Financial Statements Discussion and Analysis - Agency Activities (unaudited)

Introduction

This section of the financial statements provides unaudited complementary information on Agency Activities, on an accrual basis, in respect of matters reported in the audited financial statements. The Canada Revenue Agency’s (CRA) management is responsible for the preparation of this financial statements discussion and analysis.

Capacity to deliver services

The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. The duration and impact of the COVID-19 pandemic is unknown at this time. As a result, it is not possible to reliably estimate the length and severity of the impact on CRA’s financial position and financial results in future periods. Nevertheless, CRA’s mandate to support the administration and enforcement of tax legislation and other related legislation remains unchanged. The CRA will continue to contribute to the Government of Canada’s COVID-19 Economic Response Plan while ensuring the delivery of its broader mandate of tax administration.

The CRA’s workforce of approximately 47,000 employees is fundamental to the achievement of this mandate. CRA employees are located throughout Canada, in the following operational regions: Western, Ontario, Headquarters, Quebec and Atlantic. They provide services to taxpayers in multiple tax services offices and tax centers, as well as program services and internal services supporting those programs.

The CRA’s information technology (IT) capacity is also critical to its ability to deliver services to Canadians. It involves an extensive IT infrastructure that is managed primarily by Shared Services Canada and includes the development and maintenance of numerous applications across multiple locations in Canada.

Risk management

The CRA recognizes that a variety of risks could have potential implications on its financial position and operations. The Enterprise Risk Management (ERM) Division of the Audit, Evaluation, and Risk Branch plays a key role in ensuring that corporate risks are identified, impacts are assessed, and strategies for risk management are adopted, notably by producing the CRA Corporate Risk Profile. Additionally, the ERM Division continually innovates and adapts its risk management processes to meet the changing needs of the CRA in an environment of increasing uncertainty. For example, during the COVID-19 pandemic, the ERM division developed frequent additional risk reporting to senior management and the Board on emerging risks and issues warranting special attention, such as increasing threats to cybersecurity, reputational risk and employee health and safety.

Further details on ERM at the CRA are discussed in the Departmental Results Report. This financial statements discussion and analysis will elaborate on specific financial risks throughout its content, where applicable.

Financial highlights

In 2019-2020, the CRA operated within its Parliamentary approved authorities, with underspending of $287.4 million. The CRA’s operating environment changed dramatically in the last quarter of the year as a result of the COVID-19 pandemic which curtailed planned spending in many areas. For example, travel related to compliance and collections was put on hold and external hiring and overtime did not materialize as planned. Lastly, many of the strategic investment projects were slowed thereby increasing the CRA’s lapse. These unspent funds, available for use in 2020-2021, will be used to fund emerging tax and benefit pressures, as well as major project investments.

Budget 2019 focused on improving client services and ensuring a fair tax system for all Canadians by:

On August 23, 2019, the collective agreement between the CRA and the Professional Institute of the Public Service of Canada (PIPSC) in the Audit, Financial and Scientific (AFS) Group was signed, covering the period from December 22, 2018, to December 21, 2022. The CRA had 180 days to implement the agreement and ensure all retroactive payments were issued. As part of the agreement, each PIPSC-AFS member also received a $400 non-pensionable payment in recognition of the extended implementation timeline, which was paid out on February 5, 2020.

As part of its ongoing resource management strategy, the CRA continuously reviews and revises plans and priorities to ensure the effective and efficient use of government resources and the achievement of its core business outcomes. Although the duration and full impact of the COVID-19 pandemic continues to be unknown, the CRA continues to be well-positioned to respond to this evolving situation.

Discussion and analysis

Net cost of operations before government funding and transfers

The CRA’s 2019-2020 net cost of operations before government funding and transfers amounted to $4,959.3 million, an increase of $379.3 million from the $4,580.0 million net cost of operations before government funding and transfers in 2018-2019.

Details of the net cost of operations before government funding and transfers are illustrated below (see note 8a to the Financial Statements – Agency Activities for a further breakdown of expenses by category):

Figure 1: Details on the net cost of operations before government funding and transfersFootnote 1 

Figure 1 image description

Figure 1: Details on the net cost of operations before government funding and transfers (in thousands of dollars).

  • Personnel: the amount for 2020 is 4,217,436, for 2019 is 3,784,269, and the difference is 433,167.
    IT equipment and services: the amount for 2020 is 527,825, for 2019 is 527,388, and the difference is 437.
  • Accommodation: the amount for 2020 is 297,414, for 2019 is 290,453, and the difference is 6,961.
    Federal sales tax administration costs by the Province of Québec: the amount for 2020 is 141,828, for 2019 is 141,794, and the difference is 34.
  • Professional and business services excluding IT: the amount for 2020 is 151,256, for 2019 is 154,044, and the difference is (2,788).
  • Transportation: the amount for 2020 is 118,843, for 2019 is 118,420, and the difference is 423.
    Other: the amount for 2020 is 82,138, for 2019 is 99,468, and the difference is (17,330).

Total expenses: the amount for 2020 is 5,536,740, for 2019 is 5,115,836, and the difference is 420,904.

Less Non-tax revenues: the amount for 2020 is 577,424, for 2019 is 535,789, and the difference is 41,635.

Net cost of operations before government funding and transfers: the amount for 2020 is 4,959,316, for 2019 is 4,580,047, and the difference is 379,269.

Personnel expenses (salaries, other allowances and benefits) represent 76% of total expenses and are the CRA’s primary costs. The remaining 24% of expenses are comprised of other costs such as information technology (IT) and accommodation expenses.

Personnel costs have increased by $433.2 million in 2019-2020, including salary expenses ($260.6 million) and other allowances and benefits ($172.6 million). The increase is mainly explained by expenses resulting from increase in the number of employees, economic salary increases and salary increments. Additionally, Phoenix damages were awarded to employees as part of the new Professional Institute of the Public Service of Canada (PIPSC) collective agreement ($11.6 million) and tentative Public Service Alliance of Canada (PSAC) collective agreement (estimated at $76.9 million). Furthermore, the cost of the employer’s contribution to the health and dental insurance plans has increased due to the overall increase in the CRA’s salaries as well as the change in the plans’ rate (9,2% in 2019-2020 compared to 8,5% in 2018-2019) provided by the Treasury Board Secretariat of Canada ($32.7 million).

Non-personnel expenses have decreased by $12.3 million in 2019-2020. This net variance mainly results from a decrease in advertising, interest, amortization and other services and expenses.

Non-tax revenues increased by $41.6 million in 2019-2020, which is attributable to fees for the administration of various initiatives such as the Canada Emergency Response Benefit and the Canada Pension Plan.

Financial position

The change in the Agency’s net financial position compared to the previous year is as follows:

Figure 2: Statement of Financial Position

Figure 2 image description

Figure 2: Statement of Financial Position (in thousands of dollars).

  • Liabilities: the amount for 2020 is 1,453,831, for 2019 is 1,184,140, and the difference is 269,691.
  • Financial assets: the amount for 2020 is 346,199, for 2019 is 384,744, and the difference is (38,545).
  • Agency net debt: the amount for 2020 is 1,107,632, for 2019 is 799,396, and the difference is 308,236.
  • Non-financial assets: the amount for 2020 is 440,483, for 2019 is 433,699, and the difference is 6,784.
  • Agency net financial position: the amount for 2020 is 667,149, for 2019 is 365,697, and the difference is 301,452.

Liabilities

Liabilities have increased by $269.7 million in 2019-2020. This was mainly attributable to the increase in the current year provision for salary accruals to reflect expired collective agreements ($202.4 million) and Phoenix damages awarded to employees as part of the tentative PSAC collective agreement ($76.9 million). Additionally, Phoenix damages related to the new PIPSC collective agreement increased the vacation leave payable to employees ($11.6 million). The overall increase was offset by a decrease in the accounts payable to external vendors ($33.7 million), which was partly due to the COVID-19 pandemic. As critical services were prioritized and buildings had limited or no access, purchases completed in March were reduced compared to previous years.

These variances impacted significantly the proportions of the various categories of liabilities as illustrated below.

Figure 3: Liabilities by category

Figure 3 image description

Figure 3: Liabilities by category, in pie charts.

For 2019-2020

  • Accrued salaries 47%
  • Accounts payable and accrued liabilities 5%
  • Vacation pay and compensatory leave 17%
  • Employee severance benefits 12%
  • Employee sick leave benefits 19%

For 2018-2019

  • Accrued salaries 33%
  • Accounts payable and accrued liabilities 11%
  • Vacation pay and compensatory leave 17%
  • Employee severance benefits 16%
  • Employee sick leave benefits 23%

Employee sick leave and severance benefits are significant liabilities that require the use of management estimates and assumptions to determine their present value as at March 31 of each year. As such, there is a financial risk of imprecision in the financial position of the CRA where actual liabilities and the related expenses may differ significantly from current estimates.

To minimize this risk, the CRA uses the expertise of the Office of the Chief Actuary, who provides an actuarial valuation report on a yearly basis, presenting the actuarial assumptions and method used to determine the actuarial present value of those employee benefits. Actuarial assumptions used by the CRA are consistent with those used by the Government of Canada.

Financial assets

The decrease of $38.5 million in financial assets reflects a decrease in the Due from the Consolidated Revenue Fund (CRF) resulting mainly from the decrease in the accounts payable to external vendors. The Due from the CRF account represents the net amount of cash that the CRA is entitled to draw without using further appropriations to discharge its liabilities. 

Non-financial assets

Non-financial assets are comprised of 95% tangible capital assets. The CRA managed a capital budget of $62.3 million for the year 2019-2020 ($85.0 million for 2018-2019), of which a total of $9.8 million ($26.3 million for 2018-2019) remains available for use in future years in accordance with the CRA’s multi-year resource management strategy.

The net book value of tangible capital assets has increased by $2.4 million in 2019-2020. The costs capitalized and the amortization expenses remained fairly stable at $64.0 million and $60.0 million, respectively. The vast majority of tangible capital assets owned by the CRA relates to IT, specifically in-house developed software. As a large organization responsible for delivering an extensive range of tax and benefits programs on behalf of the federal and of provincial governments, the CRA has specialized software needs that are primarily fulfilled internally through the development of in-house tailored applications by CRA employees.

To prioritize investment decisions regarding in-house developed software and support the effective management of resources, the CRA Resource Management Committee (RMC) oversees investment projects above $1 million in any one fiscal year, regardless of the source of funding. All projects brought to the RMC require a formal attestation from the ERM Division of the Audit, Evaluation and Risk Branch that the CRA risk management process was followed and that sound risk information forms part of the submission. The attestation process takes place at various project development stages. Enterprise risk information is also used to inform the development of the CRA Strategic Investment Plan, a long-term plan of significant future investments.

Five year comparative financial information

The following tables provide a five year comparison of financial information based on the accounting policies described in note 2 to the audited financial statements.

Figure 4: Statement of Financial position

Figure 4 image description

Figure 4: Statement of Financial position (in thousands of dollars).

Liabilities

  • Accrued salaries: the amounts are 329,274 in 2016, 341,486 in 2017, 479,094 in 2018, 390,081 in 2019 and 678,862 in 2020.
  • Accounts payable and accrued liabilities: the amounts are 87,790 in 2016, 98,756 in 2017, 115,434 in 2018, 129,153 in 2019 and 77,104 in 2020.
  • Vacation pay and compensatory leave: the amounts are 189,038 in 2016, 212,148 in 2017, 211,925 in 2018, 208,056 in 2019 and 245,174 in 2020.
  • Employee severance benefits: the amounts are 604,149 in 2016, 573,721 in 2017, 216,690 in 2018, 187,156 in 2019 and 172,407 in 2020.
  • Employee sick leave benefits: the amounts are 253,665 in 2016, 253,093 in 2017, 260,516 in 2018, 269,694 in 2019 and 280,284 in 2020.

Total liabilities: the amounts are 1,463,916 in 2016, 1,479,204 in 2017, 1,283,659 in 2018, 1,184,140 in 2019 and 1,453,831 in 2020.

Financial assets

  • Due from the Consolidated Revenue Fund: the amounts are 269,109 in 2016, 311,560 in 2017, 487,787 in 2018, 362,149 in 2019 and 306,320 in 2020.
  • Accounts receivable and advances: the amounts are 7,415 in 2016, 18,181 in 2017, 35,631 in 2018, 22,595 in 2019 and 39,879 in 2020.

Total financial assets: the amounts are 276,524 in 2016, 329,741 in 2017, 523,418 in 2018, 384,744 in 2019 and 346,199 in 2020.

Agency net debt: the amounts are 1,187,392 in 2016, 1,149,463 in 2017, 760,241 in 2018, 799,396 in 2019 and 1,107,632 in 2020.

Non-financial assets

  • Prepaid expenses: the amounts are 12,454 in 2016, 12,769 in 2017, 16,649 in 2018, 15,643 in 2019 and 20,074 in 2020.
  • Tangible capital assets: the amounts are 402,322 in 2016, 399,074 in 2017, 409,197 in 2018, 418,056 in 2019 and 420,409 in 2020.

Total non-financial assets: the amounts are 414,776 in 2016, 411,843 in 2017, 425,846 in 2018, 433,699 in 2019 and 440,483 in 2020.

Agency net financial position: the amounts are 772,616 in 2016, 737,620 in 2017, 334,395 in 2018, 365,697 in 2019 and 667,149 in 2020.

Figure 5: Segmented information – ExpensesFootnote 1

Figure 5 image description

Figure 5: Segmented information – Expenses (in thousands of dollars).

Personnel:

  • Salaries: the amounts are 2,406,841 in 2016, 2,644,181 in 2017, 2,670,271 in 2018, 2,772,185 in 2019, and 3,032,775 in 2020.
  • Other allowances and benefits: the amounts are 966,686 in 2016, 1,028,997 in 2017, 981,471 in 2018, 1,012,084 in 2019, and 1,184,661 in 2020.

Total personnel: the amounts are 3,373,527 in 2016, 3,673,178 in 2017, 3,651,742 in 2018, 3,784,269 in 2019 and 4,217,436 in 2020.

  • Professional and business services: the amounts are 375,812 in 2016, 414,485 in 2017, 470,512 in 2018, 562,850 in 2019 and 567,714 in 2020.
  • Accommodation: the amounts are 315,216 in 2016, 358,228 in 2017, 321,093 in 2018, 290,453 in 2019 and 297,414 in 2020.
  • Federal sales tax administration costs by the Province of Québec: the amounts are 142,275 in 2016, 141,821 in 2017, 141,822 in 2018, 141,794 in 2019 and 141,828 in 2020.
  • Transportation and communications: the amounts are 127,699 in 2016, 119,354 in 2017, 115,318 in 2018, 118,539 in 2019 and 119,017 in 2020.
  • Amortization of tangible capital assets: the amounts are 83,843 in 2016, 89,076 in 2017, 78,342 in 2018, 61,964 in 2019 and 60,048 in 2020.
  • Equipment purchases: the amounts are 17,461 in 2016, 21,266 in 2017, 29,698 in 2018, 47,257 in 2019 and 40,493 in 2020.
  • Other services and expenses: the amounts are 35,368 in 2016, 36,452 in 2017, 36,929 in 2018, 39,212 in 2019 and 31,736 in 2020.
  • Materials and supplies: the amounts are 19,794 in 2016, 17,356 in 2017, 21,076 in 2018, 18,509 in 2019 and 17,541 in 2020.
  • Advertising, information and printing services: the amounts are 4,865 in 2016, 4,001 in 2017, 15,639 in 2018, 23,394 in 2019 and 17,044 in 2020.
  • Equipment rentals: the amounts are 2,389 in 2016, 2,351 in 2017, 16,072 in 2018, 15,741 in 2019 and 16,547 in 2020.
  • Interest on average accrued benefit obligations: the amounts are 20,003 in 2016, 19,587 in 2017, 15,279 in 2018, 9,178 in 2019 and 7,381 in 2020.
  • Loss on disposal/write-off of tangible capital assets: the amounts are 899 in 2016, 3,271 in 2017, 1,222 in 2018, 686 in 2019 and 1,557 in 2020.
  • Repair and maintenance: the amounts are 20,143 in 2016, 17,688 in 2017, 1,084 in 2018, 1,990 in 2019 and 984 in 2020.
  • Total expenses: the amounts are 4,539,294 in 2016, 4,918,114 in 2017, 4,915,828 in 2018, 5,115,836 in 2019 and 5,536,740 in 2020.

Figure 6: Segmented information – Non-tax revenues

Figure 6 image description

Figure 6: Segmented information – Non-tax revenues (in thousands of dollars).

Non-tax revenues credited to Vote 1

  • Fees for administering the Employment Insurance Act: the amounts are 179,196 in 2016, 198,059 in 2017, 185,015 in 2018, 183,435 in 2019 and 185,084 in 2020.
  • Fees for administering the Canada Pension Plan: the amounts are 143,208 in 2016, 172,114 in 2017, 169,997 in 2018, 172,700 in 2019 and 204,410 in 2020.
  • Total Non-tax revenues credited to Vote 1: the amounts are 322,404 in 2016, 370,173 in 2017, 355,012 in 2018, 356,135 in 2019 and 389,494 in 2020.

Non-tax revenues available for spending

  • Administration fees - provinces and territories: the amounts are 110,387 in 2016, 112,237 in 2017, 116,483 in 2018, 128,105 in 2019 and 120,316 in 2020.
  • Services fees: the amounts are 53,722 in 2016, 48,507 in 2017, 45,547 in 2018, 49,033 in 2019 and 65,623 in 2020.
  • Miscellaneous respendable revenues: the amounts are 3,412 in 2016, 3,048 in 2017, 2,210 in 2018, 2,516 in 2019 and 1,991 in 2020.
  • Total Non-tax revenues available for spending: the amounts are 167,521 in 2016, 163,792 in 2017, 164,240 in 2018, 179,654 in 2019 and 187,930 in 2020.

Non-tax revenues not available for spending

  • Recovery of employee benefit costs relating to non-tax revenues credited to Vote 1 and revenues available for spending: the amounts are 65,653 in 2016, 76,717 in 2017, 73,303 in 2018, 74,154 in 2019 and 79,154 in 2020.
  • Miscellaneous non-tax revenues: the amounts are 3,890 in 2016, 950 in 2017, 1,414 in 2018, 1,401 in 2019 and 865 in 2020.
  • Total Non-tax revenues not available for spending: the amounts are 69,543 in 2016, 77,667 in 2017, 74,717 in 2018, 75,555 in 2019 and 80,019 in 2020.
  • Total non-tax revenues before revenues earned on behalf of Government: the amounts are 559,468 in 2016, 611,632 in 2017, 593,969 in 2018, 611,344 in 2019 and 657,443 in 2020.

Revenues earned on behalf of Government: the amounts are (69,543) in 2016, (77,667) in 2017, (74,717) in 2018, (75,555) in 2019 and (80,019) in 2020.

Total non-tax revenues: the amounts are 489,925 in 2016, 533,965 in 2017, 519,252 in 2018, 535,789 in 2019 and 577,424 in 2020.

Outlook

The COVID-19 pandemic significantly disrupted CRA’s activities at the end of 2019-2020, as it did for the rest of Canada and the world. Following the March 11, 2020 World Health Organization announcement declaring COVID-19 as a pandemic, the House of Commons was temporarily shut down, resulting in some activities being postponed, including the delivery of the federal budget. Since then and until Budget 2020 is tabled, the focus of CRA’s activities is to provide support to Canada in delivering its COVID-19 Economic Response Plan. As of the CRA’s Financial Statements’ signature date, Budget 2020 has not yet been tabled in Parliament.

As part of Canada’s COVID-19 Economic Response Plan, the CRA played a leading role, taking unprecedented action to help Canadians and businesses facing hardship. Some of the major actions taken by CRA as early as the final weeks of 2019-2020 include, but are not limited to:

In order to continue to deliver on these and other emergency measures, the CRA is seeking funding for CERB, CESB, CEWS and TWS.

Due to the emergency measures enacted by the Government of Canada, the CRA was unable to operate at full capacity during the first quarter of 2020-2021. To mitigate the risks to operations, the CRA prioritized critical services according to its National COVID-19 Business Continuity Plan, and more recently began its phased transition to full business resumption as outlined in its National Business Resumption Plan.

Timely measures were implemented to ensure the health and safety of all employees, especially those who continued to deliver critical services in the workplace. Like other Canadians, CRA employees were asked to follow public health advice and the majority were asked to stay and work from home in the early stages of the crisis. This was enabled by the expedited expansion of remote work capabilities and equipment deployment. As a result, the CRA has become to a large degree a virtual workplace.

In the future and through these times of change and increasing uncertainties, the CRA will continue to innovate and adapt in order to improve the efficiency and effectiveness of its operations and programs while contributing to the Government of Canada’s priorities, by continuously optimizing the use of its resources and modernizing its services and compliance activities.

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