Section III: Supplementary Information - Financial Highlights

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Canada Revenue Agency Future-oriented Financial Statements – Agency Activities

Notes to the Future-oriented Financial Statements – Agency Activities

1. Authority and objectives

The Canada Revenue Agency (the “Agency”) is an agent of Her Majesty in right of Canada under the Canada Revenue Agency Act. The Agency 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 Agency is to support the administration and enforcement of tax legislation as well as other related legislation. The Agency 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 Agency 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 Agency 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 Agency collects 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 government, as well as for provincial, territorial, and First Nations governments and collects amounts for other groups or organizations, including Canada Pension Plan contributions. It is responsible for the administration and enforcement of the following acts or parts of acts: Air Travellers Security Charge Act, the Canada Revenue Agency Act, the Children's Special Allowances Act, Part V.1 of the Customs Act, section 2 of the Energy Costs Assistance Measures 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 Softwood Lumber Products Export Charge Act, 2006, the Universal Child Care Benefit Act, and others including various provincial acts.

In delivering its mandate, the Agency operates under the following program activities:

(a) Internal services: Provides internal services across the Agency, such as human resources management, financial management and information technology, to support the needs of programs and corporate obligations;

(b) Reporting compliance: Verifies complete and accurate disclosure by taxpayers of all required information to establish tax liabilities;

(c) Assessment of returns and payment processing: Processes and validates taxpayer returns; registers, establishes, and maintains taxpayer accounts and; receives payments;

(d) Accounts receivable and returns compliance: Identifies and addresses non-compliance with taxpayer filing and remittance requirements;

(e) Taxpayer and business assistance: Assists taxpayers in meeting their obligations under the self-assessment;

(f) Appeals: Provides a dispute resolution process for taxpayers who disagree with decisions taken by the Agency;

(g) Benefit programs: Provides Canadians certain income-based benefits, credits and other services on behalf of federal, provincial (except Québec), and territorial governments;

(h) Taxpayers' Ombudsman: Addresses requests for reviews made by taxpayers and benefit recipients with respect to service matters.

2. Underlying Assumptions

These future-oriented financial statements have been prepared:

(a) as at January 31, 2012;

(b) on the basis of government policies, government priorities, and external environment at the time the future-oriented financial information was finalized;

(c) according to the requirements of Treasury Board Accounting Policies which are based on Canadian generally accepted accounting principles for the public sector;

(d) on the basis that the resources provided will enable the Agency to deliver the expected results specified in the Report on Plans and Priorities;

(e) on the basis of historical costs.

3. Variations and Changes to the Forecasted Financial Information

While every attempt has been made to accurately forecast final results of 2011-2012 and 2012-2013, actual results are likely to vary from the forecast information presented, and this variation could be material.

The Agency will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of significant accounting policies

For financial reporting purposes, the activities of the Agency have been divided into two sets of financial statements: Agency Activities and Administered Activities. The future-oriented financial statements - Agency Activities include only those operational revenues and expenses which are managed by the Agency 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 Agency in achieving its mandate. No future-oriented financial statements were prepared for Administered Activities because it is analogous to information presented by the Department of Finance.

These future-oriented financial statements - Agency Activities have been prepared using accounting principles consistent with those applied in the preparation of the financial statements of the Government of Canada. The accounting principles used are consistent with Canadian generally accepted accounting principles for the public sector. A summary of significant accounting policies follows:

(a) Parliamentary appropriations

The Agency is financed by the Government of Canada through Parliamentary appropriations. Accounting for appropriations provided to the Agency does not parallel financial reporting according to Canadian generally accepted accounting principles, as they are based in large part on cash flow requirements. Consequently, items recognized in the Statement of Financial Position and the 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) Net cash provided by the Government of Canada

The Agency operates within the Consolidated Revenue Fund ( ), which is administered by the Receiver General for Canada. All cash receipts are deposited to the and all cash disbursements are paid from the . The net cash provided by government is the difference between all cash receipts and all cash disbursements including transactions with departments and agencies.

(c) Forecasted expenses

Expenses are recognized when goods are received and/or services are rendered.

(d) Services received without charge from other government agencies and departments

Estimates of the cost for services received without charge from other government agencies and departments are included in expenses.

(e) Forecasted revenues

Non-tax revenue is recognized when the services are rendered by the Agency.

(f) Due from the Consolidated Revenue Fund

Amounts due from the Consolidated Revenue Fund ( ) are the result of timing differences between when a transaction affects authorities and when it is processed through the . Amounts due from the represent the net amount of cash that the Agency is entitled to draw from the without further authorities.

(g) Accounts receivable and advances

Accounts receivable and advances are stated at the lower of cost and net recoverable value. An allowance for doubtful accounts is recorded where recovery is considered uncertain.

(h) Capital assets

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

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

(i) Vacation pay and compensatory leave

Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment. The liability for vacation pay and compensatory leave is calculated at the salary levels in effect at the end of the year for all unused vacation pay and compensatory leave benefits accruing to employees.

(j) Employee future benefits

i) Pension benefits All eligible employees participate in the Public Service Pension Plan administered by the Government of Canada. The Agency'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 Agency's contributions are expensed during the year in which the services are rendered and represent the total pension obligation of the Agency. Current legislation does not require the Agency to make contributions with respect to any actuarial deficiencies of the Public Service Pension Plan. ii) Health and Dental benefits The Government of Canada sponsors an employee benefit plan (health and dental) in which the Agency participates. Employees are entitled to health and dental benefits, as provided for under labour contracts and conditions of employment. The Agency's contributions to the plan, which are provided without charge by the Treasury Board Secretariat, are recorded at cost and charged to personnel expenses in the year incurred. They represent the Agency's total obligation to the plan. Current legislation does not require the Agency to make contributions for any future unfunded liabilities of the plan. iii) Severance benefits Employees are entitled to severance benefits, as provided for under labour contracts and conditions of employment. The cost of these benefits is accrued as employees render the services necessary to earn them. These benefits represent an obligation of the Agency that entails settlement by future payments. The obligation resulting from the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Agency.

(k) 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. If the likelihood is not determinable, the Agency's best estimate of the contingency is disclosed in the notes to the financial statements.

(l) Measurement uncertainty

The preparation of the future-oriented financial information requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the future-oriented financial statements. Assumptions 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 current governmental priorities and consistency in departmental mandate and strategic objectives. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. Nonetheless, as with all such estimates and assumptions, there is a measure of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends.

5. Parliamentary appropriations

The Agency receives most of its funding through annual Parliamentary appropriations. Items recognized in the Statement of Financial Position and the Statement of Operations in one year may be funded through Parliamentary appropriations in prior, current, or future years. Accordingly, the Agency 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 used:

Footnote 1

In accordance with the division of activities for financial reporting purposes outlined in Note 4, the payments under the Softwood   Lumber Products Export Charge Act, 2006 and the Children's Special Allowance payments will be reported as federal administered expenses on the statement of administered expenses and recoveries of the Agency's Administered Activities financial statements.

Footnote 2

Pursuant to section 60(1) of the Canada Revenue Agency Act, the Agency benefits from a two-year period to utilize Parliamentary Appropriations.

b) Reconciliation of net cost of operations to total Parliamentary appropriations to be used:

6. Accounts receivable and advances

7. Capital assets

8. Accounts Payable and accrued liabilities

9. Employee future benefits

a) Pension benefits

The Agency and all eligible employees contribute to the Public Service Pension Plan, which is sponsored by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to the increase in the Consumer Price Index.

The Agency's and employees' contributions to the Public Service Pension Plan for the forecasted years are expected to be as follows:

The Agency's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada.

b) Health and Dental benefits

The Agency and all eligible employees contribute to the Public Service Health Care Plan and Public Service Dental Care Plan, which are sponsored by the Government of Canada.

The Agency's responsibility with regard to these plans is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada.

c) Severance benefits

The Agency provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured at the time of preparation of these statements, is as follows:

10. Segmented information - Expenses

The following table presents the expenses from continuing operations by program activity and expense category as described in Note 1 of these financial statements.

11. Segmented information- Non-tax revenue

The following table presents the revenues from continuing operations generated by program activity and revenue category as described in Note 1 of these financial statements.

12. Related party transactions

The Agency is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. Transactions with Crown Corporations entered into by the Agency are in the normal course of business and on normal trade terms applicable to all individuals and enterprises. Transactions with other Government of Canada departments and Agencies are conducted on a cost recovery basis.

During the year, the Agency received various services without charge from other government agencies and departments. The estimated costs for significant services received without charge include:

13. Transfer to Shared Services Canada

As of November 15, 2011, the Agency transferred certain information technology activities to Shared Services Canada (SSC) in accordance with Orders in Council (OIC) P.C. 2011-1291 to P.C. 2011-1297, including the stewardship responsibility for the related assets and liabilities. The Parliamentary appropriations that the Agency has received to fund those activities for the period from November 15, 2011 to March 31, 2012 ($53,661,578) were deemed appropriated to SSC.

The Agency will transfer the liabilities, assets, revenues and expenses related to its information technology activities to SSC on March 31, 2012. The net impact of that transfer on the Agency's equity is expected to be $37,359,762. During the transition period, the Agency will continue to administer those activities on behalf of SSC. The revenues and expenses that will be administered by the Agency during that transition period are not recorded in these future-oriented financial statements.

The estimated revenues and expenses of the Agency relating to these information technology activities prior to the effective date of the transfer are $36,098,966 and $143,752,041 respectively for fiscal year 2011-2012.

14. Contingent liabilities

The Agency is a defendant in certain cases of pending and threatened litigation which arose in the normal course of operations. The current best estimate of the amount to be paid in respect of the cases identified as likely to be lost has been recorded in accounts payable and accrued liabilities. All other cases, excluding those assessed as unlikely to be lost, are considered contingent liabilities and the related amounts are disclosed whenever the amount of the contingency can be reasonably estimated. At the time of preparation of these statements, contingent liabilities for claims and pending and threatened litigation have been estimated at $42,722,645.

15. Contractual obligations

The nature of the Agency's activities can result in multiyear contracts and obligations whereby the Agency will be committed to make future payments when the goods are received and/or the services are rendered. Significant contractual obligation that can be reasonably estimated are as follows:

16. Net Debt indicator

The presentation of the net debt indicator and a statement of change in net debt is required under Canadian generally accepted accounting principles for the public sector.

Net debt is the difference between a government's liabilities and its financial assets and is meant to provide a measure of the future revenues required to pay for past transactions and events. A statement of change in net debt would show changes during the period in components such as capital assets and prepaid expenses. Departments and agencies are financed by the Government of Canada through appropriations and operate within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by departments and agencies is deposited to the CRF and all cash disbursements made by departments and agencies are paid by the CRF. Under this government business model, assets reflected on the financial statements, with the exception of the Due from the CRF, are not available to use for the purpose of discharging the existing liabilities of the Agency. Future appropriations and any respendable revenues generated by the Agency's operations would be used to discharge existing liabilities.

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