Canada Revenue Agency Quarterly Financial Report

For the quarter ended June 30, 2015

Statement outlining results, risks and significant changes in operations, personnel and program

Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board. This report should be read in conjunction with the Main Estimates.

Further details on the Canada Revenue Agency's (CRA) program activities can be found in the Report on Plans and Priorities and the Main Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the CRA's spending authorities granted by Parliament and those used by the CRA consistent with the Main Estimates for the 2015-2016 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

The CRA uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

This quarterly report has not been subject to an external audit or review.

Highlights of fiscal quarter and fiscal year to date (YTD) results

Analysis of Authorities

This report reflects the results of the current fiscal period in relation to the Main Estimates for which full supply was released on June 19, 2015, including authorities available for use from the prior fiscal year.

As shown in the Statement of Authorities, the CRA’s total Budgetary Authorities available for use have decreased by $134 million, or 3%, from $4,200 million in 2014-2015 to $4,066 million in 2015-2016. The components of this reduction are outlined below.

The Vote 1 Gross Operating Expenditure Authority decreased by $48 million, or 1%, from $3,480 million in 2014-2015 to $3,432 million in 2015-2016. This is mainly due to the net effect of the following factors:

In 2015-2016 the CRA expects to spend $319 million to fulfill its administrative responsibilities in support of the Canada Pension Plan (CPP) and Employment Insurance (EI) program, up from $310 million in 2014-2015. This $9 million increase in Vote 1 Gross Operating Expenditure Authority is compensated by a corresponding increase in revenues recovered from the CPP and EI Accounts.

The Vote 5 Capital Expenditure Authority increased by $9 million, or 7%, from $119 million in 2014-2015 to $128 million in 2015-2016, primarily due to incremental funding received for the redesign of the individual income tax processing system.

Total Budgetary Statutory Authorities are forecast to decrease by $86 million, or 9%, from  $911 million in 2014-2015 to $825 million in 2015-2016. This reduction is attributable to the following:

Analysis of Expenditures

A two year comparison of the CRA's annual net authorities available for use against year-to-date net expenditures as at June 30 is presented in Figure 1.

Figure 1: Annual Authorities against Year-to-Date Expenditures (in millions of dollars)
2015-2016 2014-2015
Authorities 4066.3 4200.5
First Quarter Expenditures 969.1 1046.6

Certain components of the quarterly year-over-year expenditure variances are attributable to timing differences in payments, which are often resolved by the end of the fiscal year.

A) Expended in the First Quarter by Authority

As displayed in the Statement of Authorities, the first quarter expenditures have decreased by $77 million, or 7%, from $1,046 million in 2014-2015 to $969 million in 2015-2016. The components of this year-over-year change are discussed below.

At Quarter 1, the CRA’s net Vote 1 Operating Expenditures have decreased by $92 million, or 11%, from $869 million in 2014-2015 to $777 million in 2015-2016. Most of the decrease, $86 million, is due to a one-time transition payment that took place in 2014-2015 as a result of the Government of Canada’s new salary payment in arrears model.

The Agency’s Vote 5 Capital Expenditures have increased by $12 million from 2014-2015 to 2015-2016. As noted in last year’s Quarter 1 report, the variance is explained by the delayed capital settlement process stemming from a planned system upgrade and was resolved by the second quarter.

Expenditures for Total Budgetary Statutory Authorities have increased by $3 million, or 2%, from $177 million in 2014-2015 to $180 million in 2015-2016. This is primarily attributable to increased contributions to employee benefit plans as a result of a rate change.

B) Expended in the First Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures table, the CRA’s personnel expenditures in the first quarter have remained relatively consistent year over year and are an indicator that efficiency savings have been offset by new sources of funding received from new Federal Budget measures and Treasury Board submissions.

Transportation and communications expenditures in the first quarter have increased by $5 million, or 16%, from $29 million in 2014-2015 to $34 million in 2015-2016. The earlier replenishment of postage meters compared to last year is the main reason for this year-over-year change.

Professional and special services expenditures have increased by $9 million, or 13%, from $67 million in 2014-2015 to $76 million in 2015-2016. The variance is mainly attributable to timing in the payment of invoices, namely a $12 million payment made for the administration of the Goods and Services Tax (GST) in the province of Québec, which has been offset by a $6 million deferred payment for the Department of Justice. These timing differences will be resolved by year-end.

Rental expenditures have decreased by $6 million, or 7%, from $83 million in 2014-2015 to $77 million in 2015-2016 as the result of an adjustment to the Agency’s accommodations and real property services following the review of the Agency’s multi-year occupancy requirements.

Other subsidies and payments have decreased by $88 million, primarily the result of the implementation of the Government of Canada’s new salary payment in arrears model. As noted previously, a one-time transition payment was accounted for in May 2014, totaling $86 million.

Risks and Uncertainties

The CRA maintains a corporate risk inventory to identify and address organizational risks. Mitigation strategies have been put in place to protect the CRA from exposure to these risks and the associated financial impacts.

In a continuing effort to contain administrative costs across the government, Budget 2014 reintroduced a two year operating budget freeze, in effect until March 31, 2016. Operating budgets for all government departments and agencies are frozen at 2014-2015 levels and as a result, departments and agencies are required to absorb the cost of wage increases that take effect after April 1, 2014.

The collective agreements between the CRA and both the Public Service Alliance of Canada (PSAC) and Professional Institute of the Public Service of Canada (PIPSC) expired in October 2012 and December 2014, respectively. Contract negotiations between each party and the CRA are ongoing.

Significant changes in relation to operations, personnel and programs

As a result of the Budget 2014 operating budget freeze mentioned above, the CRA has reviewed its plans and priorities and established a provision for collective bargaining increases, given these costs represent a significant liability.

Through Budget 2015, the Government announced several legislative and enhanced compliance measures to improve the fairness and integrity of the tax system as well as strengthen tax compliance.

Among these legislated changes, the CRA has begun to administer enhanced Universal Child Care Benefits (UCCB), the Family Tax Cut, and will implement the Organization for Economic Cooperation and Development’s (OECD) common reporting standard for automatic exchange of certain tax information between financial institutions and the CRA.

Initiatives to support the CRA’s efforts to ensure taxpayer compliance include enhanced underground economy audit efforts through the introduction of additional underground economy specialist teams; an expansion of the CRA’s offshore compliance activities through the use of improved risk assessment systems and business intelligence as well as the hiring of additional auditors; and combatting tax avoidance by the largest and most complex business entities.

The CRA will seek incremental funding for Budget 2015 initiatives through Supplementary Estimates. There are no significant financial or non-financial impacts to report at this time.

Budget 2012 Efficiency Measures Implementation

This section provides a summary of the 2015-2016 budgetary impact of efficiencies announced in Budget 2012, which aimed to refocus tax and benefit programs, reduce administrative costs through modernization, and make it easier for individual Canadians and businesses to deal with the CRA.

The Government of Canada has set out a commitment to return to a balanced budget and, as one of the federal government’s largest institutions, the CRA is a significant contributor, with planned efficiencies of $253 million at maturity and commitments of $208 million in 2015-2016.

The CRA has a multi-year human resources plan to ensure required expertise within the Agency is maintained. Budget 2012 staffing reductions have been managed through attrition, controls on new hiring, taking advantage of vacancies from retiring employees (approximately 1,300 per year), tighter management of term employment, and workforce adjustment when necessary. The vast majority of the employees impacted by Budget 2012 savings measures have either been placed in other positions within the CRA, or have left the organization on a voluntary basis.

Approval by Senior Officials

Approved by:
[original signed by]
________________________
Andrew Treusch, Commissioner
[original signed by]
________________________
Roch Huppé, Chief Financial Officer
Ottawa, Canada
Date:
August 28, 2015

Statement of Authorities (unaudited) - Fiscal year 2015-2016
(in thousands of dollars)
  Total available for use for the year ending March 31, 2016 Footnote 1 Used during the quarter ended
June 30, 2015
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,432,741 856,569 856,569
Revenues netted against expenditures minus (319,491) minus (79,873) minus (79,873)
Net Vote 1 - Operating expenditures 3,113,250 776,696 776,696
Vote 5 - Capital expenditures 127,620 11,654 11,654
Budgetary statutory authorities      
Contributions to employee benefit plans 418,872 104,718 104,718
Children's Special Allowance payments (Children's Special Allowances Act) 237,000 59,539 59,539
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 169,466 16,095 16,095
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 - - -
Minister's salary and motor car allowance 82 21 21
Court awards - Tax Court of Canada - 353 353
Spending proceeds from the disposal of surplus Crown Assets - 16 16
Energy Cost Benefit - 1 1
Total Budgetary statutory authorities 825,420 180,743 180,743
Total Budgetary authorities 4,066,290 969,093 969,093
Statement of Authorities (unaudited) - Fiscal year 2014-2015
(in thousands of dollars)
  Total available for use for the year ending March 31, 2015 Footnote 1 Used during the quarter ended
June 30, 2014
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,480,291 951,707 951,707
Revenues netted against expenditures minus (310,273) minus (82,595) minus (82,595)
Net Vote 1 - Operating expenditures 3,170,018 869,112 869,112
Vote 5 - Capital expenditures 119,159 103 103
Budgetary statutory authorities      
Contributions to employee benefit plans 405,915 101,479 101,479
Children's Special Allowance payments (Children's Special Allowances Act) 246,000 58,856 58,856
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 179,309 14,803 14,803
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 80,000 116 116
Minister's salary and motor car allowance 80 20 20
Court awards - Tax Court of Canada - 2,089 2,089
Spending proceeds from the disposal of surplus Crown Assets - 13 13
Energy Cost Benefit - - -
Total Budgetary statutory authorities 911,304 177,376 177,376
Total Budgetary authorities 4,200,481 1,046,591 1,046,591
Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2015-2016

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2016 Expended during the quarter ended June 30, 2015 Year to date used at quarter-end
Expenditures:      
Personnel 3,046,469 787,697 787,697
Transportation and communications 169,781 34,083 34,083
Information 9,963 727 727
Professional and special services 408,862 75,745 75,745
Rentals 327,874 76,973 76,973
Purchased repair and maintenance 76,519 8,483 8,483
Utilities, materials and supplies 35,008 4,087 4,087
Acquisition of machinery and equipment 71,261 1,039 1,039
Transfer payments 237,000 59,540 59,540
Other subsidies and payments 3,044 592 592
Total gross budgetary expenditures 4,385,781 1,048,966 1,048,966
Less: Revenues netted against expenditures 319,491 79,873 79,873
Total net budgetary expenditures 4,066,290 969,093 969,093
Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2014-2015

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2015 Expended during the quarter ended June 30, 2014 Year to date used at quarter-end
Expenditures:      
Personnel 2,968,960 788,085 788,085
Transportation and communications 199,974 29,390 29,390
Information 12,798 206 206
Professional and special services 472,849 66,926 66,926
Rentals 311,000 82,635 82,635
Purchased repair and maintenance 95,988 9,006 9,006
Utilities, materials and supplies 41,595 3,855 3,855
Acquisition of machinery and equipment 78,390 1,606 1,606
Transfer payments 326,000 58,972 58,972
Other subsidies and payments 3,200 88,505 88,505
Total gross budgetary expenditures 4,510,754 1,129,186 1,129,186
Less: Revenues netted against expenditures 310,273 82,595 82,595
Total net budgetary expenditures 4,200,481 1,046,591 1,046,591

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