Canada Revenue Agency Quarterly Financial Report

For the quarter ended June 30, 2017 

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 Departmental Plan, and 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 2017-2018 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 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 for the current fiscal year in relation to the Main Estimates for which full supply was released on June 23, 2017, including authorities available for use from the prior fiscal year and technical adjustments.

As shown in the Statement of Authorities, the CRA’s total Budgetary Authorities available for use have increased by $3 million, or 0.07%, from $4,363 million in 2016-2017 to $4,366 million in 2017-2018. The components of the Vote 1 Gross Operating Expenditures Authority, Vote 5 Capital Expenditures and Budgetary Statutory Authorities are outlined below.

The Vote 1 Gross Operating Expenditures increased by $132 million, or 4%, from $3,566 million in 2016-2017 to $3,698 million in 2017-2018. This is mainly due to the following factors:

In 2017-2018 the CRA expects to spend $342 million to fulfill its administrative responsibilities in support of the CPP and EI program, up from $306 million in 2016-2017. This $36 million increase in Vote 1 Gross Operating Expenditure Authority is offset by an equivalent increase in revenues recovered from the CPP and EI Accounts.

The Vote 5 Capital Expenditures decreased by $6 million, or 7%, from $87 million in 2016-2017 to $81 million in 2017-2018. This decrease is primarily due to the following factors:

Total Budgetary Statutory Authorities are forecasted to decrease by $86 million, or 8%, from $1,016 million in 2016-2017 to $930 million in 2017-2018. This decrease is attributable to the following:

Analysis of Expenditures

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

Figure 1: Annual Authorities against First Quarter Expenditures (in millions of dollars)
  2017-2018 2016-2017
Authorities 4,366 4,363
First Quarter Expenditures 1,098 1,049

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 project investments, 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 increased by $49 million, or 5%, from $1,049 million in 2016-2017 to $1,098 million in 2017-2018. The components of this year-over-year change are discussed below.

The CRA’s first quarter net Vote 1 Operating Expenditures have increased by $81 million, or 10%, from $811 million in 2016-2017 to $892 million in 2017-2018. The increase is primarily the result of the settlement of the PSAC collective agreement which increased salary expenditures as well as retroactive payments which continue to be posted in 2017-2018. In addition, expenditures on tax measures announced in Budget 2016, including Cracking Down on Tax Evasion and Combatting Tax Avoidance, Enhancing Tax Collections, and Client-focused services for Canadians and Canadian businesses have increased in this second year of implementation. These increases are offset by a decrease in operating and maintenance costs at Q1 attributable to differences in the timing in the payment of invoices for the Department of Justice as compared to 2016-2017.

The CRA’s first quarter Vote 5 Capital Expenditures have decreased by $1 million from $11 million in 2016-2017 to $10 million in 2017-2018. Fluctuations in capital expenditures are not unusual as the quarterly distribution may vary from year-to-year, depending on the status of major project investments and the timing of capital procurements.

Expenditures for Total Budgetary Statutory Authorities have decreased by $31 million, or 14%, from $228 million in 2016-2017 to $197 million in 2017-2018. This decrease is largely attributable to a $45 million decrease in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006. This decrease was partially offset by an increase in Children's Special Allowance payments of $14 million due to an enrichment to the base benefit and supplements for the period of July 2015 to June 2016.

B) Expended in the First Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditure tables, the CRA’s personnel expenditures have increased by $137 million, or 18%, from $770 million in 2016-2017 to $907 million in 2017-2018. The variance is attributable to the settlement of the PSAC collective agreement as well as an increase related to the payment of severance to employees due to the PSAC ratification. In addition, as noted above, the implementation of tax measures announced in Budget 2016, have increased as compared to Q1 of 2016-2017.

Transportation and communications expenditures have decreased by $8 million, or 20%, from $40 million in 2016-2017 to $32 million in 2017-2018. The variance is mainly due to an early release of notices to tax payers last year in Q1 to mitigate the impact of a possible postal disruption. In addition, the introduction of the new Canada Child Benefit, which replaced three former benefit programs and reduced overall correspondence, as well as additional take-up of e-delivery for personal tax notices further contributed to this decrease.

Professional and special services expenditures have decreased by $28 million, or 27%, from $103 million in 2016-2017 to $75 million in 2017-2018. The variance is mainly attributable to timing in the payment of invoices for the Department of Justice. The timing variance will be resolved by year-end.

Purchased repair and maintenance expenditures have decreased by $7 million, or 39%, from $18 million in 2016-2017 to $11 million in 2017-2018. The variance is in line with the decrease in authorities following the review of the Agency’s multi-year occupancy requirements.

Transfer payments have decreased by $31 million, or 27%, from $115 million in 2016-2017 to $84 million in 2017-2018. The decrease is largely attributable to a decrease of $45 million in disbursements to provinces under the Softwood Lumber Export Charge Act, 2006. The decrease was partially offset by an increase in Children's Special Allowance payments of $14 million due to an enrichment to the base benefit and supplements for the period of July 2015 to June 2016.

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 introduced a two year operating budget freeze which was in effect until March 31, 2016. Operating budgets for all government departments and agencies were frozen at 2014-2015 levels and as a result, departments and agencies were required to absorb the cost of wage increases that took effect after April 1, 2014.

The collective agreement between the CRA and the Professional Institute of the Public Service of Canada, Audit, Financial and Scientific (PIPSC-AFS) group expired on December 21, 2014. Contract negotiations between the CRA and PIPSC-AFS are ongoing. The CRA and the Public Service Alliance of Canada, Union of Taxation Employees (PSAC-UTE) signed a collective agreement on October 25, 2016 that included a clause permitting the parties to re-open the agreement and engage in discussions related to economic increases for 2014 and 2015. As parties were unable to reach an agreement, the matter has been referred to a third-party for final and binding determination. The CRA established a provision to cover estimated amounts for collective bargaining increases, therefore mitigating the risk to the Agency.

With the implementation of the government-wide Pay Modernization Project (Phoenix), departments and individuals across government have been affected. One of CRA’s main issues relates to the additional manual work that has been transferred to the Agency following the introduction of the Phoenix pay system. The CRA’s compensation team has worked closely with the Phoenix project team to implement interim solutions and address system issues, which has minimized the impact. The CRA’s Compensation Client Services Centre has established a tactical team to process outstanding service requests as quickly as possible. Additional resources have been hired since implementation and the inventory of outstanding issues is decreasing.  

Significant changes in relation to operations, personnel and programs

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 which the CRA has implemented and administered.

Implementation of the various initiatives related to Budget 2016 focused on Cracking Down on Tax Evasion and Combatting Tax Avoidance, Enhancing Tax Collections, Client Focused services for Canadians and Canadian businesses, and the implementation and administration of various tax measures are well underway.

Budget 2017 will continue to improve tax fairness for Canadian families by closing loopholes, eliminating measures that disproportionately favour the wealthy, and cracking down on tax evasion, so that every Canadian has a real and fair chance at success. The CRA is internally risk managing its Budget 2017 initiatives and is seeking incremental funding through Supplementary Estimates B and C.

As online processing grows and processing centres receive less and less paper based work, the Agency is responding to the changing environment by looking at its business differently‎. The Service Renewal Initiative, launched in November 2016, will change how the CRA operates so that it can improve service to Canadians, modernize collections and verification capacity, optimize its workforce to best meet priorities, and ensure the CRA maintains a continued presence in all regions.

There are no significant financial or non-financial impacts to report at this time.

Approval by Senior Officials

Approved by:  

[original signed by]

 

________________________

Bob Hamilton, Commissioner 

 

 

_____________________________

Roch Huppé, Chief Financial Officer 

Ottawa, Canada

Date: August 18, 2017

Statement of Authorities (unaudited) - Fiscal year 2017-2018
(in thousands of dollars)
  Total available for use for the year ending March 31, 2018Footnote 1 Used during the quarter ended
June 30, 2017
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,698,079 984,107 984,107
Revenues netted against expenditures (342,482) (92,543) (92,543)
Net Vote 1 - Operating expenditures 3,355,597 891,564 891,564
Vote 5 - Capital expenditures 80,802 9,950 9,950
Budgetary Statutory Authorities      
Contributions to employee benefit plans 424,348 106,087 106,087
Children's Special Allowance payments (Children's Special Allowances Act) 340,000 84,272 84,272
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 165,720 6,088 6,088
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 - - -
Minister's salary and motor car allowance 84 21 21
Court awards - Tax Court of Canada - 167 167
Spending proceeds from the disposal of surplus Crown Assets - 7 7
Energy Cost Benefit - 1 1
Total Budgetary Statutory Authorities 930,152 196,643 196,643
Total Budgetary Authorities 4,366,551 1,098,157 1,098,157
Statement of Authorities (unaudited) - Fiscal year 2016-2017
(in thousands of dollars)
  Total available for use for the year ending March 31, 2017Footnote 1 Used during the quarter ended
June 30, 2016
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,566,148 891,029 891,029
Revenues netted against expenditures (306,493) (80,601) (80,601)
Net Vote 1 - Operating expenditures 3,259,655 810,428 810,428
Vote 5 - Capital expenditures 86,956 10,582 10,582
Budgetary Statutory Authorities      
Contributions to employee benefit plans 432,845 108,212 108,212
Children's Special Allowance payments (Children's Special Allowances Act) 289,000 70,090 70,090
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 166,604 4,291 4,291
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 128,000 44,736 44,736
Minister's salary and motor car allowance 84 7 7
Court awards - Tax Court of Canada - 204 204
Spending proceeds from the disposal of surplus Crown Assets - 11 11
Energy Cost Benefit - - -
Total Budgetary Statutory Authorities 1,016,533 227,551 227,551
Total Budgetary Authorities 4,363,144 1,048,561 1,048,561
Departmental Budgetary Expenditures by Standard Objects (unaudited)
Fiscal year 2017-2018

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended June 30, 2017 Year to date used at quarter-end
Expenditures:      
Personnel 3,252,834 906,796 906,796
Transportation and communications 184,800 32,291 32,291
Information 2,121 246 246
Professional and special services 376,107 75,497 75,497
Rentals 360,912 75,059 75,059
Purchased repair and maintenance 73,237 10,983 10,983
Utilities, materials and supplies 37,185 3,678 3,678
Acquisition of machinery and equipment 79,437 1,854 1,854
Transfer payments 340,000 84,273 84,273
Other subsidies and payments 2,400 23 23
Total Gross Budgetary Expenditures 4,709,033 1,190,700 1,190,700
Less: Revenues netted against expenditures 342,482 92,543 92,543
Total Net Budgetary Expenditures 4,366,551 1,098,157 1,098,157
Departmental Budgetary Expenditures by Standard Objects (unaudited)
Fiscal year 2016-2017

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended June 30, 2016 Year to date used at quarter-end
Expenditures:      
Personnel 3,248,239 770,408 770,408
Transportation and communications 138,794 40,446 40,446
Information 1,216 230 230
Professional and special services 320,299 103,046 103,046
Rentals 366,800 75,592 75,592
Purchased repair and maintenance 60,225 18,021 18,021
Utilities, materials and supplies 27,958 4,780 4,780
Acquisition of machinery and equipment 59,894 1,667 1,667
Transfer payments 443,339 114,826 114,826
Other subsidies and payments 2,873 146 146
Total Gross Budgetary Expenditures 4,669,637 1,129,162 1,129,162
Less: Revenues netted against expenditures 306,493 80,601 80,601
Total Net Budgetary Expenditures 4,363,144 1,048,561 1,048,561

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