Financial Statements Discussion And Analysis- Administered Activities (unaudited)

Introduction

The Financial Statements – Administered Activities reflect the total assets and liabilities, tax and non-tax revenues, expenses and recoveries, and cash flows administered by the Canada Revenue Agency (CRA) for the Government of Canada, provinces, territories, First Nations (FN), and other government organizations. Revenues and expenses are recorded on an accrual basis.

Tax revenues

The CRA  collects the majority of federal tax revenues. Other agencies and departments, such as the Canada Border Services Agency, account for the balance of total federal tax revenues reported in the Public Accounts of Canada. For further information on the Government of Canada’s total revenues, please refer to the Annual Financial Report of the Government of Canada, available at

https://www.canada.ca/en/department-finance/services/publications/annual-financial-report.html.

Impact of Canada's COVID-19 Economic Response Plan on financial results

In March 2020, the World Health Organization classified the outbreak of COVID-19 disease as a global pandemic. Since then, the Government of Canada announced a series of tax and economic measures under the Canada’s COVID-19 Economic Response Plan (The Plan) to support the Canadian economy during the COVID-19 global pandemic. The Plan is designed to help stabilize the Canadian economy. It includes measures to assist individuals and businesses through direct transfers, tax deferrals, and measures to ensure businesses continue to have access to credit. These measures have had a significant impact on the CRA’s Administered activities 2020-2021 financial statements. Measures are listed below and amounts paid during the year are detailed in Table 4.

For Individuals:

Canada Emergency Response Benefit: This program provided financial support between March 15 and September 26, 2020, to employed and self-employed Canadians directly affected by COVID-19.

Canada Recovery Benefit: This program provides income support to employed and self-employed individuals directly affected by COVID-19 and are not entitled to EI benefits. The program started on September 27, 2020.

Canada Emergency Student Benefit: This program provided financial support between May 10 and August 29, 2020, to post-secondary students who were unable to work and recent post-secondary and high school graduates who were unable to find work due to COVID-19.

Canada Recovery Caregiving Benefit: This program provides income support to employed and self-employed individuals who are unable to work because they must care for their child under 12 years old or a family member who needs supervised care. The program started on September 27, 2020.

Canada Recovery Sickness Benefit: This program provides income support to employed and self-employed individuals who are unable to work because they are sick or need to self-isolate due to COVID-19 or have an underlying health condition that puts them at greater risk of getting COVID-19. The program started on September 27, 2020.

The one-time extra Canada Child Benefit issued in May 2020 provided support to young families.

The Canada Child Benefit Young Child Supplement provided up to four payments in 2021 to families with children under six to help pay for a wide range of expenses.

The one-time enhanced GST credit issued in April 2020 provided additional support to lower and middle-income Canadians.

For Businesses:

Canada Emergency Wage Subsidy: This program is available to employers with a drop in revenues and is intended to reduce layoffs and encourage the re-hiring of laid-off employees. This program became available on April 2020 and was retroactive to March 15, 2020.

Canada Emergency Rent Subsidy: This program is available to Canadian businesses, non-profit organizations, or charities who have seen a drop in revenue during the COVID-19 pandemic and may be eligible for a subsidy to cover part of their commercial rent or property expenses. The program started on September 27, 2020.

10% Temporary Wage Subsidy for Employers: This program was a 3-month measure that allowed eligible employers to reduce the amount of payroll deductions they need to remit to the CRA.  The intent is to provide temporary payroll support. The subsidy is on the remuneration paid from March 18 to June 19, 2020.

Other Measures:

There were administrative and other relief measures administered by the Agency during the fiscal year.  They included:

• Extension of the filing deadline for 2019 income tax returns to June 1, 2020.
• Extension of the payment deadline for GST returns to June 30, 2020.
• Extension of the payment deadline for 2019 income tax returns to September 30, 2020.
• Extension of the payment deadline for 2020 individual income tax, for qualified COVID-19 benefit recipients, to April 30, 2022.

Interest relief: the CRA reduced interest rates to 0.00% on existing tax debts related to individual, corporate, and trust income tax returns from April 1, 2020, to September 30, 2020, and from April 1, 2020, to June 30, 2020, for goods and services tax/harmonized sales tax returns.

Revenues Administered for the Government of Canada ($ millions)

Individuals and Trusts income tax

Individuals and trusts income tax revenues increased by $7,173 million or 4.3%. The increase reflects the growth in wages and tax revenues from support measures announced in The Plan, offset in part by lower employment. Federal revenues were reduced furthermore by tax measures announced in the Economic and Fiscal Update 2019.

Corporations income tax

Corporations income tax revenues increased by $4,052 million or 8.1%. This was due to economic uncertainties and payment deferral measures as announced under The Plan, which resulted in weaker fiscal year 2020 revenues. Those were offset in part by fiscal year 2021 Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy transfer payments as announced under The Plan along with better than expected results in the recovery of tax year 2020 tax revenues. Furthermore, higher amounts of instalments contributed to more revenues for the first quarter of tax year 2021.

Non-resident tax withholdings

Non-resident tax withholdings revenues decreased by $1,369 million or 14.4%. The decrease is due mainly to lower revenues from the management of companies sector, the reduction of business activity due to the COVID-19 pandemic, and to a lesser extent, the reduction in interest rates.

Goods and services tax (GST) revenues

GST revenues decreased by $1,016 million or 7.3%. GST revenues were impacted by the one time $5.4 billion GST credit to individuals issued in April 2020 as announced in The Plan, along with the modest decline in retail sales. This was offset in part by the decrease in the GST on imports leading to lower deductions from GST assessed.

Energy taxes

Energy taxes revenues decreased by $767 million or 13.6%. Lower revenues resulted from a decline in motive fuel consumption due to confinement measures and travel restrictions between provinces.

Other excise taxes and duties

Other excise taxes and duties revenues increased by $345 million or 9.5%. The increase reflects higher duty rates on alcoholic beverages and tobacco, as well as higher liquor production.

Air travellers security charge

Air travellers security charge revenues decreased by $787 million or 98.6%. The decrease is due to lower air passenger traffic. The COVID-19 pandemic has had a significant impact on air travel since March 2020.

Cannabis duties

Cannabis duties revenues increased by $57 million or 109.3%. Revenues reflect the increase in cannabis sales in fiscal year 2021.

Employment insurance premiums

Employment insurance premiums revenues increased by $298 million or 1.3%. The increase is due to higher January to March 2021 revenues and higher wages, offset in part by lower employment and a reduction in the employment insurance rate.

Fuel Charge Proceeds

Fuel charge proceeds increased by $1,564 million or 58.9%. Revenues reflect the increase in the excess emissions charge and the first full year of the inclusion of Alberta in the Greenhouse Gas Pollution Pricing Act regime.

Interest, penalties, and other revenues

Interest, penalties, and other revenues decreased by $2,019 million or 34.9%. Payment deferral measures under The Plan effectively waived interest and penalties for a significant part of the year. Simultaneously, the Agency’s reduced interest rates to 0.00% on existing tax debts related to individual, corporation, and trust income tax returns from April 1, 2020 to September 30, 2020, and on existing tax debts related to goods and services tax / harmonized sales tax from April 1, 2020, to June 30, 2020. Prescribed rates also declined for the remainder of the fiscal year. 

Pension contributions, interest, and penalties administered for the Canada Pension Plan ($ millions)

Pension contributions, interest and penalties administered for the Canada Pension Plan decreased by $826 million or 1.5%. The decrease is due to lower employment and higher revenues for fiscal year 2020, offset in part by the impact of Canada Pension Plan enhancement rate increases and higher wages.

Figure 1 – Direct federal tax revenues

As shown in Figure 1, the distribution of direct federal tax revenues remained stable in 2021.

Figure 2 – Indirect federal tax and other revenues

As shown in Figure 2, the distribution of indirect federal tax and other revenues reflected higher fuel charge proceeds, lower energy taxes, and lower other excise taxes and duties in 2021.

Revenues administered for provincial and territorial governments, and FN ($ millions)

Individuals and trusts income tax

Individuals and trusts income tax revenues increased by $6,385 million or 8.4%. The increase reflects the growth in wages and tax revenues from support measures announced in The Plan and provincial budgets. This was offset in part by lower employment.

Corporations income tax

Corporations income tax revenues increased by $2,437 million or 10.8%. This was due to economic uncertainties and payment deferral measures as announced under The Plan, which resulted in weaker fiscal year 2020 revenues.  Those were offset in part by fiscal year 2021 Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy transfer payments along with better than expected results in the recovery of tax year 2020 tax revenues. Furthermore, higher amounts of instalments contributed to more revenues for the first quarter of tax year 2021.

Provincial portion of harmonized sales tax (HST)

The provincial portion of HST revenues decreased by $610 million or  2.1%. The provincial portion of HST reflects the decline in retail sales, as well as higher Ontario housing rebates and Ontario sales tax credits, offset in part by higher HST on imports. 

Other revenues

Other revenues increased by $276 million or 43.1%. The increase is from the provincial component of cannabis duty revenues, which reflects the increase in cannabis sales, as well as higher revenues in regards to Quebec Sales Tax on Selected Listed Financial Institutions.

Figure 3 – Revenues administered for provincial and territorial governments, and FN

As shown in Figure 3, the distribution of provincial and territorial, and FN revenues, generally remained stable in 2021.

Expenses and recoveries administered for the Government of Canada ($ millions)

Expenses administered for the Government of Canada increased by $153,894 million or 427.3%. The increase primarily reflects the implementation of several measures announced in The Plan, including the one time extra payment of the Canada Child Benefit. Additionally, the increase reflects higher doubtful accounts expense.

Recoveries administered for the Government of Canada increased by $399 million or 18.5%. The increase is due in large part to the recoveries of payments made under the Canada Recovery Benefit and the higher volume of returns processed due to COVID-19 filing extensions in 2020.

Expenses administered for provincial and territorial governments, and Doubtful accounts expenses administered for the Canada Pension Plan ($ millions)

Expenses administered for provincial and territorial governments increased by $839 million or 12.3%. The increase resulted primarily from the one time enhanced British Columbia climate action tax credit paid in July 2020, enhancements to British Columbia family benefits, higher Ontario energy and property tax credits and higher Ontario senior homeowner property tax credits, offset in part by the elimination of the Alberta climate leadership adjustment rebate on July 1st, 2019.

Doubtful accounts expense administered for the Canada Pension Plan decreased by $14 million or 13.0% resulting from lower write-offs, offset in part by a higher doubtful account allowance.