Annual Report to Parliament 2014-2015

Canada Revenue Agency
Financial Statements – Agency Activities

Logo of the Office of the Auditor General of Canada

INDEPENDENT AUDITORS REPORT

To the Board of Management of the Canada Revenue Agency and the Minister of National Revenue

I have audited the accompanying financial statements of the Agency Activities of the Canada Revenue Agency, which comprise the statement of financial position as at 31 March 2015, and the statement of operations and agency net financial position, statement of change in agency net debt and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Agency Activities of the Canada Revenue Agency as at 31 March 2015, and the results of its operations, changes in its net debt, and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Original signed

Michael Ferguson, CPA, CA
FCA (New Brunswick)
Auditor General of Canada

28 August 2015
Ottawa, Canada

Statement of Financial Position – Agency Activities
as at March 31
(in thousands of dollars)
  2015 2014
Liabilities    
Accrued salaries 267,026 129,589
Accounts payable and accrued liabilities (note 4) 120,595 94,901
Vacation pay and compensatory leave 188,444 189,672
Employee severance benefits (note 5e) 606,770 570,114
Employee sick leave benefits (note 5e) 246,742 243,700
Total liabilities 1,429,577 1,227,976
Financial assets    
Cash - 54
Due from the Consolidated Revenue Fund 282,102 163,405
Accounts receivable and advances (note 6) 10,153 6,624
Total financial assets 292,255 170,083
Agency net debt 1,137,322 1,057,893
Non-financial assets    
Prepaid expenses 12,538 11,963
Tangible capital assets (note 7) 393,415 386,327
Total non-financial assets 405,953 398,290
Agency net financial position 731,369 659,603

Contingent liabilities (note 13)

The accompanying notes form an integral part of these financial statements.

Approved by:

original signed by  

Andrew Treusch
Commissioner of Revenue and Chief Executive Officer of the Canada Revenue Agency  

Date August 28, 2015

Approved by:

original signed by 

Richard Thorpe, CPA, CMA, FCMA
Director and Chair, Board of Management  

Date August 28, 2015

Statement of Operations and Agency Net Financial Position – Agency Activities
for the year ended March 31
(in thousands of dollars)
   2015
Planned results
2015
Actual results
2014
Actual results
Expenses (note 8)      
Reporting compliance 1,213,019 1,185,957 1,168,252
Internal services 1,172,499 1,155,630 1,131,630
Collections and returns compliance 710,967 740,480 727,397
Assessment of returns and payment processing 742,533 726,520 739,130
Taxpayer and business assistance 373,886 382,732 387,674
Appeals 255,985 264,331 255,706
Benefit programs 149,895 149,088 149,618
Taxpayers' Ombudsman 3,481 2,755 2,676
Total expenses 4,622,265 4,607,493  4,562,083
Non-tax revenues (note 9)      
Reporting compliance 33,595 26,096 20,994
Internal services 151,347 165,488 164,473
Collections and returns compliance 189,419 193,499 201,089
Assessment of returns and payment processing 60,395 56,442 59,692
Taxpayer and business assistance 61,375 61,126 63,882
Appeals 23,739 18,992 20,461
Benefit programs 36,245 23,671 25,916
Revenues earned on behalf of Government (66,534) (64,694) (63,006)
Total non-tax revenues 489,581 480,620 493,501
Net cost of operations before government funding and transfers 4,132,684 4,126,873 4,068,582
Government funding and transfers      
Net cash provided by the Government of Canada 3,706,085 3,574,766 3,593,613
Change in due from the Consolidated Revenue Fund   118,697 31,402
Services provided without charge from other government agencies and departments (note 10) 423,084 449,754 430,409
Transfer of transition payments for implementing salary payments in arrears (note 11)   (88,104) -
Net transfers of tangible capital assets to other government departments (OGD)   (6) (5,669)
Net cost of activities administered on behalf of Shared Services Canada   - (5,975)
Total government funding and transfers 4,129,169 4,055,107 4,043,780
Net cost of operations after government funding and transfers 3,515 71,766 24,802
Agency net financial position - Beginning of year   659,603 634,801
Agency net financial position – End of year   731,369 659,603

The accompanying notes form an integral part of these financial statements.

Statement of Change in Agency Net Debt – Agency Activities
for the year ended March 31
(in thousands of dollars)
  2015
Planned results
2015
Actual results
2014
Actual results
Net cost (surplus) of operations after government funding and transfers 3,515 71,766  24,802
Change in tangible capital assets      
Acquisition of tangible capital assets (note 7) 87,016 91,855 77,493
Amortization of tangible capital assets (note 7) (83,267) (79,171) (75,040)
Proceeds from disposal of tangible capital assets   (127) (157)
Net loss on disposal/write-off of tangible capital assets (7,369) (5,463) (2,079)
Net transfers of tangible capital assets to OGD   (6) (5,669)
Total change in tangible capital assets (3,620) 7,088 (5,452)
Change in prepaid expenses   575 1,613
Net increase (decrease) in agency net debt (3,620)  79,429 20,963
Agency net debt – Beginning of year   1,057,893 1,036,930
Agency net debt – End of year   1,137,322 1,057,893

The accompanying notes form an integral part of these financial statements.

Statement of Cash Flows – Agency Activities
for the year ended March 31
(in thousands of dollars)
  2015 2014
Operating activities    
Net cost of operations before government funding and transfers 4,126,873 4,068,582
Items not affecting cash    
Amortization of tangible capital assets (note 7) (79,171) (75,040)
Net loss on disposal/write-off of tangible capital assets (5,463) (2,079)
Services provided without charge from other government agencies and departments (note 10) (449,754) (430,409)
Transition payments for implementing salary payments in arrears (note 11) 88,104 -
Change in financial assets other than due from the Consolidated Revenue Fund 3,475 (30,737)
Change in prepaid expenses 575 2,388
Change in accrued salaries (137,437) (45,043)
Change in accounts payable and accrued liabilities (25,694) 23,565
Change in vacation pay and compensatory leave 1,228 (2,047)
Change in employee severance benefits (36,656) 10,397
Change in employee sick leave benefits (3,042) (8,500)
Cash used in operating activities 3,483,038 3,511,077
Capital investing activities    
Acquisition of tangible capital assets (note 7) 91,855 77,493
Proceeds from disposal of tangible capital assets (127) (157)
Cash used in capital investing activities 91,728 77,336
Cash used in CRA operations 3,574,766 3,588,413
Cash used on behalf of Shared Services Canada for transferred activities - 5,200
Net cash provided by the Government of Canada 3,574,766 3,593,613

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements – 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 other amounts, including Canada Pension Plan contributions, for other groups or organizations. It is responsible for administering and enforcing the following acts or parts of acts: the 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 CRA operates under the following program activities:

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

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

(c) Collections and returns compliance: Identifies and addresses non-compliance with taxpayer filing and remittance requirements;

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

(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 CRA;

(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. 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 Financial Statements – Agency Activities include those operational revenues and expenses which are managed by the CRA and utilized in running the organization. The Financial Statements – Administered Activities include those revenues and expenses that are administered on behalf of the federal, provincial, and territorial governments, First Nations, and other organizations. 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. Tax-related assets, liabilities, revenues and expenses are excluded from these financial statements because they can only accrue to a government, not to the tax agency that administers those transactions.

As required by the Canada Revenue Agency Act, the 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 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 Statement of Financial Position and the Statement of Operations and Agency Net Financial Position may be different from those provided through appropriations from Parliament. Note 3(b) provides a high-level reconciliation between the two bases of reporting. The Future-oriented Statement of Operations – Agency Activities and its accompanying notes included in the 2014-2015 Report on Plans and Priorities are the source of information for the planned results in the financial statements.

(b) Net cash provided by the Government of Canada

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

(c)  Expense recognition

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

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

Estimates of the cost for services provided without charge from other government agencies and departments are recorded as expenses at their estimated cost.

(e) Revenue recognition

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 as a reduction of the CRA's gross revenues.

(f) Vacation pay and compensatory leave

Vacation pay and compensatory leave expenses are accrued as the benefits are earned by the 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.

(g) Employee benefits

a) 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 and represent the total pension obligation of the CRA. Current legislation does not require the CRA to make contributions with respect to any actuarial deficiencies of the Public Service Pension Plan.

b) 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 plans, which are provided without charge by the Treasury Board Secretariat, are recorded at cost based on a percentage of the salary expenses and charged to personnel expenses in the year incurred. They represent the CRA's total obligation to the plans. Current legislation does not require the CRA to make contributions for any future unfunded liabilities of the plans.

c) Severance benefits

Some 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 CRA that entails settlement by future payments. The liability resulting from the benefits earned by CRA employees is calculated using information from an actuarial valuation based on the projected benefit method prorated on services. 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 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.

d) 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. A liability is recorded for unused sick leave credits expected to be used in future years in excess of future allotments, based on an actuarial valuation using an accrued benefit method. 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.

(h)  Due from the Consolidated Revenue Fund (CRF)

Amounts due from the CRF are the result of timing differences between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the CRA is entitled to draw from the CRF without further authorities to discharge its liabilities.

(i) 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.

(j) 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:

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 recorded as costs are incurred and are not amortized until completed and put into operation.

(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 CRA's best estimate of the contingency is disclosed in the notes to the financial statements.

(l) Foreign currency translation

Transactions involving foreign currencies are translated into Canadian dollars by applying the exchange rate in effect at the time of those transactions. Realized foreign exchange gains and losses resulting from foreign currency transactions are included in the other services and expenses category in note 8 – Segmented information – Expenses.

(m)  Financial instruments

The CRA uses non-derivative financial instruments in the course of its operations. Those financial instruments gave rise to the following financial assets and financial liabilities that are measured at cost or amortized cost, as per the table below.

Financial assets and financial liabilities Measurement
Cash Cost
Accounts receivable and advances Amortized cost
Accrued salaries Cost
Accounts payable and accrued liabilities Cost
Vacation pay and compensatory leave Cost

(n)  Measurement uncertainty

The preparation of these financial statements in accordance with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amounts of liabilities, assets, revenues, expenses and related disclosure reported on the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. Employee severance and sick leave benefits, contingent liabilities, the useful life of tangible capital assets and services provided without charge are the most significant items where estimates and assumptions are used. Actual results could differ significantly from the current estimates. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the period in which they become known.

3. Parliamentary appropriations

The CRA receives most of its funding through annual Parliamentary appropriations. Items recognized in the Statement of Financial Position and the Statement of Operations and Agency Net Financial Position 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 provided and used:

 (in thousands of dollars) 2015 2014
Parliamentary appropriations — provided:    
Vote 1 – Operating expenditures, contributions and recoverable expenses on behalf of the Canada Pension Plan and the Employment Insurance Act 3,391,870 3,392,504
Vote 5 – Capital expenditures 123,414 110,012
Spending of revenues received through the conduct of operations pursuant to section 60 of the Canada Revenue Agency Act 166,085 164,016
Spending of proceeds from disposal of surplus Crown assets 174 222
Statutory expenditures:    
Contributions to employee benefit plans 447,675 458,805
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 20061 (15,119) 42,345
Children's special allowance payments1 214,761 235,403
Other 3,536 1,267
   4,332,396 4,404,574
Less:    
Appropriations available for future year2:    
Vote 1 (214,323) (292,514)
Vote 5 (47,123) (46,711)
Appropriations lapsed:    
Vote 1 (10,117) (2,489)
Expenditures related to administered activities1 (199,672) (277,750)
  (471,235) (619,464)
Total Parliamentary appropriations used  3,861,161 3,785,110

b) Reconciliation of net cost of operations before government funding and transfers to current year Parliamentary appropriations used:

(in thousands of dollars) 2015 2014
Net cost of operations before government funding and transfers 4,126,873 4,068,582
Expenses not requiring use of current year appropriations:    
Amortization of tangible capital assets (note 7) (79,171) (75,040)
Adjustment to prior years' accruals 1,871 2,277
Loss on disposal/write-off of tangible capital assets (5,584) (2,204)
Services provided without charge from other government agencies and departments (note 10) (449,754) (430,409)
Other (134) 11,547
  (532,772) (493,829)
Changes to non financial assets affecting appropriations:    
Tangible capital assets acquisitions (note 7) 91,855 77,493
Less: Variation in prior years expenses capitalization 278 109
Variation in prepaid expenses 575 2,388
Transition payments for implementing salary payments in arrears (note 11) 88,104 -
   180,812 79,990
Changes in future funding requirements:    
Salary, vacation pay and compensatory leave (39,130) (34,467)
Employee severance benefits (36,656) 10,398
Employee sick leave benefits (3,042) (8,500)
  (78,828) (32,569)
Non-tax revenues available for spending (note 9) 165,076 162,936
Total Parliamentary appropriations used 3,861,161 3,785,110

4. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are measured at cost, the majority of which are due within 30 days of year-end.

(in thousands of dollars) 2015 2014
Accounts payable and accrued liabilities – Related parties 56,630 33,453
Accounts payable and accrued liabilities – External 63,965 61,448
  120,595 94,901

5. Employee benefits

a) Pension benefits

The CRA and all eligible employees contribute to the public service pension plan (The "Plan"), which is sponsored and administered 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 Plan benefits and they are indexed to inflation.

Both the CRA and the employees contribute to the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to the Jobs and Growth Act 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013.

Each group has a distinct contribution rate. The current year expense for the CRA's contributions for Group 1 members represents approximately 1.41 times (1.6 times in 2013-2014) the contributions by employees and, for Group 2 members, approximately 1.39 times (1.5 times in 2013-2014) the contributions of employees.

The contributions to the Plan for the year were as follows:

(in thousands of dollars) 2015 2014
CRA's contributions 306,030 322,586
Employees' contributions 217,120 203,861

The CRA's responsibility with regard to this 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 CRA contributes for all eligible employees to the Public Service Health Care Plan and Public Service Dental Care Plan, which are sponsored by the Government of Canada. The CRA's responsibility with regard to these plans is limited to its contributions (refer to note 10).

c) Severance benefits

The CRA provides severance benefits to entitled employees based on eligibility, years of service and salary upon termination of employment. These severance benefits are unfunded. Benefits will be paid from future appropriations.

d) Sick leave benefits

Employees are credited, based on service, a maximum of 15 days annually for use as paid absences, due to illness or injury. Employees are allowed to accumulate unused sick leave credits each year. Accumulated credits may be used in future years to the extent that the employee's illness or injury exceeds the current year's allocation of credits. The use of accumulated sick leave balance for sick-leave compensation ceases on termination of employment. These sick leave benefits are unfunded. They will be paid from future appropriations.

e) Valuation of benefits

Annually, as at March 31 of each year, the CRA obtains an actuarial valuation of the accrued employee severance and sick leave benefit obligations for accounting purposes.

Changes from the prior year in the actuarial value of these accrued employee benefit obligations that is used to determine the related employee benefits liabilities presented in the Statement of Financial Position as at March 31 were as follows:

(in thousands of dollars) Severance benefits 
2015
Severance benefits 
2014
Sick leave benefits 
2015
Sick leave benefits 
2014
Accrued employee benefits obligations, beginning of year 519,956 580,511 214,800 235,200
Benefits earned3,4 68,992 28,117 36,300 41,300
Interest on average accrued benefit obligations (note 8) 17,976 15,226 7,500 6,300
Benefits paid (46,062) (53,740) (38,600) (39,100)
Actuarial (gain)/loss 68,537 (50,158) (5,400) (28,900)
Accrued employee benefits obligations, end of year 629,399 519,956 214,600 214,800
Accumulated net actuarial gain/(loss) (18,379) 50,158 34,300 28,900
Less: amortization on net actuarial gain3 4,250 - 2,158 -
Unamortized accumulated net actuarial gain/(loss) (22,629) 50,158 32,142 28,900
Employee benefits liability 606,770 570,114 246,742 243,700

f) Actuarial assumptions

Actuarial assumptions are used to determine the severance and sick leave accrued benefit obligations and include estimates of the discount rate and yearly salary growth. These assumptions are reviewed at March 31 of each year and are based on management's best estimate. The actuarial valuation as at March 31, 2015 for both severance and sick leave benefit obligations used a discount rate of 2.4% and salary growth of 2.0% - 2.6% (3.53% and 2.0% - 2.6% respectively as at March 31, 2014). The expected average remaining service life is 13.3 years for sick leave benefits and 11.8 years for severance benefits as at March 31, 2015 (13.4 years and 11.8 years respectively as at March 31, 2014).

g) Sensitivity Analysis

Changes in assumptions can result in significantly higher or lower estimates of the accrued employee benefits obligations. The table below illustrates the possible impact of a 1% change in the principal actuarial assumptions being the discount rate and the salary growth rate.

(in thousands of dollars) Severance benefits
2015
Severance benefits
2014
Sick leave benefits
2015
Sick leave benefits
2014
Possible impact on the accrued employee benefits obligations due to:        
Increase of 1% in discount rate (53,281) (40,385) (12,700) (11,200)
Decrease of 1% in discount rate 62,575 47,004 14,400 12,300
Increase of 1% in salary growth 61,908 47,092 18,600 12,700
Decrease of 1% in salary growth (53,755) (41,187) (16,700) (11,800)

6. Accounts receivable and advances

(in thousands of dollars) 2015 2014
Accounts receivable – Related parties 6,842 2,622
Accounts receivable – External 898 562
Advances to employees 689 1,454
Salary overpayments 2,330 2,773
  10,759 7,411
Less: Allowance for doubtful accounts (606) (787)
Total accounts receivable and advances 10,153 6,624

7. Tangible capital assets

Cost
(in thousands of dollars)
Tangible capital asset class  Opening balance Acquisitions Disposals and adjustments Transfers to OGD Closing balance
Machinery, equipment and furniture 7,446 204 (681) (38) 6,931
Software (purchased and in-house developed and/or in development) 836,999 91,135 (8,768) (294) 919,072
Vehicles and other means of transportation 1,996 286 (482) - 1,800
Information technology equipment 6,760 230 (384) - 6,606
Total 853,201 91,855 (10,315) (332) 934,409
Accumulated amortization
(in thousands of dollars)
Tangible capital asset class    Opening balance Amortization expense Disposals and adjustments Transfers to OGD Closing balance
Machinery, equipment and furniture 4,407 500 (583) (33) 4,291
Software (purchased and in-house developed and/or in development) 454,959 78,205 (3,269) (293) 529,602
Vehicles and other means of transportation 1,277 275 (477) - 1,075
Information technology equipment 6,231 191 (396) - 6,026
Total 466,874 79,171 (4,725) (326) 540,994
(in thousands of dollars)
Tangible capital asset class 2015 Net book value 2014 Net book value
Machinery, equipment and furniture 2,640 3,039
Software (purchased and in-house developed and/or in development) 389,470 382,040
Vehicles and other means of transportation 725 719
Information technology equipment 580 529
Total 393,415 386,327

The cost of software in development, which is not amortized, is $89,657,175 as at March 31, 2015 ($80,843,958 as at March 31,  2014).

8. Segmented information – Expenses

Presentation by segment is based on the CRA's program activity as described in note 1 of these financial statements. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred for the main program activities, by major object of expense. The segment results for the period are as follows:

(in thousands of dollars) Reporting compliance Internal services Collections and returns compliance Assessment of returns and payment processing Taxpayer and business assistance Appeals Benefit programs Taxpayers'
Ombudsman
2015 2014
Personnel:                    
Salaries 726,243 512,480 432,276 319,356 236,697 120,245 71,421 1,462 2,420,180 2,408,276
Other allowances and benefits (including employee benefits described in note 5) 304,465 212,190 177,984 128,442 93,693 49,290 28,729 832 995,625 979,750
  1,030,708 724,670 610,260 447,798 330,390 169,535 100,150 2,294 3,415,805 3,388,026
Professional and business services 18,894 246,256 24,286 4,652 4,350 70,030 1,438 131 370,037 372,352
Accommodation 86,192 79,655 64,506 38,965 36,483 16,590 8,723 211 331,325 349,810
Federal sales tax administration costs by the Province of Québec - - - 142,133 - - - - 142,133 142,772
Transportation and communications 16,946 23,968 11,730 50,737 3,038 720 18,842 6 125,987 115,408
Amortization of tangible capital assets (note 7) 13,257 10,994 18,831 25,499 3,010 1,383 6,197 - 79,171 75,040
Other services and expenses 5,497 13,528 3,307 2,931 1,163 4,012 12,128 7 42,573 28,726
Interest on average accrued benefit obligations (note 5) 7,687 5,405 4,552 3,340 2,464 1,264 747 17 25,476 21,526
Repair and maintenance 231 20,278 29 759 48 6 7 - 21,358 17,102
Materials and supplies 2,657 7,281 1,238 6,632 633 492 289 7 19,229 20,094
Equipment purchases 3,200 11,202 1,360 1,542 672 179 526 66 18,747 17,056
Advertising, information and printing services 113 6,730 61 452 335 5 3 11 7,710 8,805
Loss on disposal/write-off of tangible capital assets 5 4,826 - 753 - - - - 5,584 2,204
Equipment rentals 570 837 320 327 146 115 38 5 2,358 3,162

Total expenses

1,185,957 1,155,630 740,480 726,520 382,732 264,331 149,088 2,755 4,607,493 4,562,083

9. Segmented information- Non-tax revenues

Presentation by segment is based on the CRA's program activity as described in note 1 of these financial statements. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the non-tax revenues generated for the main program activities, by major type of non-tax revenues. The segment results for the period are as follows:

(in thousands of dollars) Reporting compliance Internal services Collections and returns compliance Assessment of returns and payment processing Taxpayer and business assistance Appeals Benefit programs 2015 2014
Non-tax revenues credited to Vote 1                  
Fees for administering the Employment Insurance Act - 29,812 87,242 16,200 31,394 9,141 530 174,319 182,794
Fees for administering the Canada Pension Plan     - 27,183 74,634 17,366 18,050 3,992 - 141,225 147,771
   - 56,995 161,876 33,566 49,444 13,133 530 315,544 330,565
Non-tax revenues available for spending                  
Services fees 715 49,739 120 2,648 262 - 706 54,190 56,496
Administration fees – provinces and territories 21,321 45,114 4,277 13,111 1,067 2,962 20,572 108,424 104,115
Miscellaneous respendable revenues    646 14 - 9 1,759 - 34 2,462 2,325
  22,682 94,867 4,397 15,768 3,088 2,962 21,312 165,076 162,936
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 3,414 13,298 27,226 7,108 8,594 2,456 1,829 63,925 61,834
Miscellaneous non-tax revenues - 328 - - - 441 - 769 1,172
  3,414 13,626 27,226 7,108 8,594 2,897 1,829 64,694 63,006
Total non-tax revenues before revenues earned on behalf of Government 26,096 165,488 193,499 56,442 61,126 18,992 23,671 545,314 556,507
Revenues earned on behalf of Government (3,414) (13,626) (27,226) (7,108) (8,594) (2,897) (1,829) (64,694) (63,006)
Total non-tax revenues 22,682 151,862 166,273 49,334 52,532 16,095 21,842 480,620 493,501

10. Related party transactions

The CRA 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 CRA 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, except for transfers of tangible capital assets that are carried out at net book value.

During the year, the CRA received various services without charge from other government agencies and departments. The estimated costs for significant services provided without charge that have been recorded include:

(in thousands of dollars) 2015 2014
Employer's contribution to the health and dental insurance plans – Treasury Board Secretariat 228,066 208,083
Information technology services – Shared Services Canada 179,474 175,502
Legal services – Justice Canada 33,702 38,168
Audit services – Office of the Auditor General of Canada 2,594 2,662
Payroll services – Public Works and Government Services Canada 4,563 4,553
Workers' compensation benefits – Employment and Social Development Canada 1,355 1,441
Total 449,754 430,409

11. Transfer of the transition payments for implementing salary payments in arrears

The Government of Canada implemented salary payments in arrears in 2014-15. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the CRA. However, it did result in the use of additional spending authorities by the CRA. Prior to year end, the transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Works and Government Services Canada, who is responsible for the administration of the Government pay system.

12. Board of Management

Pursuant to the Canada Revenue Agency Act, a Board of Management is appointed to oversee the organization and administration of the CRA and the management of its resources, services, property, personnel and contracts. The expenses relating to the board's activities for the year included in the net cost of operations were as follows:

(in thousands of dollars) 2015 2014
Board of Management    
Compensation 267 290
Travel 77 77
Professional services and other expenses 78 81
  422 448
Other related costs    
Corporate Secretariat support 596 650
Total 1,018 1,098

13. Contingent liabilities

The CRA is a defendant in certain cases of pending and threatened litigation which arises in the normal course of business of agency activities as defined in note 2. 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, based on the current best estimate of the consideration required to settle the present liabilities at the end of the reporting period, taking into account the risks and uncertainties surrounding the 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. As at March 31, 2015, contingent liabilities for claims and pending and threatened litigation have been estimated at $10,592,354 ($11,481,104 as at March 31, 2014) which is based on management's best estimate determined on a case by case basis.

14. Financial risk management

The CRA uses non-derivative financial instruments in the course of its operations that give rise to financial assets and financial liabilities. Those financial liabilities comprise accrued salaries, accounts payable and accrued liabilities, vacation pay and compensatory leave. Cash, accounts receivables and advances represent those financial assets.

The CRA is exposed to credit risk, liquidity risk and market risk in connection with its financial instruments.

The credit risk is the risk that another party owing money to the CRA would fail to discharge its obligation creating a financial loss for the CRA. The maximum exposure of the CRA to the credit risk amounted to $10,152,549 as of March 31, 2015 ($6,624,223 as of March 31, 2014), which is equal to the carrying value of its accounts receivable and advances. As the vast majority of the CRA's accounts receivable and advances are either with other government departments or employees, the credit risk is low.

The liquidity risk is the risk that the CRA would encounter difficulty in meeting its obligations associated with its financial liabilities. The CRA's liquidity risk is minimal given that the CRA receives most of its funding through annual Parliamentary appropriations and maintains strong controls over expenditure management.

The market risk is defined as the risk that future cash flows of a financial instrument would fluctuate because of changes in currency rates, interest rates and/or other rates. The CRA's exposure to market risk is limited to fluctuations in the currency rates and the impact of such variations on CRA's cash flows is negligible as its financial transactions in foreign currency are immaterial.

The CRA's exposure to these risks and the policies and processes to manage and measure them did not change significantly from the prior year.

15. Comparative figures

Certain comparative figures have been reclassified to conform with the presentation used in the current year.


Table Notes

1. In accordance with the division of activities for financial reporting purposes outlined in note 2, the payments under the Softwood Lumber Products Export Charge Act, 2006 and the Children's Special Allowances Act are reported as federal administered expenses on the Statement of Administered Expenses and Recoveries of the CRA's Financial Statements – Administered Activities.

2. Pursuant to section 60(1) of the Canada Revenue Agency Act, the balance of money appropriated by Parliament for the use of the CRA that remains unexpended at the end of the fiscal year lapses at the end of the following fiscal year.

3. These expenses represent the severance and sick leave benefits that are included in the Other allowances and benefits category in note 8.

4. The severance benefits earned disclosed for the year ended March 31, 2015 include an adjustment of $44,391,764 to the benefits earned as a result of improvements to the underlying data.

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