Audited Financial Statements – Administered Activities

Financial Statements Discussion and Analysis – Administered Activities

Introduction

The Financial Statements – Administered Activities reflect the total assets and liabilities, tax and non-tax revenues, expenses and recoveries, and cash flows administered by the Canada Revenue Agency on behalf of the Government of Canada, provinces, territories, First Nations, and other government organizations. Tax revenues are recognized on an accrual basis and are net of the applicable deductions and credits allowed under various Acts.

Tax Revenues

The Canada Revenue Agency collects the majority of Federal Tax Revenues. However, other agencies and departments, such as the Canada Border Services Agency, account for the balance of total Federal Revenues. For further information on revenue collected by the Government of Canada as a whole, please refer to the Annual Financial Report of the Government of Canada, available at www.fin.gc.ca/purl/afr-eng.asp .

Revenues Administered on Behalf of the Government of Canada

Net Revenues were $190.8 billion in 2008/2009, some $10.3 billion lower than in 2007/2008. All administered revenues were lower except Personal and Trust Taxes, Non-Resident Tax Withholdings, Energy Taxes, Employment Insurance Premiums, and Interest, penalties, and other revenues.

Personal Income Tax

Personal Income Tax revenues increased by $3.0 billion, or 2.6%. This increase is primarily due to the refinement of the estimation methodology and, to a lesser extent, moderate employment growth. This is partially offset by tax relief measures announced in Budget 2009 and previous budgets.

Corporate Income Tax

Corporate Income Tax revenues decreased by $11.2 billion or 27.4%. This decrease reflects the impact of global financial volatility, resulting in large losses carried back as well as lower overall corporate revenues. In addition, revenues decreased due to federal tax relief measures that took effect in 2008.

Non-Resident Tax Withholdings

Non-Resident Tax Withholdings revenues increased by $605 million or 10.6%. This growth is consistent with the 12.5% growth in foreign direct investment in Canada in 2007.

Goods and Services Tax

GST revenues decreased by $2.0 billion or 17.6%. This decline is due in large part to the January 2008 cut in the GST rate. This reduction was further aggravated by a decline in net GST revenues from the resource sector.

Energy Taxes

Energy taxes rose by $78.5 million or 1.6%. This increase is attributable to higher demand for motive fuel, offset in part by lower demand for diesel fuel.

Other Excise taxes and duties

Other Excise taxes and duties decreased by $172.0 million or 5.4%. This decline is due to lower tobacco duty revenues and lower Green Levy excise revenues on certain classes of automobiles.

Miscellaneous charges

Miscellaneous charges decreased by $207.8 million or 25.7%. This reflected a drop in the Softwood Lumber Products Export Charge, which declined due to a 30% reduction in export volume, as well as additional refunds made to the industry.

Employment Insurance Premiums

Employment Insurance premiums increased by $339.9 million or 2.0%. This is due to moderate employment growth and an increase in the insurable earnings threshold, partially offset by a decline in the premium rate in 2008.

Interest, penalties, and other revenues

Interest, penalties, and other revenues rose by $51.4 million or 1.0%. This increase is due to revenues and court fines from the Tobacco civil settlement agreements, partially offset by lower revenues from interest and penalties. Interest revenues decreased due to lower prescribed interest rates and a reduction in corporate revenues.

Interest Expense

Interest Expense rose by $783.7 million or 74.2%. The growth is attributable to a change in accounting policies used to accrue interest expense on corporate credit balances. This was further augmented by a large corporate reassessment. However, it was partially offset by lower prescribed interest rates.

Figure 20 Direct Tax Revenues

As shown in Figure 20, the largest component of Direct Tax Revenues is Personal and Trust Income Tax, followed by Corporate Income Tax and Non-Resident Tax Withholdings. The proportion of Personal Income Tax has increased from the previous year due to the significant decline in Corporate Income Tax revenues.

Figure 21 Indirect Tax Revenues

As shown in Figure 21, the largest component of Indirect Tax Revenues is GST, followed by Energy taxes, Other Excise taxes and duties, and Miscellaneous charges. Although these proportions were generally stable compared to the previous year, the proportion of GST decreased due to the January 2008 cut in the GST rate.

Revenues Administered on Behalf of the Provincial, Territorial Governments, First Nations and the Canada Pension Plan

Provincial, Territorial, and First Nations Revenues were $60.2 billion in 2008/2009, some $3.8 billion higher than in 2007/2008. Canada Pension Plan Revenues were $36.5 billion in 2008/09; $1.1 billion higher than in 2007/2008.

Income Tax Revenues – Personal and Trust

Personal Income Tax revenues increased by $255.8 million, or 0.5%. The increase is primarily due to the refinement of the estimation methodology and, to a lesser extent, moderate employment growth. This is partially offset by lower effective provincial tax rates.

Income Tax Revenues – Corporate

Corporate Income Tax revenues increased by $3.1 billion or 64.7%. This increase is largely due to the implementation of the harmonized corporate tax administration of Ontario in 2009. However, this was offset in part by the impact of global financial volatility, resulting in lower overall corporate revenues. Some large losses carried back that affected federal corporate revenues (see Federal Corporate) had little impact on provincial corporate revenues as those companies were mostly operating in non-participating provinces.

Harmonized Sales Tax ( HST )

HST revenues decreased by $82.7 million or 8.0%. The decrease in HST is due to the decline in net revenues from a major sector within the participating provinces. HST revenues were not subject to a rate cut.

Other revenues

Other revenue increased by $532 million or 225.6%, and is related to the provincial share of the Tobacco civil settlements.

Revenues Administered On Behalf of the Canada Pension Plan

Canada Pension Plan revenues rose by $1.1 billion or 3.1%. This increase is due to a higher maximum pensionable earnings threshold, partially offset by a decline in employment income in the first quarter of 2009.

Figure 22 Revenues Administered on behalf of the Provincial and Territorial Governments and First Nations

As shown in Figure 22, Personal and Trust Income Tax represented the largest component of revenues administered on behalf of the Provincial, Territorial governments, and First Nations. This is followed by Corporate Income Tax and Harmonized Sales Tax. The proportion of Personal Income Tax decreased slightly from the previous year, due to the implementation of the harmonized corporate tax administration for Ontario in 2009.

Expenses and Recoveries Administered on Behalf of the Government of Canada, Provincial, and Territorial Governments

Net Federal Expenses and Recoveries were $14.3 billion in 2008/2009, $964.1 million lower than in 2007/2008. Net Provincial and Territorial Expenses were $764.2 million, $13.6 million lower than in 2007/2008

Federal Administered Expenses

Federal Administered Expenses fell by $953.1 million or 5.8%. This was largely as a result of a lower provision for doubtful accounts and lower transfers to provinces for Softwood Lumber. The decrease in the provision for doubtful accounts is attributable to the introduction of an aging based methodology in 2007/2008, resulting in higher provisions for that year. The decrease in transfers to provinces for Softwood Lumber is due to the large decline in revenues from the Softwood Lumber products export charge.

Federal Administered Recoveries

Federal Administered Recoveries rose by $11.1 million or 1.0%. This largely resulted from higher Employment Insurance recoveries, due to the increase in the number of recipients of employment insurance benefits, partially offset by a higher income threshold that would trigger a recovery.

Net Expenses Administered for Provinces and Territories

Net Expenses Administered for Provinces and Territories decreased by $13.6 million or 1.7%. This decline was due to the British Columbia climate action dividend, which was paid in 2007/2008. However, this decrease was partially offset by the implementation of the British Columbia low income climate action tax credit and the Ontario senior homeowners' property tax grant, as well as increased benefits under the Ontario child benefit program.

Provision for doubtful accounts administered for the Canada Pension Plan

The provision for doubtful accounts administered for the Canada Pension Plan decreased by $53.1 million or 57.6%. This decline was due to the refinement of the estimation methodology for the allowance for doubtful accounts

Figure 23 Expenses and Recoveries Administered on Behalf of the Government of Canada, Provincial, and Territorial Governments

As shown in Figure 23, Net Expenses and recoveries administered for the Federal Government made up most of the Expenses and Recoveries administered on behalf of the Government of Canada, Provincial, and Territorial Governments. The proportion of Federal Administered Expenses and recoveries has remained stable.

Enterprise Risk Management

The purpose of the Enterprise Risk Management (ERM) Program is to ensure that the Agency develops and implements a systematic, comprehensive approach to managing risks as a management function that is fully integrated into the Agency’s decision-making, planning and reporting processes and mechanisms.

In support of corporate risk management, the two key ERM products are the Corporate Risk Inventory ( CRI ) and the CRA Risk Action Plan. The CRI presents a strategic, high-level snapshot at a point-in-time of the Agency’s risk status. The Agency’s response to each risk in the CRI is captured in a companion document, the CRA Risk Action Plan.

In addition to efforts to align corporate risk information with the Agency’s planning and resource allocation cycles, the Agency is making strides to embed risk information and commitments in other key products and processes including the Corporate Business Plan, the Corporate Audit and Evaluation Plan, and the Executive Cadre's Accountability Regime.

Programs to Mitigate the Risk of Non-Compliance

Canada’s tax system is based on self-assessment and voluntary compliance. It follows, then, that the principal business risk facing the Agency is that taxpayers will fail to voluntarily comply with Canada's tax laws.

Non-compliance is the failure, for whatever reason, to meet any of the following requirements:

• Registering when required (businesses)
• Filing returns on time
• Reporting complete and accurate information to determine tax liability, and
• Paying amounts owing when due.

Through its programs the CRA strives to maintain a presence across Canadian industries and taxpayer types in order to combat non-compliance through prevention, detection and deterrence. The CRA provides a range of information products and services to assist taxpayers and benefit recipients in complying with their obligations and in receiving their rightful share of entitlements. The CRA also administers a collection of programs aimed at making it more difficult to be non-compliant. However, achieving perfect compliance is not possible regardless of the amount of resources devoted to education and enforcement.

The CRA’s priority initiatives to promote compliance and address non-compliance, including planned spending and expected results are identified annually in the Corporate Business Plan (CBP). The results achieved are reported in the CRA's Annual Report.

Date modified:

2009-11-05