Canada Revenue Agency Quarterly Financial Report
For the quarter ended September 30, 2015
Statement outlining results, risks and significant changes in operations, personnel and program
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.
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:
- $78 million decrease in authorities available for use from the prior fiscal year;
- $12 million reduction (excluding contributions to employee benefit plans) identified as part of Budget 2012;
- $4 million planned decrease in the spending profile for the redesign of the individual income tax processing system;
- $3 million reduction (excluding contributions to employee benefit plans) recognized as part of Budget 2013 which reviewed the CRA’s internal operations in the National Capital Region;
- $1 million decrease associated with a funding adjustment for government advertising programs, as part of a multi-departmental submission led by the Privy Council Office;
- $29 million increase to implement and administer measures announced in Budget 2014, of which $25 million is for improving the integrity of the tax system and strengthening tax compliance and $4 million pertains to tax measures, including the implementation of the intergovernmental agreement between Canada and the United States to enhance the exchange of tax information; and
- $12 million increase for the implementation of tax measures announced in Budget 2013, including enhancements to the Scientific Research and Experimental Development tax incentive program and combatting international tax evasion and aggressive tax avoidance.
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:
- $80 million decrease in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006. The Department of Finance predicts that disbursements will not be necessary this year given current softwood lumber prices are over the threshold price that would trigger the payment provision under the Act;
- $10 million decrease in cost recovery revenues to be received through the conduct of CRA operations, primarily attributable to initiatives administered on behalf of the Canada Border Services Agency and the Province of Ontario;
- $9 million decrease in payments under the Children’s Special Allowances Act; and
- $13 million increase in the contributions to employee benefit plans.
Analysis of Expenditures
A two-year comparison of the CRA's annual net authorities available for use against year-to-date and second quarter net expenditures as at September 30 is presented in Figure 1.
|Second Quarter expenditures||998.4||970.6|
Certain components of the quarterly year-over-year expenditure variances are attributable to timing differences in invoices and payments as well as the status of major investment projects, which are often resolved by the end of the fiscal year.
A) Expended in the Second Quarter by Authority
As displayed in the Statement of Authorities, the second quarter expenditures have increased by $27 million, or 3%, from $971 million in 2014-2015 to $998 million in 2015-2016. The components of this year-over-year change are discussed below.
The CRA’s second quarter net Vote 1 Operating Expenditures have decreased by $34 million, or 5%, from $763 million in 2014-2015 to $729 million in 2015-2016. Timing differences in the spending of revenues account for $35 million of this variance and are offset by an equivalent increase of expenditures under Total Budgetary Statutory Authorities. The annual revenue forecast for 2015-2016 is consistent with that of 2014-2015 and as such, the variance will be resolved by year-end.
The CRA’s second quarter Vote 5 Capital Expenditures have decreased by $9 million from $29 million in 2014-2015 to $20 million in 2015-2016. As discussed in the first quarter’s financial report, the main reason for the variance is explained by the delayed capital settlement process from a planned system upgrade which occurred in quarter 1 of 2014-2015. This variance is resolved on a cumulative basis and the CRA’s year-to-date capital expenditures remain comparable.
Expenditures for Total Budgetary Statutory Authorities have increased by $70 million, or 40%, from $179 million in 2014-2015 to $249 million in 2015-2016. $35 million of this increase is due to timing differences in the spending of revenues as previously mentioned; another $31 million of the $70 million increase pertains to increased payments under the Children's Special Allowances Act as the result of implementing the enhanced Universal Child Care Benefit (UCCB).
B) Expended in the Second Quarter by Standard Object
Professional and special services expenditures have increased by $8 million, or 10%, from $80 million in 2014-2015 to $88 million in 2015-2016. The variance is mainly attributable to timing in the payment of invoices, in particular a payment to the Department of Justice as noted in the first quarter report.
Rental expenditures have decreased by $11 million, or 13%, from $83 million in 2014-2015 to $72 million in 2015-2016. This decrease is primarily the result of an in-year change to a more detailed distribution of expenditures for accommodations and real property services from rental expenditures to purchased repair and maintenance and professional services expenditures to better match the nature of these costs.
As a result of the explanation noted above, purchased repair and maintenance expenditures have increased by $6 million, from $4 million in 2014-2015 to $10 million in 2015-2016.
Transfer payments have increased by $31 million, or 53%, from $59 million in 2014-2015 to $90 million in 2015-2016 and are attributable to the increased Children's Special Allowance payments explained earlier.
C) Year-to-Date Expenditures by Authority
As displayed in the Statement of Authorities, the year-to-date expenditures have decreased by $49 million, or 2%, from $2,017 million in 2014-2015 to $1,968 million in 2015-2016. The components of this year-over-year decrease are discussed below.
Net Vote 1 Operating year-to-date Expenditures have decreased by $126 million, or 8%, from $1,632 million in 2014-2015 to $1,506 million in 2015-2016. As noted in the first quarter report, the majority of this decrease, $87 million, is attributable to the one-time transition payment which was made in May 2014 as a result of the Government of Canada’s new salary payment in arrears model. The remainder is due to timing differences in the spending of revenues explained earlier and are offset by an equivalent increase of expenditures under Total Budgetary Statutory Authorities.
Year-to-date Vote 5 Capital Expenditures have increased by $3 million, or 10%, from $29 million in 2014-2015 to $32 million in 2015-2016. This fluctuation in expenditures is not unusual as the quarterly distribution of capital expenditures may vary from year-to-year, depending on the status of major investment projects and the timing of capital procurements.
Total Budgetary Statutory Authorities have increased by $74 million, or 21%, from $356 million in 2014-2015 to $430 million in 2015-2016. As previously explained, this change is the result of increases in spending revenues and in Children's Special Allowance payments.
D) Year-to-Date Expenditures by Standard Object
Similar to the first quarter, the CRA’s personnel year-to-date expenditures as of the second quarter have continued to remain relatively constant year-over-year. This is an indicator that efficiency savings have been offset by expenditures necessary to implement Federal Budget measures.
Professional and special services expenditures have increased by $17 million, or 11%, from $147 million in 2014-2015 to $164 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 and will be resolved by year-end.
Rental expenditures have decreased by $17 million, or 10%, from $165 million in 2014-2015 to $148 million in 2015-2016. This decrease was noted earlier and is primarily the result of a more detailed distribution of expenditures in-year for accommodations and real property services.
This decrease has been offset by a $5 million increase in purchased repair and maintenance expenditures, from $13 million in 2014-2015 to $18 million in 2015-2016 stemming from the above explanation.
Transfer payments have increased by $32 million, or 27%, from $118 million in 2014-2015 to $150 million in 2015-2016 as a result of increased Children's Special Allowance payments consistent with the second quarter variance explanation.
Other subsidies and payments have decreased by $88 million mainly due to the implementation of the Government of Canada’s new salary payment in arrears model mentioned earlier.
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.
During the recent federal election period, the Government is operating under Governor General Special Warrants. The CRA is internally risk managing its Budget 2015 initiatives until Parliament resumes and will seek incremental funding through the Estimates process.
Budget 2015 also announced the transition of the CRA to a standard one-year appropriation in 2016-2017 in order to create a unified appropriations framework for federal departments and agencies. As such, the CRA will be subject to the carry forward limitations that apply under a one-year appropriation and is well-positioned to make this transition.
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
[original signed by]
Andrew Treusch, Commissioner
[original signed by]
Roch Huppé, Chief Financial Officer
Date: November 27, 2015
|Total available for use for the year ending March 31, 2016 Footnote 1||Used during the quarter ended
September 30, 2015
|Year to date used at quarter-end|
|Vote 1 - Operating expenditures|
|Gross Operating expenditures||3,432,741||808,760||1,665,329|
|Revenues netted against expenditures||minus (319,491)||minus (79,873)||minus (159,745)|
|Net Vote 1 - Operating expenditures||3,113,250||728,887||1,505,584|
|Vote 5 - Capital expenditures||127,620||20,194||31,848|
|Budgetary Statutory Authorities|
|Contributions to employee benefit plans||418,872||104,718||209,434|
|Children's Special Allowance payments (Children's Special Allowances Act)||237,000||90,275||149,815|
|Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act||169,466||53,928||70,024|
|Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006||-||-||-|
|Minister's salary and motor car allowance||82||21||41|
|Court awards - Tax Court of Canada||-||415||768|
|Spending proceeds from the disposal of surplus Crown Assets||-||11||27|
|Energy Cost Benefit||-||-||1|
|Total Budgetary Statutory Authorities||825,420||249,368||430,110|
|Total Budgetary Authorities||4,066,290||998,449||1,967,542|
|Total available for use for the year ending March 31, 2015 Footnote 1||Used during the quarter ended
September 30, 2014
|Year to date used at quarter-end|
|Vote 1 - Operating expenditures|
|Gross Operating expenditures||3,480,291||835,785||1,787,492|
|Revenues netted against expenditures||minus (310,273)||minus (72,542)||minus (155,136)|
|Net Vote 1 - Operating expenditures||3,170,018||763,243||1,632,356|
|Vote 5 - Capital expenditures||119,159||28,774||28,877|
|Budgetary Statutory Authorities|
|Contributions to employee benefit plans||405,915||101,479||202,957|
|Children's Special Allowance payments (Children's Special Allowances Act)||246,000||58,841||117,697|
|Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act||179,309||18,607||33,410|
|Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006||80,000||-||116|
|Minister's salary and motor car allowance||80||20||40|
|Court awards - Tax Court of Canada||-||minus (444)||1,645|
|Spending proceeds from the disposal of surplus Crown Assets||-||69||82|
|Energy Cost Benefit||-||-||-|
|Total Budgetary Statutory Authorities||911,304||178,572||355,947|
|Total Budgetary Authorities||4,200,481||970,589||2,017,180|
|Planned expenditures for the year ending March 31, 2016||Expended during the quarter ended September 30, 2015||Year to date used at quarter-end|
|Transportation and communications||169,781||33,383||67,466|
|Professional and special services||408,862||88,024||163,769|
|Purchased repair and maintenanceFootnote||76,519||9,934||18,417|
|Utilities, materials and supplies||35,008||2,975||7,062|
|Acquisition of machinery and equipment||71,261||2,297||3,336|
|Other subsidies and payments||3,044||267||859|
|Total Gross Budgetary Expenditures||4,385,781||1,078,322||2,127,287|
|Less: Revenues netted against expenditures||319,491||79,873||159,745|
|Total Net Budgetary Expenditures||4,066,290||998,449||1,967,542|
|Planned expenditures for the year ending March 31, 2015||Expended during the quarter ended September 30, 2014||Year to date used at quarter-end|
|Transportation and communications||199,974||35,422||64,812|
|Professional and special services||472,849||80,297||147,224|
|Purchased repair and maintenance||95,988||4,078||13,084|
|Utilities, materials and supplies||41,595||2,722||6,577|
|Acquisition of machinery and equipment||78,390||3,588||5,194|
|Other subsidies and payments||3,200||488||88,993|
|Total Gross Budgetary Expenditures||4,510,754||1,043,131||2,172,316|
|Less: Revenues netted against expenditures||310,273||72,542||155,136|
|Total Net Budgetary Expenditures||4,200,481||970,589||2,017,180|
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