Financial Statements Discussion and Analysis - Agency Activities

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.

Context

The CRA administers taxes, benefits and related programs for governments across Canada, to contribute to the economic and social well‑being of Canadians. The CRA’s work is critical to generating the revenue needed to support government operations from healthcare to transportation and beyond and to provide benefits to specific client populations, such as modest‑income households or persons with disabilities. The CRA continued to deliver to Canadians while reducing the budget in response to the reduction measures.

Risk management

The CRA recognizes that a variety of risks could have potential implications on its financial position and operations. The Enterprise Risk Management Division (ERMD) of the Audit, Evaluation, and Risk Branch (AERB) plays a key role in ensuring that corporate risks are identified, likelihood and impacts are assessed, and strategies for mitigating risks that are above tolerance are adopted and reported on periodically, notably by producing the CRA’s Corporate Risk Profile (CRP). Additionally, the ERMD continually innovates and adapts its risk management processes to meet the changing needs of the CRA in an environment of increasing uncertainty. 

The quarterly CRP process was designed to keep pace with fluctuations in the risk landscape caused by major events. Quarterly reports to senior management and the Board ensures they have timely and relevant risk information to support the CRA in achieving its mandate and priorities in a shifting social, political, economic, technological and legislative environment.

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

During 2023 to 2024, the CRA operated within its Parliamentary approved authorities, with underspending of $562.5 million. The CRA’s year-end lapse has decreased in comparison to 2022 to 2023, $908.6 million. In 2023 to 2024, as temporary measures have sunsetted from previous years, the 2022 to 2023 lapse was directed towards emerging operational pressures, the post-pandemic sustainability of CRA contact centers, major project investments, and addressing backlogs. This year has provided a bridge from a pandemic state to a return to regular operations. Overall, the CRA was successful in strategically utilizing its financial resources in 2023 to 2024.

Through 2023 to 2024, the CRA continued the implementation of Government of Canada priority initiatives as announced in federal budgets 2022 and 2023, which focused on measures related to housing, combatting tax avoidance and evasion, aggressive tax planning, and benefit integrity activities. The CRA also supported all Canadians with access to timely and efficient access to accurate information, benefits, and services during tax filing season, while continuing to comply with the Government-wide Refocusing of Government Spending (RGS) reductions. In 2023 to 2024, the CRA achieved the required RGS reductions of $12.0 million for travel and professional services expenditures without impacting workplan targets.

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. The CRA continues to be well positioned to respond to its evolving environment, and has significant controls in place to ensure effective financial management.

Discussion and analysis

Net cost of operations before government funding and transfers

The CRA’s net cost of operations before government funding and transfers in 2023 to 2024 amounted to $6,993.9 million, an increase of $822.1 million from the $6,171.8 million net cost of operations before government funding and transfers from 2022 to 2023.

Details of the net cost of operations before government funding and transfers are illustrated below (see note 8 to the Financial Statements – Agency Activities for a further breakdown of expenses and non-tax revenues by main core responsibilities).

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

Personnel expenses (salaries and other allowances and benefits) represent 78% of total expenses and are the CRA’s primary costs. They have increased by $578.5 million mainly as a result of economic salary and salary increment increases ($192.7 million), the one-time lumpsum payment of $2,500 paid to eligible employees as part of the collective agreement renewals with the Public Service Alliance of Canada (PSAC), the Professional Institute of the Public Service of Canada (PIPSC) and the Human resources group (HR) ($145.2 million), as well as consequential increases to employment benefits program expenses, health and dental insurance ($132.0 million).

The remaining 22% of expenses are comprised of other costs such as professional and special services, accommodation and federal sales tax administration services provided by Revenu Québec (RQ). Total non-personnel expenses have increased by $161.5 million mainly as a result of the re-assessment of the survey of costs for the Federal sales tax administration costs by RQ ($103.1 million). Additionally, an increase in professional and special services expenses mainly stems from information technology services from Shared Services Canada ($31.4 million) as a result of salary increases.

Non-tax revenues have decreased by $82.1 million, mainly due to reduced administration activities for COVID-19 benefit programs and the end of the one-time top-up to the Canada Housing Benefit delivered on behalf of other organisations.

Financial position

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

Figure 2: Statement of Financial Position

Liabilities

Liabilities increased by $49.2 million mainly due to the increase in accounts payable to RQ following the re-assessment of the Federal sales tax administration costs ($116.5 million), to the Treasury Board Secretariat (TBS) for the final adjustment to CRA’s employee benefit plan expense ($39.1 million), as well as vacation pay and compensatory leave ($33.6 million). This is offset by a decrease in accrued salaries due to the ratification of collective agreements ($147.6 million).

Figure 3: Liabilities by category

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. 

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.

As a result, management believes the estimates and assumptions to be reasonable and the methodologies used to determine the estimates were applied consistently with the previous year.

Financial assets

The increase of $168.0 million in financial assets is mainly explained by an increase in the Due from the Consolidated Revenue Fund for amounts owed to RQ for the administration of federal sales tax ($116.5 million) as a result of the re-assessment of the survey of costs for the Federal sales tax administration costs by RQ and to TBS for the final adjustment to CRA’s employee benefit plan expense ($39.1 million).

Non-financial assets

Non-financial assets are primarily comprised of tangible capital assets (97%). The majority of tangible capital assets owned by the CRA relate to information technology, specifically in-house developed software. As a large organization responsible for delivering an extensive range of tax and benefits programs on behalf of federal and provincial governments, the CRA has specialized software needs that are primarily fulfilled internally through the development of in-house tailored applications.

To prioritize investment decisions regarding in-house developed software and support the effective management of resources, the CRA’s Resource Management Committee (RMC) oversees all investment projects above $1.0 million in any one fiscal year; additional oversight is provided by the Board of Management for projects with a total funding envelope over $40.0 million or those that meet complexity and risk considerations. All projects brought to the RMC require a full project risk register in the Detailed Planning Report. The risk register is completed according to requirements prescribed by the AERB’s ERMD. A review by ERMD takes place at various project development stages. Enterprise risk information is also used to inform the development of the CRA’s Strategic Investment Plan, a long-term plan of significant future investments.

The net book value of tangible capital assets has increased by $52.8 million in 2023 to 2024. Capitalized costs ($123.2 million) are mostly comprised of in-house software development expenses ($122.0 million) including some which are part of the Board of Management oversight on project investments; T3 Modernization ($25.5 million), Secure Portal Re-Engineering ($12.3M), Workload Management ($9.2 million), Appeals Modernization ($7.8 million) and Secure Data Channel ($4.0 million). Furthermore, there were other project investments such as the First Home Savings Account ($13.5 million), Integra’s Case Management and Reporting ($6.8 million), Canada Pension Plan/Employment Insurance Rulings and Agreements ($5.3 million) and other minor projects ($39.3 million).

The CRA managed a capital budget of $157.7 million in 2023 to 2024 ($114.5 million in 2022 to 2023), of which a total of $52.6 million ($36.2 million in 2022 to 2023) remains available for use in future years in accordance with the CRA’s multi-year resource management strategy.

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 5: Segmented information – Expenses^{Footnote 1}

Figure 6: Segmented information – Non-tax revenues

Outlook

For fiscal year 2024 to 2025, the CRA will focus on the four following priorities, which are detailed in CRA’s Corporate Business Plan:

1. deliver seamless client experiences and tailored interactions that are digital first
2. combat aggressive tax planning and tax evasion 
3. strengthen security and safeguarding privacy 
4. nurture a high-performing, diverse, and inclusive workforce in a modern, flexible, and accessible workplace 

In the upcoming years, the CRA will also be proactive in implementing the second phase of RGS, announced in Budget 2024. This series of reductions promotes the careful alignment of spending with the Government of Canada’s current priorities. With the RGS initiative, funding is less readily available to the CRA for planned initiatives, making the prioritization of the CRA’s efforts even more important.

In addition, Budget 2024 announced several initiatives and updates that will impact the CRA, including: 

• funding of $180.0 million in fiscal year 2024 to 2025 to administer the new Canada Carbon Rebate for small businesses
• funding of $90.9 million over 11 years, starting in fiscal year 2024 to 2025, to administer the clean economy investment tax credit 
• funding of $73.1 million over 5 years, starting in fiscal year 2024 to 2025, and $14.7 million ongoing to continue addressing tax non-compliance in real estate transactions
• funding of $336.0 million over two years, starting in fiscal year 2024 to 2025, to maintain call centre resources and improve the efficiency of its call centres
• funding of $54.0 million over 5 years, starting in fiscal year 2024 to 2025, for the Automatic Tax Filing for Low-Income Canadians. 

As the CRA pursues its strategic objectives and advances the priorities set out above, the CRA will continue to work towards its vision of being trusted, fair and helpful, by putting people first.