Future-Oriented Statement of Operations

Statement of Management Responsibility

We have prepared the accompanying Future-oriented Statement of Operations (FOSO) of the Canada Revenue Agency (CRA) for Agency activities which includes only those operational revenues and expenses which are managed by the CRA and utilized in running the organization. It is prepared according to the accounting principles consistent with those applied in preparing the financial statements of the Government of Canada. No FOSO was prepared for Administered Activities because it is analogous to information presented by the Department of Finance. Significant accounting policies are set out in note 4 of the FOSO. The FOSO is submitted for Part III of the Estimates (Departmental Plan). The information will also be presented in the CRA’s Departmental Results Report to compare with actual results.

Management is responsible for the integrity and objectivity of the information contained in this FOSO and for the process of developing assumptions. Assumptions and estimates are based upon information available and known to management at the time of development, reflect current business and economic conditions, and assume a continuation of governmental priorities and consistency in the CRA’s mandate and strategic objectives. Much of the FOSO is based on these assumptions, best estimates, and judgment and gives due consideration to materiality. At the time of preparation of this Statement of Operations, management believes the estimates and assumptions to be reasonable. However, as with all such assumptions, there is a measure of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends.

The actual results achieved for the fiscal years covered in the accompanying FOSO will vary from the information presented and the variations may be material.

Approved by:

Original signed

Bob Hamilton
Commissioner of Revenue and
Chief Executive Officer of the CRA

Ottawa, Ontario
January 17, 2019

Original signed

Kami Ramcharan
Chief Financial Officer and Assistant Commissioner
Finance and Administration

Canada Revenue Agency

Future-oriented Statement of Operations – Agency Activities

Future-oriented Statement of Operations– Agency Activities
for the year ended March 31
(in thousands of dollars)
  Estimated results 2019 Planned results 2020
Expenses (note 6)    
Tax 3,731,971 3,892,618
Internal services 1,207,086 1,239,236
Benefits 185,536 180,313
Taxpayers' Ombudsman
3,746 3,885
Total expenses 5,128,339
5,316,052
Non-Tax Revenues (note 7)
   
Tax 418,119
430,340
Internal services
164,263
165,219
Benefits 23,933
23,901
Revenues earned on behalf of Government
(75,626)
(76,709)
Total non-tax revenues 530,689
542,751
Net cost of operations 4,597,650 4,773,301
The accompanying notes are an integral part of this future-oriented statement of operations

Notes to the Future-oriented Statement of Operations – Agency Activities

1.  Authority and objectives

The Canada Revenue Agency (CRA) is an agent of Her Majesty in right of Canada under the Canada Revenue Agency Act. The CRA is a departmental corporation named in Schedule II of the Financial Administration Act and reports to Parliament through the Minister of National Revenue.

The mandate of the CRA is to support the administration and enforcement of tax legislation and other related legislation. The CRA provides support, advice, and services by:

(a)    supporting the administration and enforcement of program legislation;

(b)    implementing agreements between the Government of Canada or the CRA and the government of a province, territory or other public body performing a function of government in Canada to carry out an activity or administer a tax or program;

(c)    implementing agreements or arrangements between the CRA and departments or agencies of the Government of Canada to carry out an activity or administer a program; and

(d)    implementing agreements between the Government of Canada and First Nations governments to administer a tax.

The CRA administers revenues, including income and sales taxes and employment insurance premiums, administers tax legislation, delivers a number of social benefit programs to Canadians for the federal, provincial, territorial, and First Nations governments, and administers amounts, including Canada Pension Plan contributions, for other groups or organizations. In addition to the Canada Revenue Agency Act, the CRA is responsible for administering and enforcing the following acts or parts of acts: the Air Travellers Security Charge Act, the Canada Pension Plan Act, the Children's Special Allowances Act, Part V.1 of the Customs Act, section 2 of the Energy Costs Assistance Measures Act, the Employment Insurance Act, the Excise Act, the Excise Tax Act (including the goods and services tax (GST) and the harmonized sales tax (HST) except for GST/HST on imported goods), the Excise Act, 2001, the Income Tax Act, the Universal Child Care Benefit Act, and others including various provincial acts.

In delivering its mandate, the CRA operates under the following core responsibilities:

(a)    Tax: to ensure that Canada's voluntary self-assessment tax system is sustained by providing taxpayers with the support and information they need to understand and fulfil their tax obligations, and by taking compliance and enforcement action when necessary to uphold the integrity of the system, offering avenues for redress whenever taxpayers may disagree with an assessment/decision;

(b)    Internal services: Internal services are those groups of related activities and resources that the Federal Government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal services refer to the activities and resources that support program delivery in the organization, such as human resources management, financial management and information technology;

(c)    Benefits: to ensure that Canadians obtain the support and information they need to know what benefits they may be eligible to receive, that they receive their benefit payments in a timely manner, and have avenues of redress when they disagree with a decision on their benefit eligibility;

(d)    Taxpayers' Ombudsman: Canadians have access to trusted and independent review of service complaints about the CRA.

2. Methodology and significant assumptions

The Future-oriented Statement of Operations has been prepared on the basis of government priorities and Agency plans as described in the Departmental Plan.

The information in the estimated results for fiscal year 2018-2019 is primarily based on actual results as at October 31, 2018 and on forecasts for the remainder of the fiscal year. Forecasts have been made for the planned results for the 2019-2020 fiscal year.

The main assumptions underlying the forecasts are as follows:

(a)    The CRA's activities will remain substantially the same as the previous year.

(b)    Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.

3. Variations and changes to the forecast financial information

While every attempt has been made to forecast final results for the remainder of 2018-2019 and for 2019-2020, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing this Future-oriented Statement of Operations the CRA has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the Future-oriented Statement of Operations and the historical statement of operations include:

(a)    Implementation of new collective agreements.

(b)    Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

(c)    The timing and amount of acquisitions and disposals of tangible capital assets may affect amortization expense and gains/losses.

Once the Departmental Plan is presented, the CRA will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Results Report.

4.  Summary of significant accounting policies

For financial reporting purposes, the CRA's activities have been divided into two sets of financial statements: agency activities and administered activities. The Future-oriented Statement of Operations – Agency Activities include only those operational revenues and expenses which are managed by the CRA and utilized in running the organization. The purpose of the distinction between agency and administered activities is to facilitate, among other things, the assessment of the administrative efficiency of the CRA in achieving its mandate. No Future-oriented Statement of Operations was prepared for Administered Activities because it is analogous to information presented by the Department of Finance.

The Future-oriented Statement of Operations – Agency Activities has been prepared using Government's accounting policies in effect for the year ending March 31, 2018 which are based on Canadian public sector accounting standards. A summary of significant accounting policies follows:

(a)    Parliamentary appropriations

The CRA is financed by the Government of Canada through Parliamentary appropriations. Financial reporting of authorities provided to the CRA does not parallel financial reporting according to Canadian public sector accounting standards, as they are based in large part on cash flow requirements. Consequently, items recognized in the Future-oriented Statement of Operations may be different from those provided through appropriations from Parliament. Note 5(b) provides a high-level reconciliation between the two bases of reporting.

(b)     Expenses

Expenses for the CRA's operations are recognized, on an accrual basis, when goods are received and/or services are rendered.

(i) Related party transactions

The CRA is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations and transactions between commonly controlled entities are considered inter-entity transactions. Services provided without charge by other government departments are recorded as expenses based on their estimated carrying value. Services provided on a cost recovery basis are included as expenses and revenues based on their estimated exchange amount. (see note 8).

(ii) Vacation pay and compensatory leave

Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.

(iii) Employee benefits

(iii.1) Pension benefits

All eligible CRA employees participate in the Public Service Pension Plan administered by the Government of Canada. The CRA's contributions reflect the full cost as employer. These amounts are currently based on a multiple of an employee's required contributions and may change over time depending on the experience of the plan. The CRA's contributions are expensed during the year in which the services are rendered.

(iii.2) Health and dental benefits

The Government of Canada sponsors employee benefit plans (health and dental) in which the CRA participates. Employees are entitled to health and dental benefits, as provided for under labour contracts and conditions of employment. The CRA's contributions to the plan, which are provided without charge by the Treasury Board Secretariat, are recorded as expenses at their carrying value. 

(iii.3) Severance benefits

The accumulation of severance benefits ceased for the last eligible employee group on October 31, 2016. The severance benefits plan still includes the accumulated severance benefits of the employees who have opted to collect the full or partial value of their benefits upon termination from the public service. Changes in actuarial assumptions and any variance between the expected and the actual experience of the severance benefits plan give rise to actuarial gains or losses. These gains or losses are not recognized immediately but amortized on a straight-line basis over the expected average remaining service life of the employees starting in the fiscal year following the one in which they arose.

(iii.4) Sick leave benefits

Employees are eligible to accumulate sick leave benefits until retirement or termination according to their terms of employment. Sick leave benefits are earned based on employee services rendered and are paid upon an illness or injury related absence. These are accumulating non-vesting benefits that can be carried forward to future years, but are not eligible for payment on retirement or termination, nor can these be used for any other purpose. Changes in actuarial assumptions and any variance between the expected and the actual experience of the sick leave benefits plan give rise to actuarial gains or losses. These gains or losses are amortized on a straight-line basis over the expected average remaining service life of the employees starting in the fiscal year following the one in which they arose.

(iv) Allowance for doubtful accounts

An allowance for doubtful accounts is recorded where the recovery of account receivables and advances is considered uncertain.

(v) Amortization of tangible capital assets

All initial costs of $10,000 or more incurred by the CRA to acquire or develop tangible capital assets are capitalized and amortized over the useful lives of the assets. Similar items under $10,000 are expensed. Tangible capital assets are amortized on a straight-line basis over the estimated useful lives of assets as follows:

Amortization of tangible capital assets
Asset class Useful life
Machinery, equipment, and furniture 10 years
In-house developed software
5-10 years
Vehicles and other means of transportation
5 years
Information technology equipment
5 years
Purchased software
3 years

Assets under construction/development are not amortized until completed and put into operation.

(vi) Provision for contingent liabilities

Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded.

(c)    Revenues

Non-tax revenues are recognized when the services are rendered by the CRA.

Non-tax revenues that are not available for spending cannot be used to discharge the CRA's liabilities. While management is expected to maintain accounting control, it has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented in reduction of the CRA's gross revenues.

5.  Parliamentary appropriations

The CRA receives most of its funding through annual Parliamentary appropriations. Items recognized in the Future-oriented Statement of Operations in one year may be funded through Parliamentary appropriations in prior, current, or future years. Accordingly, the CRA has different net results of operations for the year on a government funding basis than on an accrual accounting basis. These differences are reconciled below.

a) Reconciliation of Parliamentary appropriations to be provided and requested:
  Estimated results 2019 Planned results 2020
  (in thousands of dollars)
Parliamentary appropriations — to be provided:    
Vote 1 – Operating expenditures, contributions and recoverable expenses onbehalf of the Canada Pension Plan and the Employment Insurance Act 3,580,261 3,505,212
Vote 5 – Capital expenditures 84,964 33,554
Spending of revenues received through the conduct of its operation pursuant to section 60 of the Canada Revenue Agency Act 178,164 178,954
Statutory expenditures:    
Contributions to employee benefit plans 435,313 451,392
Children's Special Allowance PaymentsFootnote 1 335,000 337,000
Minister of National Revenue – Salary and motor car allowance 86 88
  4,613,788 4,506,200
Less:    
Appropriations available for future yearFootnote 2:    
Vote 1 (57,014)
Vote 5 (7,634)
Appropriations lapsed:    
Vote 1 (10,237)
Expenditures related to Administered ActivitiesFootnote 1 (335,000) (337,000)
  (409,885) (337,000)
Total Parliamentary appropriations to be requested 4,203,903 4,169,200
b) Reconciliation of net cost of operations to Parliamentary appropriations requested:
  Estimated results 2019
Planned results 2020
  (in thousands of dollars)
Net cost of operations
4,597,650
4,773,301
Expenses not requiring the use of current year appropriations:    
Amortization of tangible capital assets
(82,640) (84,372)
Loss on disposal/write-off of tangible capital assets (1,797)
(606)
Services to be provided without charge from other government agencies and departments (note 8) (544,958)
(564,195)
Severance benefits paid
(143)
(35,359)
Other (3,507) (46,141)
  (633,045) (730,673)
Changes to assets affecting appropriations:    
Tangible capital assets acquisitions 94,784
38,545
Salary advances and overpayments
11,000 11,000
  105,784
49,545
Changes in future funding requirements:    
Salary, vacation pay and compensatory leave (74,135)
(117,852)
Employee severance benefits 38,663 27,182
Employee sick leave benefits (9,178) (11,257)
  (44,650) (101,927)
Non-tax revenues available for spending (note 7)
178,164
178,954
Total Parliamentary appropriations to be requested 4,203,903
4,169,200

6.  Expenses by category

In the Future-oriented Statement of Operations, expenses are presented by core responsibility. The following presents expenses by category.

Expenses by category
  Estimated results 2019 Planned results 2020
  (in thousands of dollars)
Personnel:
   
Salaries
2,787,027
2,930,029
Other allowances and benefits (including employee benefits)
957,602
1,002,530
 
3,744,629
3,932,559
Professional and business services
732,839
730,128
Accommodation
286,062
295,639
Transportation and communications
135,558
135,057
Amortization of tangible capital assets 
82,640
84,372
Other services and expenses
43,410
43,250
Equipment purchases
34,911
34,781
Materials and supplies
26,216 26,119
Repair and maintenance
17,748 17,682
Advertising, information and printing services
10,812
3,902
Interest on average accrued benefit obligations
9,297
9,546
Equipment rentals
2,420 2,411
Loss on disposal/write-off of tangible capital assets
1,797
606
Total expenses 5,128,339 5,316,052

7.  Non-tax revenues by category

In the Future-oriented Statement of Operations, non-tax revenues are presented by core responsibility. The following presents non-tax revenues by category. The nature of each category is defined by the treatment permitted from a Parliamentary appropriations perspective.

Non-tax revenues by category
  Estimated results 2019 Planned results 2020
  (in thousands of dollars)
Non-tax revenues credited to Vote 1    
Fees for administering the Employment Insurance Act
181,393 180,864
Fees for administering the Canada Pension Plan
171,132
182,933
  352,525
363,797
Non-tax revenues available for spending
   
Administration fees - provinces and territories
126,359
126,919
Services fees
49,408
49,627
Miscellaneous respendable revenues
2,397
2,408
  178,164
178,954
Non-tax revenues not available for spending    
Recovery of employee benefit costs relating to non-tax revenue credited to Vote 1 and revenues available for spending
74,581
75,664
Miscellaneous non-tax revenues
1,045
1,045
  75,626
76,709
Total non-tax revenues before revenues earned on behalf of Government
606,315
619,460
Revenues earned on behalf of Government
(75,626)
(76,709)
Total non-tax revenues 530,689 542,751

8.  Related party transactions

The CRA is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. Related parties also include individuals who are members of the CRA key management personnel, close family members of those individuals, and entities fully or jointly controlled by any of them. Expenses and revenues resulting from related party transactions other than those entered into using similar terms and conditions to those adopted if the entities were dealing at arm’s length are presented below

The CRA is expected to receive various services without charge from other government departments and agencies in the coming years. The estimated carrying value for significant services to be provided without charge include:

Related party transactions
  Estimated results 2019 Planned results 2020
  (in thousands of dollars)
Employer's contribution to the health and dental insurance plans – Treasury Board Secretariat
252,731 271,425
Information technology services – Shared Services Canada 249,237
249,237
Legal services – Justice Canada 27,160 27,976
Payroll services – Public Services and Procurement Canada
12,024
11,912
Audit services – Office of the Auditor General of Canada
2,600
2,500
Workers' compensation benefits – Employment and Social Development Canada
1,206
1,145
Total 544,958
564,195
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