For the quarter ended December 31, 2018

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

Introduction

This quarterly financial report (QFR) 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 2018-2019 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 21, 2018, authorities available for use from the prior fiscal year, Supplementary Estimates A, tabled on October 24, 2018, and technical adjustments.

As shown in the Statement of Authorities, the CRA’s total Budgetary Authorities available for use have decreased by $162 million, from $4,722 million in 2017-2018 to $4,560 million in 2018-2019. The components of the Vote 1 Net Operating Expenditures Authority, Vote 5 Capital Expenditures Authority and Budgetary Statutory Authorities are outlined below.

The Vote 1 Net Operating Expenditures Authority decreased by $154 million, from $3,703 million in 2017-2018 to $3,549 million in 2018-2019. This change in Vote 1 authorities is mainly attributable to a $243 million decrease for the reimbursement of severance payments that took place in 2017-2018 as a result of the settlement of the Public Service Alliance of Canada, Union of Taxation Employees (PSAC-UTE) collective agreement. In addition, another $28 million decrease is related to adjustments to accommodation and real property services provided by Public Services and Procurement Canada (PSPC).

The decreases mentioned above are largely offset by the following:

• $62 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; and
• $61 million increase for tax measures announced in Budget 2018 comprised of $19 million to combat aggressive international tax avoidance and crack down on tax evasion and tax avoidance; an additional $42 million is to enhance the security of taxpayer information, improve client services, and increase reporting requirements for trusts.

The Vote 5 Capital Expenditures Authority increased by $2 million, from $81 million in 2017-2018 to $83 million in 2018-2019. This $2 million variance includes additional funding received by the CRA as announced in Budget 2018 to enhance the security of taxpayer information and to administer the Pan-Canadian Carbon pricing tax system.

Total Budgetary Statutory Authorities are forecasted to decrease by $10 million, from $938 million in 2017-2018 to $928 million in 2018-2019. This change is mainly comprised of a $6 million decrease in cost recovery revenues primarily attributable to initiatives administered on behalf of the province of Ontario and the Canada Border Services Agency, partially offset by increases in workload for the province of Alberta. In addition, payments under the Children’s Special Allowances Act have decreased by $5 million as a result of a technical change in the forecasting methodology. These decreases are offset by a $1 million increase in 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 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 are often resolved by the end of the fiscal year.

A) Expended in the Third Quarter by Authority

As displayed in the Statement of Authorities, the third quarter expenditures have decreased by $12 million, or 1%, from $1,083 million in 2017-2018 to $1,071 million in 2018-2019 and is explained below.

The year over year decrease is mainly attributable to Budgetary Statutory Authorities, which decreased by $23 million, changing from $243 million in 2017-2018 to $220 million in 2018-2019. Technical adjustments related to timing differences in the spending of revenues account for the majority of the decrease and are mostly resolved on a year to date basis.

A further $6 million reduction in expenditures relates to the CRA’s third quarter Vote 5 Capital Expenditures, going from $22 million in 2017-2018 to $16 million in 2018-2019. 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.

The above decreases have been offset primarily by a $17 million increase in the CRA’s Net Vote 1 Operating Expenditures, from $818 million in 2017-2018 to $835 million in 2018-2019. The increase is as a result of the implementation of tax measures announced in Budget 2018, to combat aggressive international tax avoidance, crack down on tax evasion and tax avoidance, enhance the security of taxpayer information, improve client services, and increase reporting requirements for trusts. In addition, higher salary rates in 2018-2019 have contributed to increased expenditures as a result of the ratification of collective agreements.

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 $16 million, or 2%, from $843 million in 2017-2018 to $859 million in 2018-2019. As mentioned above, the year over year increase is attributable to higher salary rates in 2018-2019 as well as the implementation of tax measures announced in Budget 2018.

Transportation and communications expenditures have increased by $2 million, or 7%, from $24 million in 2017-2018 to $26 million in 2018-2019 which is attributable to increased travel costs for mandated CRA activities as a result of the timing of payments.

Information expenditures have increased by $9 million, from $1 million in 2017-2018 to $10 million in 2018-2019. This $9 million increase includes $2 million for advertising services. The remaining $7 million pertains to a reclassification of accounts in 2018-2019 moved from standard object “Professional and Special Services”.

Professional and special services expenditures have decreased by $17 million, or 16%, from $108 million in 2017-2018 to $91 million in 2018-2019. A significant portion of the decrease, $10 million, pertains to the timing of payments to Shared Services Canada (SSC), which were paid in quarter 1 of this fiscal year. The remaining $7 million pertains to a reclassification of accounts moved to standard object, “Information”.

Rentals expenditures have decreased by $4 million, or 5%, from $71 million in 2017-2018 to $67 million in 2018-2019. Purchased repair and maintenance expenditures have decreased by another $4 million, or 33%, from $14 million in 2017-2018 to $10 million in 2018-2019. These decreases are both in line with the reduction in authorities following the review of the CRA’s multi-year occupancy requirements.

A year over year increase in transfer payments totalling $2 million, or 2%, from $83 million in 2017-2018 to $85 million in 2018-2019 pertains to Children’s Special Allowance payments.

Other subsidies and payments expenditures have increased by $4 million, from less than one million in 2017-2018 to $5 million in 2018-2019. The majority of the increase, $3 million, is due to an increase in expenditures incurred for court awards, which fluctuate from year to year.

C) Year to Date Expenditures by Authority

The CRA’s year to date expenditures by authority have decreased by $122 million, or 4%, from $3,361 million in 2017-2018 to $3,239 million in 2018-2019. The components of this year over year decrease are discussed below.

The majority of this decrease pertains to Net Vote 1 Operating Expenditures which decreased by $120 million, or 5%, from $2,653 million in 2017-2018 to $2,533 million in 2018-2019. The year to date decrease is primarily attributable to severance payments totaling some $243 million related to the settlement of PSAC-UTE collective agreements which were paid in 2017-2018.

This above is offset by a $123 million increase in expenditures comprised mainly of higher salary rates in 2018-2019 as a result of the ratification of collective agreements, as well as the implementation of Federal Budget initiatives mentioned earlier.

D) Year to Date Expenditures by Standard Object

The CRA’s year to date personnel expenditures have decreased by $114 million, or 4%, from $2,725 million in 2017-2018 to $2,611 million in 2018-2019. As explained previously, the year to date decrease is primarily attributable to severance payments, which have been offset by higher salary rates in 2018-2019 and the implementation of Federal Budget initiatives.

Information expenditures have increased by $9 million, from $2 million in 2017-2018 to $11 million in 2018-2019. This $9 million year to date increase consists of $2 million for advertising services and the remainder pertains to a reclassification of accounts in 2018-2019 moved from standard object “Professional and Special Services”.

Professional and special services expenditures have decreased by $7 million, or 2% on a year to date basis, from $281 million in 2017-2018 to $274 million in 2018-2019. The increase primarily pertains to a reclassification of accounts moved to standard object, “Information” in fiscal year 2018-2019.

Rentals expenditures have decreased by $15 million, or 7%, from $218 million in 2017-2018 to $203 million in 2018-2019. In addition, purchased repair and maintenance expenditures have decreased by $9 million, or 23%, from $36 million in 2017-2018 to $27 million in 2018-2019. These decreases are both in line with the reduction in authorities following the review of the CRA’s multi-year occupancy requirements.

Acquisition of machinery and equipment expenditures have increased by $10 million, from $9 million in 2017-2018 to $19 million in 2018-2019. A portion of this increase, $4 million, is related to the deferred acquisition of computer hardware and software initially planned for the fourth quarter of 2017-2018. The remaining $6 million pertains to increased growth in the renewal of 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.

Other subsidies and payments expenditures have increased by $13 million, from less than one million in 2017-2018 to $14 million in 2018-2019. Increased court awards costs account for $3 million of the variance. The remainder of the variance relates to various salary overpayments and advance accounts.

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 previous quarters, 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.

Budget 2018 proposed $5.5 million over two years, starting in 2017-2018 for the CRA to process federal government employee income tax reassessments required due to Phoenix pay issues, and to handle related telephone enquiries.

Significant changes in relation to operations, personnel and programs

Budget 2018 earmarked $515.0 million over five years and $83.5 million in ongoing funding to address the following key areas:

• Cracking down on tax evasion and combatting tax avoidance;
• Improving client services at the CRA;
• Combatting aggressive international tax avoidance;
• Enhancing the security of taxpayer information;
• Improving access to the Canada Workers Benefit; and
• Stabilizing and future transformation of the federal government’s pay administration.

In Budget 2017, the Government announced that it would put in place the federal carbon pricing system as part of the Pan-Canadian Framework on Clean Growth and Climate Change. In 2018-2019, $21 million was earmarked in Budget 2018 for the CRA for the administration of the new federal fuel charge scheduled to commence in 2019. As part of the 2018 Fall Economic Statement, an additional $5.5 million was earmarked for the administration of this fuel charge in Ontario.

The CRA’s internally driven Service Renewal Initiative is well underway and continues to change how the CRA operates to improve service to Canadians. It is modernizing collections and verification capacity, optimizing the workforce to best meet priorities, and ensuring the CRA maintains a continued presence in all regions.

On September 17, 2018, the CRA’s first Chief Service Officer was appointed in conjunction with assuming the role of Chief Data Officer. The consolidation of these roles will effectively support the CRA’s goal of becoming better integrated as a client-focused world-class tax and benefit administration.

On August 24, 2018, the CRA announced it would be opening three new Northern Service Centres and providing enhanced year round services out of Whitehorse, Yellowknife, and Iqaluit beginning in the last quarter of 2018-2019. Although, the cost is expected to be less than $1 million in the current year, this internally funded initiative will better support Indigenous communities and Canadians living in the North and expand the CRA’s presence.

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

Approval by Senior Officials

Approved by:

Ottawa, Canada
Date: February 25, 2019