Notes to the Statement of Operations – Administered Activities

The Canada Customs and Revenue Agency (the "Agency") was established effective November 1, 1999, under the Canada Customs and Revenue Agency Act. The Agency was established to support the evolution of tax administration and customs services in Canada.

The Agency is a departmental corporation named in Schedule II of the Financial Administration Act and reports to Parliament through the Minister of National Revenue. The Agency's expenditures are funded by the Government of Canada through appropriations.

The Agency's mandate is to provide support, advice, and services when:

In delivering its mandate, the Agency:

For financial reporting purposes, the activities of the Agency have been divided into two Statements of Operations: Administered Activities and Agency Activities. This Statement of Operations – Administered Activities has been divided into two components: Administered revenues and Administered expenditures. It includes those revenues and expenditures which are controlled by someone other than the Agency, such as the federal government, a province or territory, or another group or organization, and managed by the Agency on their behalf. The separate Statement of Operations – Agency Activities includes those operational revenues and expenditures which are controlled by the Agency and utilized in running the organization. The purpose of the distinction between Agency and Administered activities is to facilitate, among other things, the assessment of the administrative efficiency of the Agency in achieving its mandate.

The Agency administers, on behalf of others, income taxes and sales taxes, Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, as well as amounts collected for other groups or organizations. The Agency is responsible for the administration and enforcement of the following acts and certain other acts for which the Minister of National Revenue has a mandated role: Canada Customs and Revenue Agency Act, Children's Special Allowances Act, Customs Act, Customs Tariff, Excise Act, Excise Tax Act (includes Goods and Services Tax (GST)/Harmonized Sales Tax (HST)), Income Tax Act , and others.

The Minister of National Revenue is responsible for the Agency and remains accountable to Parliament for the administration and enforcement of the various tax and customs programs' legislation.

As required by section 88(2) (a) of the Canada Customs and Revenue Agency Act, the Statement of Operations – Administered Activities has been prepared in accordance with accounting principles consistent with those applied in the preparation of the financial statements of the Government of Canada. The purpose of this financial statement is to present the tax and tax-related revenues and expenditures that the Agency administered on behalf of the federal government, provincial/territorial governments, and other organizations. The most significant accounting policies are as follows:

(a) Tax revenue recognition

Tax revenues are generally reported in the period in which they are received. Tax revenues are reported net of refunds. Transfers to others are generally recorded on a cash basis. Refunds of tax revenues are generally allocated to the year in which the processing cycle for the assessment of the related tax return has been started. With the implementation of a new corporate tax processing system during 2000-2001, corporate tax refunds are allocated to the year in which the assessment of the return is normally processed. Cases of tax refunds that are significant and that have been appealed to the Federal Court of Canada or to the Supreme Court of Canada are accrued when a court decision in favour of the taxpayer is rendered and the Crown has taken a decision not to pursue further.

(b) Non-tax revenue recognition

Non-tax revenues on the Statement of Operations – Administered Activities are generally reported in the period in which they are received. Penalties include amounts collected on late payment of GST and excise taxes and duties. Income tax interest and penalties are recorded as tax revenue.

(c) Expenditures

The Goods and Services Tax (GST) quarterly tax credits and payments under the Child Tax Benefit Program, the Children's Special Allowance, provincial/territorial benefit programs expenditures, and recoveries and the Relief for Heating Expense payments are charged to the period to which they relate. OAS benefits repaid are recognized as tax returns are assessed.

The Government had announced its intention to change its accounting policies to a form of full accrual accounting beginning in 2001-2002. However, in the 2001 Budget, the Minister of Finance announced that the Government had decided to delay the implementation of full accrual accounting for the purpose of the Government's audited financial statements for at least one year. Consequently, the Agency will defer the preparation of a full set of accrued financial statements pertaining to Administered Activities, i.e. Statement of Administered Assets and Liabilities, Statement of Administered Revenues, Statement of Administered Expenses, and a Statement of Cash Flows.

The CCRA, in the normal course of operations, collects and then refunds certain amounts to taxpayers. The following table represents details of gross cash receipts and refunds reported in the Statement of Operations – Administered Activities:

Transfers are made by the CCRA to others for whom the CCRA administers taxes. The transfers are either made directly to the party on whose behalf the CCRA collects the taxes, such as to Human Resources Development Canada for the Canada Pension Plan, the Employment Insurance Account, and the Employment Insurance benefits repaid, or to a liability account of the government from which the federal Department of Finance makes transfers to the party for whom the tax is administered. Transfers to the provinces/territories and First Nations are handled in this latter manner.

Transfers made in any one year typically are comprised of two components:

1) transfers relating to a current time period such as a tax year. These amounts are generally determined using best estimates; and

2) a final adjustment for a prior time period. This adjustment to total tax revenues brings previously estimated and recorded transfers for the prior time period into agreement with actual information, such as assessed amounts.

Any differences between actual amounts owing to others for whom the CCRA administers taxes and best estimates are only known in subsequent periods when actual amounts become known. These differences are reflected in the financial statement in the year they are determined.

The following table presents details of transfers reported on the Statement of Operations – Administered Activities:

Under Tax Collection Agreements, the Canada Customs and Revenue Agency (CCRA) collects personal income taxes on behalf of the Government and all provincial and territorial governments except Quebec.

During the year, the CCRA discovered the misclassification of mutual fund trust capital gain refunds in its reports pertaining to provincial and territorial assessed taxes. This in turn caused overpayments to a number of provinces totaling $3,376 million in respect of the 1993 to 1999 tax years. Of this amount, audit level assurance has been obtained on an amount of $2,537 million in respect of the 1997 to 1999 tax years. However, audit level assurance has not been obtained on an amount of $839 million in respect of the 1993 to 1996 tax years. Reliable financial information is not available to quantify overpayments for tax years prior to 1993.

Prior to the end of the 2001-2002 fiscal year, the CCRA implemented changes in systems and procedures to correct the reporting of mutual fund trust capital gain refund amounts for the 2000 and subsequent tax years.

On September 4, 2002, the Government announced its decision to recover, over a ten-year period beginning in fiscal year 2004-2005, approximately $1,421 million of the $2,537 million in overpayments to the provinces related to mutual fund trust capital gain refunds applicable to the 1997 to 1999 tax years. Overpayments relating to tax years prior to 1997 will not be recovered.

The misclassification of mutual fund trust capital gain refunds resulted in the understatement of federal personal income tax revenues and the overstatement of personal income tax transfers to provinces on the CCRA's Statement of Operations – Administered Activities for fiscal years prior to 2001-2002. The financial statement for fiscal year 2000-2001 has been restated to reflect a $1,000 million increase in federal personal income tax revenues and a $1,000 million decrease in transfers to others to correct for the overpayment to the provinces for tax year 2000. Total federal tax revenues and total revenues administered on behalf of the Government of Canada for 2000-2001 have also been increased by the $1,000 million restatement.

Federal tax revenues related to fiscal years 1997-1998 to 1999-2000 are affected by the decision to recover $1,421 million in overpayments ($982 million on a net present value basis). This net increase in federal tax revenues has been reflected as a reduction in the opening accumulated deficit as at March 31, 2000, in the financial statements of the Government of Canada.

GST collected on the sale of goods and services by most other federal government organizations is included in this statement.

GST collected on goods and services in the province of Quebec on behalf of the federal government is transferred by the Ministère du Revenu du Québec to the Agency and is thus included in this statement.

Amounts reported include Harmonized Sales Tax (HST) and First Nations sales tax where applicable. GST and HST received are reported net of offsetting refunds and rebates claimed by registrants. Transfers of HST to provinces and sales tax to the First Nations are calculated in accordance with applicable agreements.

The following table presents details of administered non-tax revenues:

Provincial/territorial benefit programs include the following: Newfoundland and Labrador Harmonized Sales Tax Credit, Newfoundland and Labrador Senior Supplement, Newfoundland and Labrador Child Benefit, Newfoundland and Labrador Healthy Infant Supplement, Nova Scotia Child Benefit, New Brunswick Child Benefit, Saskatchewan Child Benefit, Saskatchewan Sales Tax Credit, Alberta Family Employment Tax Credit, Alberta Energy Tax Refund, British Columbia Family Bonus, British Columbia Earned Income Benefit, British Columbia Energy Rebate, Yukon Child Benefit, Northwest Territories Child Benefit, Ontario Taxpayers Dividend and the Nunavut Child Benefit. These amounts represent payments made by the Agency to individual taxpayers, on behalf of the applicable province/territory.

Contingent significant refunds represent potential amounts that may become actual refunds when one or more future events occur or fail to occur. If the future event is likely to occur or fail to occur and a reasonable estimate of the amount to be refunded can be made, the amount is accrued.

There are $308 million ($1,123 million as at March 31, 2001) in claims or litigation relating to tax refunds that are significant and were under appeal to the Federal Court of Canada or the Supreme Court of Canada at March 31, 2002. These claims for significant tax refunds are disclosed until such time as a decision is made and all appeals to the Federal Court of Canada or the Supreme Court of Canada have been exhausted or are not expected to be pursued. After this time, the refund is either accrued or no longer disclosed, as appropriate.

Accounts receivable for tax revenues are unaudited and are reported on a memorandum basis in the Public Accounts of Canada. Details of the unaudited balances are included in Section 4 of Volume II (Part II) of the Public Accounts of Canada.

The Agency receives refundable deposits to ensure compliance with various regulations. Deposits held at March 31, are as follows:

The guarantee deposits account was established to record cash and securities required to guarantee payment of customs duties and excise taxes on imported goods, and of sales and excise taxes payable by licensees pursuant to the Customs Act and the Excise Tax Act.

The temporary deposits received from importers account was established to record temporary security deposits received from importers to ensure compliance with various Customs and Excise regulations regarding temporary entry of goods.

Date modified:

2002-11-07