Canada Revenue Agency Quarterly Financial Report

For the quarter ended September 30, 2016

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 Report on Plans and Priorities, 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 2016-2017 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, 2016, 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 $301 million, or 7%, from $4,066 million in 2015-2016 to $4,367 million in 2016-2017. The components of this growth are outlined below.

The Vote 1 Gross Operating Expenditure Authority increased by $153 million, or 4%, from $3,433 million in 2015-2016 to $3,586 million in 2016-2017. This is largely due to the effect of the following factors:

• $70 million planned increase for the implementation of tax measures announced in Budget 2015, including $47 million aimed at enhancing compliance measures and $23 million for various legislative measures. Funding is included in 2016-2017 Main Estimates but was received through Supplementary Estimates in 2015-2016 and therefore not included in this Q2 comparison;
• $62 million increase related to adjustments in accommodation and real property services provided by Public Services and Procurement Canada (PSPC), including $20 million as a result of a technical adjustment following the review of the Agency’s multi-year occupancy requirements;
• $52 million increase through a vote realignment, which transferred funding in 2016‑2017 from the Capital Expenditure Authority (Vote 5) to the Operating Expenditure Authority (Vote 1) to better align the CRA Strategic Investment Plan (SIP) reference levels with planned expenditures; this adjustment is technical in nature and does not represent a change in the Agency’s planned acquisitions or overall authorities;
• $13 million increase in authorities available for use from the prior fiscal year;
• $12 million decrease as a result 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;
• $9 million transfer to the Canada School of Public Service for its new funding model;
• $9 million decrease in funding received in 2015-2016 for the administration of the Softwood Lumber Products Export Charge Act, 2006;
• $6 million decrease in funding associated with adjustments for government advertising programs, a multi-departmental submission led by the Privy Council Office; and
• $8 million decrease as a result of changes in funding profiles for various initiatives announced in previous Federal Budgets (2011-2014).

In 2016-2017 the CRA expects to spend $326 million to fulfill its administrative responsibilities in support of the Canada Pension Plan (CPP) and Employment Insurance (EI) program, up from $319 million in 2015-2016. This $7 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 Expenditure Authority decreased by $41 million, or 32%, from $128 million in 2015‑2016 to $87 million in 2016-2017. This decrease is primarily due to the following factors:

• $52 million decrease, through a vote realignment, which as previously mentioned, transferred funding in 2016‑2017 from the Capital Expenditure Authority (Vote 5) to the Operating Expenditure Authority (Vote 1) to better align the CRA Strategic Investment Plan (SIP) reference levels with planned expenditures; this adjustment is technical in nature and does not represent a change in the Agency’s planned acquisitions or overall authorities;
• $5 million increase for the implementation of common reporting standard for the automatic exchange of tax information announced in Budget 2015;
• $4 million increase as a result of Budget 2014, to Reduce the Administrative Burden on Charities; and
• $3 million increase in authorities available for use from the prior fiscal year.

Total Budgetary Statutory Authorities are forecasted to increase by $196 million, or 24%, from $825 million in 2015-2016 to $1,021 million in 2016-2017. This increase is attributable to the following:

• $128 million increase for the disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006;
• $52 million increase in payments under the Children’s Special Allowances Act due to an increase to the recently implemented Enhanced Universal Child Care Benefit (UCCB) program and to an enrichment to the base Children’s Special Allowance (CSA) benefit and supplements for the 2014 benefit year (July 2015 to June 2016);
• $18 million increase in the contributions to employee benefit plans; and
• $3 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.

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.

Figure 1: Annual Authorities against Year-to-Date and Second Quarter Expenditures (in millions of dollars)

	2016-2017	2015-2016
Authorities	4367.2	4066.3
Year-to-Date	2032.4	1967.5
Second Quarter expenditures	983.9	998.4

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 Second Quarter by Authority

As displayed in the Statement of Authorities, the second quarter expenditures have decreased by $14 million, from $998 million in 2015-2016 to $984 million in 2016-2017. The components of this year-over-year change are discussed below.

The CRA’s second quarter net Vote 1 Operating Expenditures have remained stable from
2015-2016 to 2016-2017. Timing differences in the collection of respendable revenues account for the $3 million variance from 2015-2016 to 2016-2017 and are offset by an equivalent increase of expenditures under Total Budgetary Statutory Authorities. The annual respendable revenue forecast for 2016-2017 is consistent with that of 2015-2016 and as such, the variance will be resolved by year end.

The CRA’s second quarter Vote 5 Capital Expenditures have decreased by $4 million from
$20 million in 2015-2016 to $16 million in 2016-2017. Quarterly variations in capital expenditures may occur 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 $7 million, or 3%, from $249 million in 2015-2016 to $242 million in 2016-2017. This decrease is mainly attributable to a $7 million decrease in Children's Special Allowance payments due to changes in legislation.

B) Expended in the Second Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditure tables, the CRA’s personnel expenditures have decreased by $20 million, or 2%, from $779 million in 2015-2016 to $759 million in 2016-2017. The variance stems from normal fluctuations in expenditures from quarter to quarter as well as a $7 million decrease in severance payments.

Professional and special services expenditures have increased by $7 million, or 8%, from $88 million in 2015-2016 to $95 million in 2016-2017. The variance is mainly attributable to timing in the payment of invoices for the Department of Justice which introduced a new government wide approach to billing, requiring the collection of 50% in advance. The variance will be resolved by year-end.

Purchase repair and maintenance expenditures have increased by $10 million, or 50%, from $10 million in 2015-2016 to $20 million in 2016-2017. The variance is in line with the increase in authorities following the review of the Agency’s multi-year occupancy requirements.

Transfer payments have decreased by $4 million, or 5%, from $90 million in 2015-2016 to $86 million in 2016-2017. The decrease is mainly attributable to a decrease of $7 million in Children's Special Allowance payments as a result of two recent changes in the governing legislation and offset by an increase of $2 million in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006.

Transportation expenditures have decreased by $9 million, or 27%, from $33 million in 2015-2016 to $24 million in 2016-2017. The decrease can be attributed to an early release of notices in order to mitigate the impact of a possible postal disruption, the introduction of the new Canada Child Benefit which replaced three former benefit programs and reduced overall correspondence, and additional take-up of e-delivery of personal tax notices.

Acquisition of machinery and equipment expenditures have increased by $4 million from $2 million in 2015-2016 to $6 million in 2016-2017. The variance is the result of an increase in the expenditures for personal computer equipment and computer purchased software. In 2015-2016 CRA benefited from a bulk discount as a result of CRA contracting negotiated pricing which is no longer in effect for 2016-2017 under the Shared Services Canada contract.

C) Year-to-Date Expenditures by Authority

As displayed in the Statement of Authorities, the year-to-date expenditures have increased by $64 million, or 3%, from $1,968 million in 2015-2016 to $2,032 million in 2016-2017. The components of this year-over-year increase are discussed below.

Net Vote 1 Operating year-to-date Expenditures have increased slightly by $30 million, or 2%, from $1,506 million in 2015-2016 to $1,536 million in 2016-2017. Timing differences account for the majority of the variance; timing in payment of invoices for the Department of Justice which introduced a new government wide approach to billing, requiring the collection of 50% in advance.

Year-to-date Vote 5 Capital Expenditures have decreased by $5 million, or 16%, from $32 million in 2015‑2016 to $27 million in 2016-2017. As previously mentioned, this fluctuation in expenditures is not unusual depending on the status of major project investments and the timing of capital procurements.

Total Budgetary Statutory Authorities have increased by $40 million, or 9%, from $430 million in 2015-2016 to $470 million in 2016-2017. The majority of the variance, $47 million, is due to an increase in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 offset by a $17 million decrease in spending of revenues pursuant to section 60 of the Canada Revenue Agency Act.

D) Year-to-Date Expenditures by Standard Object

The CRA’s personnel year-to-date expenditures have decreased by $36 million, or 2% from $1,566 million in 2015-2016 to $1,530 million in 2016-2017. The variance is the result of one less salary day in the reporting period for 2016-2017 as well as a $21 million decrease in maternity and severance payments.

Purchased repair and maintenance expenditures have increased by $20 million, from $18 million in 2015-2016 to $38 million in 2016-2017. The increase is primarily the result of an in-year change in 2015-2016 to a more detailed distribution of expenditures for accommodations and real property services between two standard objects.

Professional and special services expenditures have increased by $34 million, or 21%, from $164 million in 2015-2016 to $198 million in 2016-2017. The variance is mainly attributed to timing in the payment of invoices for legal services provided by the Department of Justice.

Transfer payments have increased by $51 million, or 34%, from $150 million in 2015-2016 to $201 million in 2016-2017 mainly due to an increase of $47 million in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 as well as a slight increase of $4 million in Children's Special Allowance payments as the result of two recent changes in the governing legislation.

Transportation and communications expenditures have decreased by $2 million, or 3%, from $67 million in 2015-2016 to $65 million in 2016-2017. The majority of the variance is attributable to a decrease in postage costs due to the introduction of the new Canada Child Benefit which replaced three former benefit programs and reduced overall correspondence, and additional take-up of e-delivery for personal tax notices.

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 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. An agreement was reached between CRA and PSAC and after ratification by the members and approval from the Governor in Council, was signed on October 25, 2016. Contract negotiations between PIPSC and the CRA are ongoing. The CRA established a provision to cover the entire amount for collective bargaining increases, therefore mitigating any risk to the Agency.

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.

The CRA is internally risk managing its Budget 2016 initiatives and is seeking incremental funding through Supplementary Estimates B and C. Budget 2016 is 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.

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 2016-2017 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. As one of the federal government’s largest institutions, the CRA is a significant contributor to this initiative, with planned efficiencies of $210 million at maturity in 2016-2017.

Approval by Senior Officials

Approved by:

Ottawa, Canada
Date: November 22, 2016

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 September 30, 2016	Year to date used at quarter-end
Vote 1 - Operating expenditures
Gross Operating expenditures	3,586,020	808,198	1,699,227
Revenues netted against expenditures	minus (326,366)	minus (82,582)	minus (163,183)
Net Vote 1 - Operating expenditures	3,259,654	725,616	1,536,044
Vote 5 - Capital expenditures	86,956	15,856	26,438
Budgetary Statutory Authorities
Contributions to employee benefit plans	436,861	108,211	216,423
Children's Special Allowance payments (Children's Special Allowances Act)	289,000	83,591	153,681
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act	166,604	48,322	52,612
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006	128,000	2,133	46,869
Minister's salary and motor car allowance	84	14	21
Court awards - Tax Court of Canada	-	97	302
Spending proceeds from the disposal of surplus Crown Assets	-	28	39
Energy Cost Benefit	-	-	-
Total Budgetary Statutory Authorities	1,020,549	242,396	469,947
Total Budgetary Authorities	4,367,159	983,868	2,032,429

Statement of Authorities (unaudited) - Fiscal year 2015-2016
(in thousands of dollars)

	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	-	minus 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

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 September 30, 2016	Year to date used at quarter-end
Expenditures:
Personnel	3,272,327	759,336	1,529,743
Transportation and communications	138,767	24,438	64,885
Information	1,216	1,131	1,360
Professional and special services	320,236	95,149	198,196
RentalsFootnote	366,720	73,252	148,844
Purchased repair and maintenance	60,213	19,568	37,589
Utilities, materials and supplies	27,953	2,250	7,030
Acquisition of machinery and equipment	59,882	5,606	7,273
Transfer payments	443,339	85,724	200,550
Other subsidies and payments	2,872	(4)	142
Total Gross Budgetary Expenditures	4,693,525	1,066,450	2,195,612
Less: Revenues netted against expenditures	326,366	82,582	163,183
Total Net Budgetary Expenditures	4,367,159	983,868	2,032,429

Departmental Budgetary Expenditures by Standard Objects (unaudited)
Fiscal year 2015-2016
(in thousands of dollars)

	Planned expenditures for the year ending March 31, 2016	Expended during the quarter ended September 30, 2015	Year to date used at quarter-end
Expenditures:
Personnel	3,046,469	778,726	1,566,421
Transportation and communications	169,781	33,383	67,466
Information	9,963	923	1,651
Professional and special services	408,862	88,024	163,769
Rentals	327,874	71,518	148,491
Purchased repair and maintenance	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
Transfer payments	237,000	90,275	149,815
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

Footnotes

Footnote 1

Includes only authorities available for use and granted by Parliament at quarter-end.

Return to first footnote 1 referrer

Date modified:

2016-11-29