highlights of fiscal-quarter and fiscal-year-to-date results

This section provides financial highlights and explanations for differences between the fiscal- quarter and fiscal-year-to-date results for the quarter ended on December 31, 2025, and the results of the same period last year.

2.1. Statement of authorities

When compared to those of the same period of the previous year, DND’s year-to-date budgetary authorities available for use have increased by $12,145.9 million. As reflected in Table 1: Statement of authorities, the total budgetary authorities increased from $34,654.2 million in 2024–25 to $46,800.1 million in 2025–26.

As part of Canada’s commitment to increase and accelerate its investments in defence to reach 2% of gross domestic product (GDP), there were increases in appropriations for various initiatives accessed through the year.

Year-to-date variances in authorities available for use
(in millions of dollars)
Initiative Operating
(Vote 1)
Capital
(Vote 5)
Grants and contributions
(Vote 10)
Payments in respect of the long-term disability and life insurance plan for members of the Canadian Forces
(Vote 15)
Budgetary statutory authorities Total variancesFootnote *
Capital equipment and infrastructure projects 225.8 3,359.1 3.9 0.0 14.1 3,603.0
Funding for recruitment, retention and support programs for the Canadian Armed Forces 1,928.0 31.6 0.3 142.7 441.2 2,543.8
Canadian Coast Guard 505.1 1,263.7 12.9 0.0 0.2 1,781.9
Contributions in support of the Military Training and Cooperation Program 0.0 0.0 1,382.0 0.0 0.0 1,382.0
Funding for defence research and development and support for the Canadian defence industry 54.2 0.0 1,045.0 0.0 1.3 1,100.5
Fleet and Equipment Readiness Program (formerly National Procurement Program) 747.4 132.8 0.0 0.0 5.6 885.8
Operation and sustainment (fleet maintenance) of military capabilities and operating requirements 218.9 102.7 0.0 0.0 0.0 321.6
Infrastructure Maintenance, Repair and Sustainment 147.9 70.8 0.0 0.0 2.1 220.8
Underwater Surveillance System 206.6 0.0 0.0 0.0 0.0 206.6
Funding for digital tools and capabilities 90.2 90.0 0.0 0.0 7.7 187.9
Arctic Over-the-Horizon Radar (A-OTHR) 5.7 143.1 10.0 0.0 1.2 160.1
Funding for Identification and Options Analysis 125.9 0.0 0.0 0.0 4.9 130.8
Domestic Ammunition Production 0.1 2.6 59.4 0.0 0.7 62.8
North American Aerospace Defense Command Modernization – Science and Technology Initiatives 94.0 (24.6) (8.8) 0.0 1.5 62.1
Halifax-Class Life Sustainment (9.2) 43.2 0.0 0.0 1.9 35.9
Advanced Short-Range Missiles and Medium-Range Air-to-Air Missiles 33.3 0.0 0.0 0.0 0.0 33.3
Heyder-Beattie Class Action (59.4) 0.0 0.0 0.0 (2.7) (62.1)
Miscellaneous departmental requirements (197.8) (11.1) (3.8) 0.0 (38.3) (251.0)
Future Aircrew Training Program 71.2 (331.5) 0.0 0.0 0.4 (259.9)
Cumulative variance in authorities available for use 4,187.9 4,872.4 2,500.9 142.7 441.8 12,145.9

Note: Numbers may not add up due to rounding.

 

The year-to-date net increase in authorities of $12,145.9 million over the third quarter in 2024–25 can be explained by variances in funding for a number of initiatives:

Capital equipment and infrastructure projects (increase of $3,603.0 million)
The net increase in funding is due to modifications to the multi-year spending profile of capital equipment and infrastructure projects. These adjustments serve to align financial resources with project acquisition timelines. The increase is mainly related to the Canadian Multi-Mission Aircraft project, the Joint Support Ship project, the River-Class Destroyer project, and the Future Fighter Capability project. This increase is partially offset by decreases related to the Hornet Extension project and the Strategic Tanker Transport Capability project.

Funding for recruitment, retention and support programs for the Canadian Armed Forces (increase of $2,543.8 million)
Investments in recruitment and retention efforts to ensure that the CAF has the personnel it needs to be ready to respond effectively to threats at home and engage meaningfully abroad. This includes the recent improvements to compensation and benefits for CAF members, such as a pay increase, a new military service pay benefit and compensation initiatives for frequent moves, separation from families, attraction and retention of instructors and additional pay for CAF members who serve in natural disasters.

Canadian Coast Guard (increase of $1,781.9 million)
The net increase in funding is due to the transfer of the control and supervision of the CCG from DFO to DND.

Contributions in Support of the Military Training and Cooperation Program (increase of $1,382.0 million)
The net increase is largely related to increased funding to support Ukraine in its efforts to defend its sovereignty from the Russian invasion.

Funding for defence research and development and support for the Canadian defence industry (increase of $1,100.5 million)
This funding is aimed at strengthening the Government’s relationship with Canada’s defence industry to lay the groundwork for a comprehensive Defence Industrial Strategy. These actions focus on immediate needs like reducing obstacles that currently limit industry’s ability to provide critical equipment and support to the CAF.

Fleet and Equipment Readiness Program (increase of $885.8 million)
Funding to support increased levels of activity within the Fleet and Equipment Readiness (FER) Program (formerly known as the National Procurement Program). FER is responsible for maintaining the operational readiness of approximately 100 existing CAF fleets, including aircraft, ships, tanks, and other military equipment. The increase includes incremental funding approved in Budget 2024 and accessed in the 2025–26 Main Estimates as well as additional funding accessed through Supplementary Estimates (A).

Operation and sustainment (fleet maintenance) of military capabilities and operating requirements (increase of $321.6 million)
In order to provide ongoing support for operating and capital requirements, DND received additional funding to offset sustainment growth and the inflationary impact on the defence budget.

Infrastructure Maintenance, Repair and Sustainment (increase of $220.8 million)
Funding for the repair and sustainment of existing DND/CAF infrastructure in order to maximize operational readiness and support CAF members. This includes funding approved in Budget 2024 and accessed in the 2025–26 Main Estimates, to mitigate impacts of infrastructure deterioration and a backlog of deferred maintenance across DND’s real property portfolio.

Underwater Surveillance System (increase of $206.6 million)
Funding to contribute to the defence of Canadian maritime approaches, including undersea monitoring and surveillance of the North Atlantic.

Funding for digital tools and capabilities (increase of $187.9 million)
This funding will strengthen DND/CAF’s digital foundations to ensure that the Defence Team is a relevant and modern workforce in today’s technological era. It will enable DND/CAF to be more resilient to cyber threats and leverage data strategically to improve decision making, while keeping defence information safe and secure.

Arctic Over-the-Horizon Radar (increase of $160.1 million)
Funding for advancing a national radar system capability in coordination with the United States’ solutions, which will make a significant contribution to North American Aerospace Defense Command (NORAD) modernization, providing enhanced radar coverage of Canada’s northern and northeastern approaches, which will cover approaches to both Canadian and American national capital regions.

Funding for Identification and Options Analysis (increase of $130.8 million)
Funding for projects in the pre-definition phase—that is at the stage of conducting identification and options analysis (ID/OA). This includes an increase in ID/OA funding for initiatives approved in Budget 2024, for example Airborne Early Warning and Control as well as Northern Operational Support Hub initiatives, partially offset by a decrease in ID/OA funding approved in Budget 2022 for NORAD modernization initiatives.

Domestic Ammunition Production (increase of $62.8 million)
New funding for the Domestic Ammunition Production initiative to establish domestic production capability for a specific variant ammunition used by the CAF.

North American Aerospace Defense Command Modernization – Science and Technology Initiatives (increase of $62.1 million)
This funding will support the deepening of expertise and knowledge to inform the development of future capabilities to defend Canada and North America and will be used to fund a suite of science and technology initiatives for the modernization of NORAD. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.

Halifax-Class Life Sustainment (increase of $35.9 million)
This funding was approved in Budget 2024 for the continued sustained maintenance of the Halifax-class frigates until the delivery of their replacement—the River-class destroyers. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.

Advanced Short-Range Missiles and Medium-Range Air-to-Air Missiles (increase of $33.3 million)
Funding for the procurement of advanced short-range missiles and medium-range air-to-air missiles, including spare parts, training, software, and technical support. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.

Heyder-Beattie Class Action (decrease of $62.1 million)
The Heyder-Beattie class action sought damages related to gender-based discrimination, sexual assault and sexual harassment. The funding decrease is due to reduced settlement payments to claimants.

Miscellaneous departmental requirements (decrease of $251.0 million)
The net decrease is due to lower operating budget carry forward in 2025–26 compared to 2024–25 and transfers to other government departments.

Future Aircrew Training Program (decrease of $259.9 million)
Reduced funding as per the acquisition payment schedule for the delivery of flight training for current and future Royal Canadian Air Force aircrew and for the procurement of training aircraft and associated ground-based training systems.

2.2. Departmental budgetary expenditures by standard object

When compared to those of the same quarter of the previous fiscal year, DND’s year-to-date total net budgetary expenditures have increased by $7,554.7 million. As reflected in Table 2: Departmental budgetary expenditures by standard object, the expenditures increased from $22,110.2 million in 2024–25 to $29,664.9 million in 2025–26. Of note, CCG figures have been included in this quarter’s reported expenditures. This inclusion has resulted in some variances as CCG figures were not part of the 2024–25 fiscal year expenditures.

Year-to-date variances in net budgetary expenditures (presented by standard object)
(in millions of dollars)
Standard object 2025–26
Year-to-date used at quarter end
2024–25
Year-to-date used at quarter end
Year-to-date variance
Acquisition of machinery and equipment 7,955.6 4,425.1 3,530.5
Personnel 10,814.6 9,295.3 1,519.2
Transfer payments 1,857.9 625.1 1,232.8
Professional and special services 4,702.2 4,017.9 684.3
Repair and maintenance 1,530.7 1,217.2 313.5
Acquisition of land, buildings and works 718.9 562.5 156.4
Utilities, materials and supplies 871.6 770.7 100.9
Transportation and communications 656.6 563.0 93.6
Rentals 538.7 514.2 24.6
Other net minor items 17.1 15.4 1.8
Other subsidies and payments 258.8 302.2 (43.4)
Revenues netted against expenditures (257.9) (198.4) (59.5)
Total net budgetary expenditures 29,664.9 22,110.2 7,554.7

Note: Numbers may not add up due to rounding.

 

The year-to-date net increase of $7,554.7 million is attributable mainly to the following:

Acquisition of machinery and equipment (increase of $3,530.5 million)
The increase in spending is primarily due to the timing of payments for the Canadian Multi-Mission Aircraft Foreign Military Sales case, and the Airlift Capability Project - Multi-Role Flight Service. Additional increases are due to the Integrated Undersea Surveillance System program, as well as expenditures related to the River-Class Destroyer project and the CCG Polar Icebreaker projects.

Personnel (increase of $1,519.2 million)
The increase in spending is mainly attributed to the military factor adjustment implemented as part of improvements to compensation and benefits for CAF members. Additionally, a greater number of CAF members were serving compared to the same quarter last year. Similarly, an increase in civilian personnel supporting the CAF and the CCG, combined with pay raises following the ratification of several collective agreements, contributed to higher personnel expenditures.

Transfer payments (increase of $1,232.8 million)
The increase in spending is primarily driven by support to Ukraine, including funding for military aid packages and initiatives in response to the ongoing instability. Expenditures also increased due to higher contributions to North Atlantic Treaty Organization (NATO) and NORAD programs.

Professional and special services (increase of $684.3 million)
Engineering, research and development services largely contributed to the increase in spending, primarily driven by the construction of the Arctic and Offshore Patrol Ships and the Polar Icebreakers, the implementation of the River-Class Destroyer project, NORAD modernization and continental defence initiatives led by Defence Research and Development Canada, along with expenditures related to Operation REASSURANCE (Central and Eastern Europe). Additional increases stem from the contaminated sites remediation program, legal fees, and various initiatives such as enterprise training modernization efforts, professional development programs, specialized technical training contracts, and readiness‑support activities.

Repair and maintenance (increase of $313.5 million)
The increase in spending is primarily due to docking work related to the His Majesty’s Canadian Ship (HMCS) Halifax and HMCS Winnipeg frigates, as well as aircraft repairs and maintenance costs associated with the CH148 Cyclone fleet. Additional increases are related to timing of payments for various In-Service Support activities, and maintenance and repair performed by the Canadian Forces Housing Agency (CFHA).

Acquisition of land, buildings and works (increase of $156.4 million)
The increase in spending is primarily driven by the Joint Task Force 2 infrastructure project, engineering works in support of the Strategic Tanker Transport Capability project, the purchase of various real estate, the construction of both a Military Family Resource Centre in Petawawa and a multi-purpose building in Yellowknife, as well as the rehabilitation of the 15 Wing Moose Jaw’s runway. The construction work on the NORAD Quick Reaction Alert facility in Bagotville also contributed to higher expenditures.

Utilities, materials and supplies (increase of $100.9 million)
The increase in spending is primarily due to recruitment efforts and an increase in personnel and assets deployed in operations, requiring an increase in material and supplies such as electricity, fuel, food, and medical products.

Transportation and communications (increase of $93.6 million)
The increase in spending is primarily due to a higher number of personnel relocations compared with the previous year, as well as increases in standardized rates. Additional increases are related to higher operational travel costs.

Rentals (increase of $24.6 million)
The increase in spending is primarily related to Operation CADENCE (2025 G7 Summit) to support the Royal Canadian Mounted Police (RCMP), as well as infrastructure activities on Operation REASSURANCE (Central and Eastern Europe).

Other subsidies and payments (decrease of $43.4 million)
The decrease in spending is primarily due to reduced settlement payments related to the Heyder-Beattie class action, as well as the closeout of the Innovative Solutions Canada program in fiscal year 2024–25.

Revenues netted against expenditures (increase of $59.5 million)
The increase is primarily due to higher rent collected by the CFHA and revenue from general rentals and rations and quarters.

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3. Risks and uncertainties

DND’s financial transactions are exposed to a broad range of external financial, geopolitical and economic risks such as inflation, foreign exchange commodity price fluctuations, tariffs and global supply chain. Currently, DND is seeing economic risks give rise to increases in costs of goods and services, labour shortages, and supply chain delays. Depending on how these risks unfold, they could lead to significant fluctuations in anticipated spending.

While DND considers these factors in developing expenditure strategies, these risks are outside the control of DND.

DND continues to address the financial risks associated with Phoenix pay issues through the implementation of new controls as required and the strengthening of existing ones. The Civilian Quality Assurance program continues to leverage the use of robotic process automation to analyze the current pay environment and lead to more timely corrective actions with the help of compensation agents. Initiatives such as the centralized data entry capability continue to ensure sustained payment accuracy.

DND’s capital acquisition program includes a number of large multi-year acquisition projects, mainly comprising of advanced fighter aircrafts, ships and armored vehicles. Delays in contracting and procurement activities or delays in deliveries by suppliers for individual projects can reduce operational capability and lead to reduced expenditures or budgetary surpluses.

Risks are also present with regard to data maturity as DND’s ability to act with agility is limited by legacy systems, fragmented governance, decentralized decision making, and low data maturity. DND is advancing its data and information management posture by modernizing enterprise data architecture, strengthening governance frameworks, enhancing metadata and interoperability capabilities, and improving data quality.

Risks also flow from claims and litigations involving DND’s normal operations. When DND receives a claim or litigation alleging liability in tort or extra contractual responsibility to cover losses, expenditures or damages, it is analyzed and an appropriate position is developed based on legal advice. Litigation or settlement may be pursued and these are tracked through DND’s reporting mechanisms.

The CAF is applying reconstitution measures at the tactical, operational, and strategic levels to restore units to an acceptable level of readiness to excel as a modern and combat-ready military force. This is intended to enable the CAF to adapt quickly to action when called for significant unexpected operational demands, which can occur at any time anywhere around the globe.

Additionally, significant unforecasted operational demands can occur at any time, requiring DND to respond anywhere in the world. Depending on the extent of the operational demand, the cost of unforecasted operations would be mitigated either through internal reallocations or by requesting incremental funding from the Government.

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4. Significant changes in relation to programs, operations and personnel

Budget 2025 proposes investing $81.8 billion over five years on a cash basis, starting in 2025–26, to rebuild, rearm, and reinvest in the CAF. This includes the funding of over $9 billion in 2025–26 that was announced by the Prime Minister in June 2025.

Additionally, Budget 2025 outlines $13 billion in annual savings by 2028–29 across more than 100 federal organizations as a result of the Comprehensive Expenditure Review. For DND, this represents savings of approximately $460 million per year starting in 2026–27 and ongoing, which will be achieved mainly by retiring older and less efficient fleets.

The Canadian Joint Forces Command (CJFC) was established effective November 25, 2025. Just as the Royal Canadian Navy, Canadian Army, and Royal Canadian Air Force develop and manage their respective environmental capabilities, the CJFC will do the same for joint capabilities across the CAF. By coordinating and consolidating these capabilities under a single command, the CJFC will create efficiencies while increasing the CAF’s operational effectiveness.

On December 19, 2025, Prime Minister Mark Carney announced the appointment of Christiane Fox as Deputy Minister of National Defence, to take effect early in 2026.

Approved by:

Original signed by


Christiane Fox
Deputy Minister of National Defence

Original signed by


Jonathan Moor CBE FCA CPFA
Chief Financial Officer

Dated: February 22, 2026

Ottawa, Canada

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Table 1: Statement of authorities (unaudited) for the quarter ended December 31, 2025
Amounts are expressed in thousands of dollars. Fiscal year 2025–26 Fiscal year 2024–25
Total available for use for the year ending Used during the quarter ended Year-to-date used at quarter-end Total available for use for the year ending Used during the quarter ended Year-to-date used at quarter-end
Mar 31, 2026 Footnote * Dec 31, 2025 Dec 31, 2025 Mar 31, 2025 Footnote * Dec 31, 2024 Dec 31, 2024
Vote 1 – Net Operating expenditures 25,954,775 6,872,731 16,363,272 21,766,836 4,853,849 13,732,326
Vote 5 – Capital expenditures 13,834,778 5,193,578 9,700,607 8,962,331 2,801,943 6,204,573
Vote 10 – Grants and contributions 4,155,232 1,585,986 1,858,647 1,654,233 458,558 625,686
Vote 15 – Payments in respect of the long-term disability and life insurance plan for members of the Canadian Forces 589,379 127,303 330,610 446,728 117,336 322,436
Budgetary Statutory Authorities:
Contributions to employee benefit plans – Members of the Military 1,759,939 429,826 1,083,689 1,427,735 312,652 948,797
Contributions to employee benefit plans 478,979 123,684 325,893 372,802 90,950 272,864
Spending of Amounts Equivalent to Proceeds from Disposal of Surplus Crown Assets 26,317 128 309 22,814 367 755
Payments under the Supplementary Retirement Benefits Act 450 56 148 500 53 226
Court awards – Crown Liability and Proceedings Act 0 1,015 1,633 0 934 2,385
Payments under Parts I–IV of the Defence Services Pension Continuation Act (R.S.C., 1970, c. D-3) 100 10 26 110 12 48
Minister and Associate Minister of National Defence – Salary and Motor Car Allowance 102 29 72 99 25 74
Total Budgetary statutory authorities 2,265,887 554,748 1,411,770 1,824,060 404,993 1,225,149
Total Budgetary Authorities 46,800,051 14,334,346 29,664,906 34,654,188 8,636,679 22,110,170
Non-budgetary Authorities 80,702 (3,970) 48,945 77,191 (10,012) 35,772
Total Authorities 46,880,753 14,330,376 29,713,851 34,731,379 8,626,667 22,145,942

Note: Numbers may not add up due to rounding.

 

Table 2: Departmental budgetary expenditures by standard object (unaudited) for the quarter ended December 31, 2025
Amounts are expressed in thousands of dollars. Fiscal year 2025–26 Fiscal year 2024–25
Planned expenditures for the year ending Expended during the quarter ended Year-to-date used at quarter-end Planned expenditures for the year ending Expended during the quarter ended Year-to-date used at quarter-end
Mar 31, 2026 Dec 31, 2025 Dec 31, 2025 Mar 31, 2025 Dec 31, 2024 Dec 31, 2024
Expenditures:
Personnel 15,423,935 4,418,161 10,814,583 13,168,957 3,110,774 9,295,339
Transportation and communications 1,214,161 223,716 656,603 783,178 144,424 563,033
Information 12,769 8,314 16,119 65,554 4,558 13,381
Professional and special services 9,170,878 2,365,840 4,702,222 6,324,764 1,768,871 4,017,884
Rentals 1,059,226 207,315 538,714 801,117 173,805 514,151
Repair and maintenance 2,835,805 723,185 1,530,690 2,344,358 513,978 1,217,226
Utilities, materials and supplies 1,881,728 372,807 871,636 1,409,944 293,306 770,724
Acquisition of land, buildings and works 1,411,746 357,639 718,923 939,681 241,896 562,544
Acquisition of machinery and equipment 9,751,834 4,131,698 7,955,600 7,072,681 1,916,044 4,425,092
Transfer payments 4,155,782 1,585,752 1,857,946 1,654,843 458,060 625,098
Public debt charges 3,558 131 973 3,577 739 1,955
Other subsidies and payments 248,553 70,552 258,796 424,176 98,301 302,181
Total gross budgetary expenditures 47,169,975 14,465,110 29,922,805 34,992,830 8,724,756 22,308,608
Less Revenues netted against expenditures:
Recoveries from members (170,742) (72,309) (148,407) (154,697) (39,795) (105,543)
Recoveries from OGDs (11,484) (7,271) (10,598) (13,748) (6,281) (8,271)
Recoveries from other governments/UN/NATO (64,511) (16,448) (18,325) (69,781) (12,058) (28,206)
Other recoveries (123,187) (34,736) (80,569) (100,416) (29,943) (56,418)
Total Revenues netted against expenditures (369,924) (130,764) (257,899) (338,642) (88,077) (198,438)
Total net budgetary expenditures 46,800,051 14,334,346 29,664,906 34,654,188 8,636,679 22,110,170

Note: Numbers may not add up due to rounding.

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2026-02-27