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, as well as allocations from centrally held Budget Implementation Votes.

As shown in the Statement of Authorities, the CRA’s total Budgetary Authorities available for use have increased by $312 million, from $4,352 million in 2018-2019 to $4,664 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 $292 million, from $3,704 million in 2018-2019 to $3,996 million in 2019-2020. This is mainly due to the following legislative and technical changes:

Legislative

• $79 million increase for the implementation and administration of measures that pertain to compliance, cracking down on tax evasion, combatting tax avoidance, and enhancing tax collections announced in Budget 2016, Budget 2017, Budget 2018, and Budget 2019;
• $46 million increase to support the implementation and administration of the federal carbon pollution pricing system; and
• $30 million increase for the implementation and administration of measures to improve client services, including service excellence, at the CRA announced in Budget 2016, Budget 2018, and Budget 2019.

Other technical items

• $53 million increase primarily related to the settlement of the Professional Institute of the Public Service of Canada, Audit, Financial and Scientific (PIPSC-AFS) collective agreement;
• $35 million increase as a result of a technical adjustment realigning the Operating Expenditure Authority (Vote 1) and the Capital Expenditure Authority (Vote 5) for the CRA Strategic Investment Plan (SIP). This change has no impact on the Agency’s overall authorities;
• $34 million increase in authorities available for use from the prior fiscal year; and
• $15 million increase to fulfill administrative responsibilities in support of the Canada Pension Plan (CPP) and Employment Insurance (EI) program.

In 2019-2020, the CRA expects to spend $364 million to fulfill its administrative responsibilities in support of the CPP and EI program, up from $349 million in 2018-2019. This $15 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 $20 million, from $77 million in 2018-2019 to $57 million in 2019-2020. This decrease is primarily the result of the following factors:

• $35 million decrease, as a result of a vote realignment as previously mentioned, which has been offset by a $20 million increase in authorities available for use from the prior fiscal year;
• $4 million planned decrease in the spending profile for the redesign of the individual income tax processing system; and
• $1 million planned decrease related to various tax measures announced in previous Federal Budgets.

Total Budgetary Statutory Authorities are forecasted to increase by $55 million, from $920 million in 2018-2019 to $975 million in 2019-2020. This increase is attributable to the following:

• $34 million in increased contributions to employee benefit plans;
• $19 million in increased spending of revenues received primarily attributable to initiatives administered on behalf of the province of Ontario; and
• $2 million in increased payments under the Children’s Special Allowances Act as a result of a technical change in the forecasting methodology.

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.

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.

A) Expended in the First Quarter by Authority

As displayed in the Statement of Authorities, the first quarter expenditures have decreased by $148 million, or 12%, from $1,267 million in 2018-2019 to $1,119 million in 2019-2020. The components of this year-over-year change are presented below.

The CRA’s first quarter net Vote 1 Operating Expenditures have decreased by $158 million, or 15%, from $1,051 million in 2018-2019 to $893 million in 2019-2020. The decrease is primarily the result of retroactive salary payments posted in 2018-2019 from the settlement of PIPSC-AFS and due to additional economic increases in the Public Service Alliance of Canada Union of Taxation Employees (PSAC-UTE) collective agreements. These expenditures pertain to 2017-2018 and prior years and were subsequently applied against the related accrued salary provision after quarter 1 2018-2019.

In addition, timing related to the payment of invoices for the Department of Justice has contributed to the decrease in Vote 1 expenditures, which were paid earlier in 2018-2019. These timing differences will be resolved by year-end.

A further $3 million reduction in expenditures relates to the CRA’s first quarter Vote 5 Capital Expenditures, going from $10 million in 2018-2019 to $7 million in 2019-2020, a decrease of 24%. 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 increased by $13 million, or 6%, from $206 million in 2018-2019 to $219 million in 2019-2020. The majority of the increase, $8 million, is attributable to increased contributions to employee benefit plans. Another $3 million pertains to increased payments under the Children’s Special Allowances in quarter 1 of this year compared to last year, which is consistent with the increase in year over year authorities.

B) Expended in the First Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditures by Standard Object table, the CRA’s personnel expenditures have decreased by $124 million, or 12%, from $1,028 million in 2018-2019 to $904 million in 2019-2020. As noted above, the main contributing reason for the decrease includes the settlement of the PIPSC-AFS and PSAC-UTE collective agreements.

Transportation and communications expenditures have increased by $2 million, or 5%, from $34 million in 2018-2019 to $36 million in 2019-2020 and is attributable to public service travel, mainly related to core mandate workload.

Information expenditures have increased by $2 million, from under $1 million in 2018-2019 to close to $3 million in 2019-2020 due to a reclassification of accounts in 2018-2019 moved from standard object “Professional and Special Services”.

Professional and special services expenditures have decreased by $33 million, or 29%, from $117 million in 2018-2019 to $84 million in 2019-2020. The decrease is primarily the result of timing differences in the payment of invoices for the Department of Justice, as previously mentioned.

Rentals expenditures have increased by $13 million, or 19%, from $67 million in 2018-2019 to $80 million in 2019-2020. Similarly, purchased repair and maintenance expenditures have decreased by $8 million, from $9 million in 2018-2019 to $1 million in 2019-2020. The year over year variances for these two standard objects are related to the accounting classification of expenditures for accommodation and real property services and will be resolved by year-end.

Other subsidies and payments expenditures that pertain to salary overpayments have decreased by $2 million, from $6 million in 2018-2019 to $4 million in 2019-2020, or 39%.

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.

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. To mitigate the associated risks, the CRA continues to monitor pay transactions and makes 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 ensuring a fair tax system for all Canadians by:

• Strengthening the CRA’s ability to combat tax evasion and aggressive tax avoidance by investing more than $150 million in proposed additional funding over five years, allowing the CRA to fund new initiatives and extend existing programs, including:
  • Hiring additional auditors, conducting outreach and building technical expertise to target non-compliance associated with cryptocurrency transactions and the digital economy;
  • Creating a new data quality examination team to ensure proper withholding, remitting and reporting of income earned by non-residents; and
  • Extending programs aimed at combatting offshore non-compliance.
• Investing a proposed $50 million over five years to create four new dedicated residential and commercial real estate audit teams;
• Investing a proposed $34 million over five years to hire additional staff to process adjustments to T1 returns post-filing more quickly, reducing frustration for taxpayers and ensuring that vulnerable Canadians do not encounter unnecessary delays in calculating the credits and benefits to which they are entitled;
• Establishing dedicated telephone support line for tax service providers through proposed funding of $16 million over five years in order to provide more reliable access to experienced CRA officers and improving service for the millions of Canadians who work with tax service providers each year;
• Improving the CRA’s information technology systems by investing more than $65 million proposed over five years, including replacing legacy systems, so that the infrastructure used to fight tax evasion and aggressive tax avoidance continues to evolve; and
• Providing low-income workers with improved access to support throughout the year, through a proposed investment of $4 million over two years to conduct targeted outreach.

In addition, the government has demonstrated its commitment to continuing resolving 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.

Approval by Senior Officials

Approved by:

Ottawa, Canada

Date: August 22, 2019