Canada Revenue Agency Quarterly Financial Report
For the quarter ended December 31, 2019

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 2019-2020 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 25, 2019, authorities available for use from the prior fiscal year, allocations from centrally held Budget Implementation Votes, Supplementary Estimates A, as well as other technical adjustments. Timing differences in the approval of authorities account for most variances presented in each quarter.

As shown in the Statement of Authorities, the CRA's total Budgetary Authorities available for use have increased by $252 million, from $4,560 million in 2018-2019 to $4,812 million in 2019-2020. The components of the Vote 1 Gross Operating Expenditures Authority, Vote 5 Capital Expenditures Authority and Budgetary Statutory Authorities are outlined below.

The Vote 1 Gross Operating Expenditures Authority increased by $243 million, from $3,902 million in 2018-2019 to $4,145 million in 2019-2020. This is mainly due to the following legislative and technical changes:

Legislative changes

Other technical changes

In 2019-2020, the CRA expects to spend $389 million to fulfill its administrative responsibilities in support of the CPP and EI program, up from $353 million in 2018-2019. 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 Authority decreased by $26 million, from $83 million in 2018-2019 to $57 million in 2019-2020. This decrease is primarily the result of the following factors:

Total Budgetary Statutory Authorities are forecasted to increase by $71 million, from $928 million in 2018-2019 to $999 million in 2019-2020. This increase is attributable to the following:

At this time, authorities for the Climate Action Incentive (CAI) are not reflected as these will be the subject of a technical adjustment at year end.

Analysis of Expenditures

A two-year comparison of the CRA's annual net authorities available for use against year to date and third quarter net expenditures as at December 31 is presented in Figure 1.

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 will be resolved by the end of the fiscal year.

Figure 1: Annual Authorities against Year-to-Date and Third quarter Expenditures
  2019-2020 2018-2019
Authorities 4,812.0 4,560.1
Year-to-date Expenditures 3,355.7 3,238.6
Third Quarter Expenditures 1,125.2 1,070.5

A) Expended in the Third quarter by Authority

As displayed in the Statement of Authorities, the third quarter expenditures have increased by $54 million, or 5%, from $1,071 million in 2018-2019 to $1,125 million in 2019-2020. The components of this year over year change are presented below.

The CRA's third quarter net Vote 1 Operating Expenditures increased by $37 million, or 4%, from $835 million in 2018-2019 to $872 million in 2019-2020. The increase is primarily attributable to various Federal Budgets, as well as Treasury Board funded initiatives, such as the implementation and administration of the federal carbon pollution pricing system.

The CRA's third quarter Vote 5 Capital Expenditures totalled $16 million in 2019-2020, which are consistent with 2018-2019 capital expenditures, resulting in no significant variances to report.

Expenditures for Total Budgetary Statutory Authorities have increased by $17 million, or 8%, from $220 million in 2018-2019 to $237 million in 2019-2020. The main component of this change is $9 million in increased spending of revenues mainly the result of timing. The remaining $7 million pertains to increased Employee Benefit Plan contributions as a result of increased staffing and a change in the applicable rate.

B) Expended in the Third quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures by Standard Object table, the CRA's personnel expenditures have increased by $39 million, or 5%, from $859 million in 2018-2019 to $898 million in 2019-2020. As mentioned previously, this increase is mainly the result of implementing various Federal Budgets, as well as Treasury Board funded initiatives.

Transportation and communications expenditures have increased by $2 million, or 10%, from $26 million in 2018-2019 to $28 million in 2019-2020. Approximately $1 million is attributable to increased travel expenditures, while the remaining $1 million pertains to increased postage costs.

Information expenditures have decreased by $6 million, or 57% from $10 million in 2018-2019 to $4 million in 2019-2020. The majority of the decrease, $5 million, is due to a reclassification of accounts in 2018-2019 which was moved from standard object "Professional and Special Services". This variance is resolved on a year to date basis. The remaining $1 million decrease is as a result of lower advertising services in the quarter as a result of timing differences.

Professional and special services expenditures have increased by $12 million, or 13%, from $91 million in 2018-2019 to $103 million in 2019-2020. The payment of invoices for the Department of Justice (JUS) and crown agent costs, accounts for $4 million of the variance. Another $5 million is the result of a reclassification of accounts in 2018-2019, which was moved to standard object "Information expenditures". The remaining $3 million increase is attributable mainly to other business services, $2 million, and IT consultant costs totalling $1 million.

Purchased repair and maintenance expenditures have increased by $1 million, or 17% from $10 million in 2018-2019 to $11 million in 2019-2020 and is mainly related to facilities.

Acquisition of machinery and equipment expenditures increased by $7 million from $5 million in 2018-2019 to $12 million in 2019-2020. The majority of the increase pertains to growth in the renewal of the CRA's Information Technology (IT) assets as well as maintaining a larger inventory of computer equipment to better manage the ongoing requirements and timely delivery to end users.

Transfer payments have increased by $3 million, or 4%, from $85 million in 2018-2019 to $88 million in 2019-2020, and as noted earlier, due to increased payments under the Children's Special Allowances Act.

Other subsidies and payments expenditures decreased in the third quarter by $6 million, from $5 million in 2018-2019 to negative $1 million in 2019-2020. The decrease pertains to lower salary overpayments and court awards, each representing $3 million of the variance.

C) Year to date Expenditures by Authority

The CRA's year to date expenditures by authority have increased by $117 million, or 4%, from $3,239 million in 2018-2019 to $3,356 million in 2019-2020. The components of this year over year increase are discussed below.

Net Vote 1 Operating year to date expenditures have increased by $81 million, or 3%, from $2,533 million in 2018-2019 to $2,614 million in 2019-2020. The year to date increase is primarily attributable to various Federal Budgets, as well as Treasury Board funded initiatives, such as the implementation and administration of the federal carbon pollution pricing system.

Year to date Vote 5 Capital expenditures have decreased by $4 million, or 8%, from $43 million in 2018-2019 to $39 million in 2019-2020. Capital expenditures can vary from year to year depending on the status of major project investments and the timing of capital procurements.

Total Budgetary Statutory Authorities have increased by $40 million, or 6%, from $663 million in 2018-2019 to $703 million in 2019-2020. The variance includes $23 million in increased contributions to Employee Benefit Plans, $11 million increased payments under the Children's Special Allowances Act, and $9 million increased spending of revenues. These aforementioned increases are offset by a $3 million decrease for Tax Court of Canada court awards.

Given the authorities for the CAI are not reflected in this quarterly report, payments have not been reflected either. Both the authorities and the payments will however be reflected at year end in the Public Accounts.

D) Year to date Expenditures by Standard Object

The CRA's year to date personnel expenditures have increased by $79 million, or 3%, from $2,611 million in 2018-2019 to $2,690 million in 2019-2020 and, as explained earlier, mainly relate to the implementation of various Federal Budgets and Treasury Board funded initiatives.

Year to date transportation and communications expenditures have increased by $6 million, or 6%, from $86 million in 2018-2019 to $92 million in 2019-2020. The increase is attributable to travel and postage expenditures which increased by $4 million and $2 million, respectively.

Year to date professional and special services expenditures have increased by $16 million, or 6%, from $274 million in 2018-2019 to $290 million in 2019-2020. The majority of this increase is comprised $7 million for JUS costs and crown agent costs. On a year to date basis, JUS costs are forecasted to be $4 million higher this year. Of the remaining $8 million variance, $6 million pertains to IT related services provided by Shared Services Canada and $2 million for IT consultants.

Year to date purchased repair and maintenance expenditures have increased by $6 million, or 20%, from $27 million in 2018-2019 to $33 million in 2019-2020 and is mainly related to facilities.

Year to date acquisition of machinery and equipment expenditures have increased by $9 million, or 48%, from $19 million in 2018-2019 to $28 million in 2019-2020. The majority of the increase pertains to growth in the renewal of the CRA's IT assets as well as maintaining a larger inventory of computer equipment.

Year to date transfer payments under the Children's Special Allowances Act have increased by $11 million, or 4%, from $252 million in 2018-2019 to $263 million in 2019-2020, as mentioned earlier.

Year to date other subsidies and payments decreased by $9 million, or 67%, from $14 million in 2018-2019 to $5 million in 2019-2020. This variance consists of $6 million in decreased salary overpayments and $3 million in lower court awards, which fluctuate from year to year.

Risks and uncertainties

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

As a result of the CRA's vast information holdings and the increasing number of external incidents occurring in the private sector, protection of taxpayer information and cybersecurity have been assessed as the risks with the highest potential impact in the 2020-2021 corporate risk profile. Over the past few years, the CRA has invested to protect data under its responsibility, including taxpayer information, in order to manage this risk appropriately. Threats to cyber security, such as email fraud, continue to be on the rise and are becoming increasingly more sophisticated to manage. The CRA is taking action to ensure that its cyber security posture keeps pace with the changing environment. The CRA takes the protection of taxpayer information very seriously. To this end, the CRA recently developed the Privacy Management Framework which articulates its vision, objective, and commitment to privacy, including how the CRA handles and protects personal information.

As mentioned in the previous year's quarterly reports, the implementation of the government-wide Pay Modernization Project (Phoenix) has affected departments and individuals across government. The CRA continues to monitor pay transactions and to make appropriate adjustments, when necessary, in a timely manner.

Significant changes in relation to operations, personnel and programs

Budget 2019 supports the Minister of National Revenue's top priorities, to improve client services and ensure a fair tax system for all Canadians by:

In addition, the government has demonstrated its commitment to continuing to resolve issues related to the Phoenix Pay System and has proposed an investment of $9.2 million for the CRA in 2019-2020. This will ensure that the CRA is able to quickly and accurately process income tax reassessments for federal government employees that are required due to Phoenix pay issues, and to support related telephone enquiries.

The CRA is responsible for administering the fuel charge component of the Greenhouse Gas Pollution Pricing Act, including the CAI payment which returns the bulk of direct proceeds from the federal fuel charge to individuals and families residing in provinces that have not met the Canada-wide federal standard for reducing carbon pollution. The CAI payment, also known as the Federal Carbon Tax Rebate was processed through T1 Income Tax and Benefit Returns, starting with the 2018 taxation year, and is based on the province of residence and family composition. The total amount paid and expensed was $663.8 million in fiscal year 2018-2019 and is $1.3 billion to date in 2019-2020. As mentioned previously, authorities and payments for the CAI are not reflected in this quarterly report. However, they will be reflected in the Public Accounts.

Approval by Senior Officials

Approved by:

[original signed by]

________________________

Bob Hamilton, Commissioner 

[original signed by]

_____________________________

Janique Caron, Chief Financial Officer

Ottawa, Canada

Date: February 25, 2020

Statement of Authorities (unaudited) - Fiscal year 2019-2020
(in thousands of dollars)
  Total available for use for the year ending March 31, 2020Footnote 1 Used during the quarter ended
December 31, 2019
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 4,145,083 961,001 2,880,999
Revenues netted against expenditures (389,494) (89,034) (267,101)
Net Vote 1 - Operating expenditures 3,755,589 871,967 2,613,898
Vote 5 - Capital expenditures 57,047 16,148 38,848
Budgetary Statutory Authorities      
Contributions to employee benefit plans 483,311 112,848 338,544
Children's Special Allowance payments (Children's Special Allowances Act) 337,000 87,837 263,111
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 178,954 36,064 99,932
Minister's salary and motor car allowance 88 22 66
Court awards - Supreme Court - 3 3
Court awards - Tax Court of Canada - 300 1,209
Spending proceeds from the disposal of surplus Crown Assets - 13 75
Energy Cost Benefit - - 0
Refunds of previous years revenue - 15 42
Total Budgetary Statutory Authorities 999,353 237,102 702,982
Total Budgetary Authorities 4,811,989 1,125,217 3,355,728
Statement of Authorities (unaudited) - Fiscal year 2018-2019
(in thousands of dollars)
  Total available for use for the year ending March 31, 2019Footnote 1 Used during the quarter ended
December 31, 2018
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,901,672 924,113 2,800,220
Revenues netted against expenditures (352,526) (89,595) (267,101)
Net Vote 1 - Operating expenditures 3,549,146 834,518 2,533,119
Vote 5 - Capital expenditures 82,664 16,164 42,351
Budgetary Statutory Authorities      
Contributions to employee benefit plans 433,394 105,417 316,251
Children's Special Allowance payments (Children's Special Allowances Act) 335,000 84,575 251,982
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 159,856 26,692 90,557
Minister's salary and motor car allowance 86 22 65
Court awards - Supreme Court - - -
Court awards - Tax Court of Canada - 3,139 4,216
Spending proceeds from the disposal of surplus Crown Assets - 21 91
Energy Cost Benefit - 0 1
Refunds of previous years revenue - - -
Total Budgetary Statutory Authorities 928,336 219,866 663,163
Total Budgetary Authorities 4,560,146 1,070,548 3,238,633
Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2019-2020

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2020 Expended during the quarter ended December 31, 2019 Year to date used at quarter-end
Expenditures:      
Personnel 3,700,801 898,209 2,689,693
Transportation and communications 195,472 28,311 91,835
Information 5,087 4,234 10,790
Professional and special services 520,078 103,011 289,654
Rentals 283,145 66,761 203,445
Purchased repair and maintenance 73,926 11,203 32,726
Utilities, materials and supplies 30,488 2,904 9,420
Acquisition of machinery and equipment 43,004 12,249 27,685
Transfer payments 337,000 87,837 263,111
Other subsidies and payments 12,482 (468) 4,470
Total Gross Budgetary Expenditures 5,201,483 1,214,251 3,622,829
Less: Revenues netted against expenditures 389,494 89,034 267,101
Total Net Budgetary Expenditures 4,811,989 1,125,217 3,355,728
Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2018-2019

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2019 Expended during the quarter ended December 31, 2018 Year to date used at quarter-end
Expenditures:      
Personnel 3,488,106 858,746 2,610,542
Transportation and communications 177,194 25,760 86,393
Information 8,915 9,945 11,293
Professional and special services 485,842 91,002 274,119
Rentals 281,686 67,332 202,614
Purchased repair and maintenance 60,879 9,555 27,318
Utilities, materials and supplies 26,050 2,948 9,203
Acquisition of machinery and equipment 37,896 4,890 18,748
Transfer payments 335,000 84,575 251,983
Other subsidies and payments 11,104 5,390 13,521
Total Gross Budgetary Expenditures 4,912,672 1,160,143 3,505,734
Less: Revenues netted against expenditures 352,526 89,595 267,101
Total Net Budgetary Expenditures 4,560,146 1,070,548 3,238,633
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