Canada Revenue Agency Annual Report to Parliament 2013-2014

Canada Revenue Agency Financial Statements – Administered Activities

INDEPENDENT AUDITOR'S REPORT

To the Board of Management of the Canada Revenue Agency and the Minister of National Revenue

I have audited the accompanying statement of administered assets and liabilities of the Canada Revenue Agency as at 31 March 2014, and the statement of administered revenues and pension contributions, statement of administered expenses and recoveries and statement of administered cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information (together "the financial information"). The financial information has been prepared by management using the basis of accounting described in Note 2.

Management's Responsibility for the Financial Information

Management is responsible for the preparation and fair presentation of this financial information in accordance with the basis of accounting described in Note 2; this includes determining that the basis of accounting is an acceptable basis for the preparation of the financial information in the circumstances, and for such internal control as management determines is necessary to enable the preparation of the financial information that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express an opinion on the financial information based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial information is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial information. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial information.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial information presents fairly, in all material respects, the administered assets and liabilities of the Canada Revenue Agency as at 31 March 2014, and the results of its administered operations and its administered cash flows for the year then ended in accordance with the basis of accounting described in Note 2.

Emphasis of Matter

Without modifying my opinion, I draw attention to Note 2 to the financial information, which describes the purpose and basis of accounting for reporting activities administered by the Canada Revenue Agency on behalf of others. This financial information may not be suitable for another purpose. Management prepares a separate set of financial statements to report the operational revenues and expenses of the Canada Revenue Agency.

original signed
Michael Ferguson, CPA, CA
FCA (New Brunswick)
Auditor General of Canada

26 August 2014
Ottawa, Canada

Canada Revenue Agency
Statement of Administered Assets and Liabilities
as at March 31
(in thousands of dollars)

	2014	2013
Administered assets
Cash on hand	7,489,261	6,474,930
Amounts receivable from taxpayers (note 3)	90,955,765	88,959,530
Amounts receivable under the tobacco civil settlements (note 4)	398,444	462,917
Total assets	98,843,470	95,897,377
Administered liabilities
Amounts payable to taxpayers (note 5)	52,605,357	54,888,038
Amounts payable to provinces (note 6)	648,017	536,642
Deposit accounts (note 7)	162,330	149,450
	53,415,704	55,574,130
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada and others (note 8)	45,427,766	40,323,247
Total liabilities	98,843,470	95,897,377
Contingent liabilities (note 9)

The accompanying notes form an integral part of these financial statements.

Approved by:

original signed by
Andrew Treusch
Commissioner of Revenue and Chief Executive Officer of the Canada Revenue Agency

original signed by
Richard Thorpe, CPA, CMA, FCMA
Director and Chair, Board of Management

Canada Revenue Agency
Statement of Administered Revenues and Pension Contributions
for the year ended March 31
(in thousands of dollars)

	2014	2013
Federal administered revenues
Income tax revenues
Individuals and Trusts (note 10)	130,894,581	125,817,451
Corporations	36,587,157	34,985,855
Non-resident tax withholdings	6,404,440	5,072,674
	173,886,178	165,875,980
Other taxes, duties and charges
Goods and services tax (note 11)	11,493,496	10,343,005
Energy taxes	5,425,949	5,324,250
Other excise taxes and duties	3,359,545	3,328,525
Miscellaneous charges (note 12)	714,727	795,723
	20,993,717	19,791,503
Employment insurance premiums	22,160,249	20,795,737
Interest, penalties, and other revenues (note 13)	5,267,408	3,802,556
Revenues administered on behalf of the Government of Canada	222,307,552	210,265,776
Provincial and territorial governments and First Nations administered revenues
Income tax revenues
Individuals and Trusts	58,438,947	54,702,467
Corporations	13,424,320	13,046,291
	71,863,267	67,748,758
Provincial portion of harmonized sales tax (note 14)	22,224,003	27,021,435
Other revenues (note 15)	207,966	59,383
Revenues administered on behalf of provincial and territorial governments and First Nations	94,295,236	94,829,576
Pension contributions, interest, and penalties administered on behalf of the Canada Pension Plan (note 16)	43,264,617	41,742,977
Total administered revenues and pension contributions	359,867,405	346,838,329

The accompanying notes form an integral part of these financial statements.

Canada Revenue Agency
Statement of Administered Expenses and Recoveries
for the year ended March 31
(in thousands of dollars)

	2014	2013
Federal administered expenses
Transfers to individuals
Child tax benefits	10,401,573	10,265,789
Universal child care benefits	2,728,757	2,709,407
Working income tax benefit	1,231,341	1,146,416
Children's special allowances	235,403	238,007
Refundable medical expense supplement	139,497	135,863
	14,736,571	14,495,482
Transfers to corporations
Refundable investment tax credit	1,389,776	1,542,917
Film and video tax credits	322,611	327,012
	1,712,387	1,869,929
Other federal expenses
Provision for doubtful accounts (note 3)	3,722,605	3,215,136
Interest expense	280,936	550,533
Transfers to provinces for softwood lumber products export charge	42,345	136,913
	4,045,886	3,902,582
Total	20,494,844	20,267,993
Federal administered recoveries
Old age security benefits	(1,342,851)	(1,214,065)
Employment insurance benefits	(212,474)	(224,036)
	(1,555,325)	(1,438,101)
Net expenses and recoveries administered for the Government of Canada	18,939,519	18,829,892
Provincial and territorial administered expenses
Transfers to individuals
Ontario energy and property tax credit	1,138,612	1,259,221
Family benefit programs	1,120,812	1,060,368
British Columbia low-income climate action tax credit	191,989	194,160
Ontario senior homeowners' property tax grant	179,585	188,411
Other property tax credits	129,953	143,905
Other transfers	342,426	304,251
	3,103,377	3,150,316
Transfers to corporations
Refundable investment tax credits	818,318	847,238
Film and television production services tax credits	722,904	711,141
	1,541,222	1,558,379
Expenses administered for provinces and territories	4,644,599	4,708,695
Provision for doubtful accounts administered for the Canada Pension Plan (note 3)	83,519	87,762
Total net administered expenses and recoveries	23,667,637	23,626,349

The accompanying notes form an integral part of these financial statements.

Canada Revenue Agency
Statement of Administered Cash Flows
for the year ended March 31
(in thousands of dollars)

	2014	2013
Total administered revenues and pension contributions	359,867,405	346,838,329
Total net administered expenses and recoveries	(23,667,637)	(23,626,349)
Revenues paid or payable directly to a province	(162,582)	(22,011)
Changes in administered assets and liabilities:
Cash on hand	(1,014,331)	(1,246,663)
Amounts receivable from taxpayers	(1,996,235)	(4,688,915)
Amounts receivable under the tobacco civil settlements	64,473	63,615
Amounts payable to taxpayers	(2,282,681)	3,931,769
Amounts payable to provinces	111,375	(121,121)
Deposit accounts	12,880	20,898
Net cash deposited in the Consolidated Revenue Fund of the Government of Canada (note 8)	330,932,667	321,149,552
Consisting of:
Cash deposits to the Consolidated Revenue Fund	451,259,475	436,106,648
Cash refunds/payments from the Consolidated Revenue Fund	(120,326,808)	(114,957,096)
Net cash deposited in the Consolidated Revenue Fund of the Government of Canada (note 8)	330,932,667	321,149,552

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements – Administered Activities

1. Authority and objectives

The Canada Revenue Agency (CRA) is an agent of Her Majesty in right of Canada under the Canada Revenue Agency Act. The CRA is a departmental corporation named in Schedule II of the Financial Administration Act and reports to Parliament through the Minister of National Revenue.

The mandate of the CRA is to support the administration and enforcement of tax legislation and other related legislation. The CRA provides support, advice and services by:

a) supporting the administration and enforcement of the program legislation;

b) implementing agreements between the Government of Canada or the CRA and the government of a province, territory, or other public body performing a function of government in Canada to carry out an activity or administer a tax or program;

c) implementing agreements or arrangements between the CRA and departments or agencies of the Government of Canada to carry out an activity or administer a program; and

d) implementing agreements between the Government of Canada and First Nations governments to administer a tax.

The CRA administers revenues, including income and sales taxes and Employment insurance premiums, administers tax legislation, delivers a number of social benefit programs to Canadians for the federal, provincial, territorial, and First Nations governments, and administers other amounts, including Canada Pension Plan contributions, for other groups or organizations. It is responsible for administering and enforcing the following acts or parts of acts: the Air Travellers Security Charge Act, the Canada Revenue Agency Act, the Children's Special Allowances Act, Part V.1 of the Customs Act, section 2 of the Energy Costs Assistance Measures Act, the Excise Act, the Excise Tax Act (including the goods and services tax (GST) and the harmonized sales tax (HST) except for GST/HST on imported goods), the Excise Act, 2001, the Income Tax Act, the Softwood Lumber Products Export Charge Act, 2006, the Universal Child Care Benefit Act, and others including various provincial acts.

In the province of Quebec, Revenu Québec (RQ) acts as an agent of the CRA in administering and enforcing the GST, except for GST in respect of selected listed financial institutions. The CRA monitors cash transfers made by RQ, reports the GST revenues administered on its behalf, and transfers funds out of the Consolidated Revenue Fund to RQ so it can issue refunds.

Under an agreement with the province of Nova Scotia, the CRA receives worker's compensation payments and transfers these to the province. The CRA's mandate for administering customs legislation is limited to the collection functions noted under Part V.1 of the Customs Act. The CRA also provides collection services to Employment and Social Development Canada for certain accounts receivable under various acts.

2. Summary of significant accounting policies

For financial reporting purposes, the CRA's activities have been divided into two sets of financial statements: agency activities and administered activities. The purpose of these administered activities statements is to give information about the tax-related revenues, expenses, assets, and liabilities that the CRA administers on behalf of the federal, provincial, and territorial governments, First Nations, and other organizations. The CRA administers individual income tax for all provinces except Quebec, and corporation income tax for all provinces except Quebec and Alberta. The Financial Statements – Agency Activities include the operational revenues and expenses that the CRA manages and uses to run the organization.

The Canada Revenue Agency Act requires the CRA to prepare financial statements in accordance with accounting principles consistent with those applied in preparing the financial statements of the Government of Canada. As a result, CRA follows those accounting principles to account for the federal administered activities. In addition, activities administered for the provincial and territorial governments, First Nations and other organizations are accounted for on the same basis as those administered for the federal government, and may differ from the accounting principles used by those provincial and territorial governments, First Nations and other organizations. These stated accounting policies are based on Canadian public sector accounting standards.

A summary of the significant accounting policies follows:

(a) Revenue and pension contributions recognition

Revenues and pension contributions are recognized in the year in which the event that generates the revenue or the pension contribution occurs and when the effective date of the related legislation has passed and either the legislation, regulation or by-laws have been approved by the legislature or the ability to assess and collect tax has been provided through legislative convention.

The Canadian tax system is based on self-assessment, so taxpayers are expected to understand the tax laws and comply with them. This has an impact on the completeness of tax revenues when taxpayers fail to comply with tax laws, for example, if they do not report all of their income. The CRA has implemented systems and controls to detect and correct situations where taxpayers are not complying with the various acts it administers. These systems and controls include audits of taxpayer records when the CRA decides they are necessary, but these procedures cannot be expected to identify all sources of unreported income or other cases of non-compliance with tax laws. The CRA is unable to estimate the amount of unreported tax.

An assessment (or reassessment) of tax includes all decisions and other steps made or taken by the Minister of National Revenue and officials of the CRA under the federal, provincial, and territorial acts or sections of the acts the CRA administers to calculate tax payable by taxpayers. When verifying a taxpayer's return, the CRA uses the various tax acts it administers and other criteria it developed that are designed to substantially meet the provisions of these acts. Reassessments include changes to previously assessed taxes payable at the request of the taxpayer, for example to claim a subsequent loss carry-back, or changes the CRA initiated as a result of applying procedures to verify reporting compliance, such as taxpayer audits.

Revenues are reported net of tax concessions. As foregone revenue, tax concessions do not give rise to assets or expenses of the taxing government. Refundable tax credits, deductions, or exemptions provided by the federal, provincial, territorial or First Nations governments are considered tax concessions when they provide tax relief to taxpayers and relate to the types of taxes that are a revenue source administered by CRA. When the CRA does not administer the related tax revenue, these refundable tax credits, deductions, or exemptions are accounted for as transfers made through the tax system.

The following policies are applied for specific streams:

(i) Income taxes, Canada Pension Plan contributions, and Employment insurance premiums:

Income tax revenues are recognized when the taxpayer has earned income that is subject to tax. Income is calculated net of tax deductions and credits allowed under the Income Tax Act, including refundable taxes resulting from current-year activity.

Canada Pension Plan (CPP) contributions from employees, employers and self-employed persons are recognized when the pensionable income is earned. Employment insurance (EI) premiums are recognized as revenue in the period the insurable earnings are earned. For non-resident taxpayers (individuals and corporations), revenues are recognized when the taxpayers receive income from which tax is withheld on active and inactive income they earned in Canada.

These revenues and pension contributions are measured from amounts assessed/reassessed and from estimates of amounts not yet assessed/reassessed based on cash received that relates to the fiscal year ended March 31. Revenues and pension contributions for the fiscal year also include adjustments between the estimated revenues of previous years and actual amounts, as well as revenues from reassessments relating to prior years. An additional estimate of future reassessments is only recorded when it can be reliably determined. This is limited to assessments under objection or appealed to various courts.

(ii) Other taxes, duties and charges:

Goods and services tax (GST) and harmonized sales tax (HST) revenues on domestic goods and services, as well as the Quebec sales tax in respect of selected listed financial institutions are recognized at the time the goods are sold or the services provided. Revenues are reported net of input tax credits, GST/HST rebates, and the GST quarterly tax credits in the case of GST revenues. Input tax credits are the recovery of GST/HST paid or owed on purchases related to domestic and imported commercial activities of the taxpayer. Rebates are granted in various circumstances, for example to relieve the tax burden in areas where the cost of housing is very high, or to allow for the recovery of taxes on purchases where the purchaser cannot claim an input tax credit. The GST quarterly tax credit for low-income individuals and families is recorded in the period it relates to. It is intended to offset the cost of the tax for low-income individuals and families.

For excise taxes, revenue is recognized when a taxpayer sells goods taxable under the Excise Tax Act. For excise duties, revenue is recognized when the taxpayer manufactures goods taxable under the Excise Act and the Excise Act, 2001.

These revenues are measured from amounts assessed, and from estimates of amounts not yet assessed based on cash received or historical information, that relate to the fiscal year ended March 31. Miscellaneous charges are recognized as revenue when they are earned.

(iii) Interest, penalties, and other revenues:

Interest, penalties, and other revenues are recorded when they are earned. Except for the portion related to CPP which is credited to the CPP account, all interest and penalty revenues are reported as revenues administered for the federal government as stated in the terms of the tax collection agreements with the provinces and territories. Interest and penalties are recorded net of amounts waived under the various tax acts.

(b) Expenses

(i) Transfers:

Transfers are recognized in the year during which the events giving rise to them occur, provided that the transfer is authorized and all eligibility criteria have been met by the recipient, and a reasonable estimate of the amounts can be made. Transfers made through a tax system are considered authorized when the related tax measures are authorized. Transfers to provinces for the softwood lumber products export charge are recorded as an expense in the same year that the related softwood lumber products export charge revenues are recognized.

(ii) Interest expense:

Refunds may arise late, largely from the resolution of long-standing corporation tax files in favour of the taxpayer. Interest is accrued on refunds from the date that the tax instalment was initially paid to the date that the case is resolved. The CRA records the interest expense in the fiscal year it relates to.

(iii) Administered recoveries:

Recoveries of old age security and EI benefits are recognized when assessed. Amounts not yet assessed are estimated. The CRA reports only recoveries assessed through the individual income tax system. Recoveries determined by other federal government departments are not reported in these financial statements.

(c) Cash on hand

Cash on hand refers to amounts received in the CRA's offices or by its agents up to March 31 but not yet deposited to the credit of the Consolidated Revenue Fund of the Government of Canada. CRA or its agents deposit funds to the Consolidated Revenue Fund on a daily basis.

(d) Amounts receivable from taxpayers

Amounts receivable from taxpayers include taxes, interest, penalties, and other revenues assessed or estimated by the CRA but not yet collected. A significant portion of the receivable balance results from recording accrued receivables that relate to the current fiscal year but are not due to be paid by taxpayers until the next fiscal year.

(e) Allowance for doubtful accounts

The allowance for doubtful accounts is management's best estimate of the collectability of amounts that have been assessed, including the related interest and penalties, but not yet paid. The allowance for doubtful accounts has two components. A general allowance is calculated based on the age and type of tax accounts using rates based on historical collection experience. A specific allowance is calculated based on an annual review of all accounts over $10 million.

The allowance for doubtful accounts is adjusted every year through a provision for doubtful accounts and is reduced by amounts written off as uncollectible during the year. The annual provision is reported in the Statement of Administered Expenses and Recoveries. Except for the portion related to CPP contributions, which is charged to the CPP account, the provision is charged to expenses administered for the federal government because it assumes all collection risks, as stated in the terms of the tax collection agreements with the provinces, territories, and First Nations.

(f) Amounts payable to taxpayers

Amounts payable to taxpayers include refunds and related interest assessed or estimated by the CRA that were not paid up to March 31. A significant portion of the amount payable results from recording accrued payables that relate to the current year but are not due for payment until the next fiscal year. They include refunds resulting from assessments completed after March 31, and estimates of refunds for individual and trust income tax and corporation income tax not yet assessed.

(g) Contingent liabilities

Contingent liabilities are potential liabilities resulting from, for example, previously assessed taxes recorded as revenue that might become actual liabilities if one or more future events occurs or does not occur. If the future event is likely to occur or does not occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and the revenues are reduced. If the likelihood cannot be determined or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(h) Measurement uncertainty

To prepare these statements, management has to make estimates and assumptions that affect the amounts of assets, liabilities, revenues, expenses, and recoveries reported. For these financial statements items, measurement uncertainty is inherent but inestimable. Estimates are used to record unassessed tax revenues and the related amounts receivable and payable, as well as the allowance for doubtful accounts. In particular, estimates are made to determine individual and trust income tax revenues, corporation income tax revenues, non-resident tax withholdings, GST/HST revenues, energy taxes, other excise tax and duty revenues, EI premiums, CPP contributions, and the related amounts receivable and payable.

A key assumption used in estimating tax revenues is that tax installments and historical information on refund rates, payments received upon filing tax returns and amounts receivable assessed are good indicators of the amount of tax revenue earned to March 31 that has not yet been assessed. Another assumption is that historical tax assessment information is a good basis to allocate tax revenues between their various components (for example, between federal, provincial and territorial tax revenues). Relevant factors such as new administered activities, legislative changes and economic factors may also be considered. Finally, the key assumption used to estimate the general allowance for doubtful accounts is that historical collection information is a good indicator of uncollectible receivables.

Estimates are based on the best information available at the time of preparation of these statements and management believes these estimates and assumptions to be reasonable. Actual results could differ significantly from the estimates and any differences are recorded in the year the actual amounts are determined. Management monitors the accuracy of the estimates and the underlying assumptions through annual validation procedures and adjusts its estimation models as required.

3. Amounts receivable from taxpayers

Amounts receivable from taxpayers include taxes, interest, penalties, and other revenues assessed or estimated by the CRA but not yet collected. A significant portion of the receivable balance results from recording accrued receivables that relate to the current fiscal year but are not due to be paid by taxpayers until the next fiscal year.

The following table shows details of the amounts receivable from taxpayers as reported in the Statement of Administered Assets and Liabilities. Amounts receivable from individuals and employers include Canada Pension Plan contributions and Employment insurance premiums as applicable.

(in thousands of dollars)	2014 Gross	2014 Allowance for doubtful accounts	2014 Net	2013 Net
Income taxes
Individuals	52,161,538	(6,621,152)	45,540,386	42,593,659
Employers	16,444,572	(944,913)	15,499,659	15,937,043
Corporations	15,409,462	(2,151,715)	13,257,747	11,884,485
Non-residents	1,442,342	(138,538)	1,303,804	1,074,332
GST/HST	16,516,538	(2,702,600)	13,813,938	15,576,546
Excise taxes and duties and miscellaneous charges	1,578,832	(38,601)	1,540,231	1,893,465
Total	103,553,284	(12,597,519)	90,955,765	88,959,530

Changes in the allowance for doubtful accounts include the following:

(in thousands of dollars)	Allowance for doubtful accounts March 31, 2013	Provision for doubtful accounts	Write-offs	Allowance for doubtful accounts March 31, 2014
Income taxes
Individuals	(6,488,468)	(1,785,205)	1,652,521	(6,621,152)
Employers	(1,078,471)	(193,481)	327,039	(944,913)
Corporations	(1,869,359)	(874,690)	592,334	(2,151,715)
Non-residents	(134,327)	(88,130)	83,919	(138,538)
GST/HST	(2,622,996)	(874,701)	795,097	(2,702,600)
Excise taxes and duties and miscellaneous charges	(51,627)	10,083	2,943	(38,601)
Total	(12,245,248)	(3,806,124)	3,453,853	(12,597,519)

The provision of $3,806 million ($3,303 million in 2013) reported above includes an amount of $3,722 million ($3,215 million in 2013) recorded as an expense administered on behalf of the federal government (see Note 2(e)) and $84 million ($88 million in 2013) charged against expenses administered on behalf of the Canada Pension Plan.

4. Amounts receivable under the tobacco civil settlements

On July 31, 2008, the federal and provincial governments entered into civil settlement agreements with two tobacco companies to resolve potential civil claims. Under the terms of the agreements, payments totalling $850 million are to be made to Canada, for Canada and the provinces. The federal government's share is $325 million and the provincial governments' share is $525 million. The settlement agreements state that the amounts will be fully paid by 2023. Up to $800 million is expected to be received in the first 10 years of the agreements and about $50 million in the following five years. These amounts are recorded at the nominal value.

The following table gives details of the amounts receivable related to the tobacco civil settlement agreements:

(in thousands of dollars)	2014 Government of Canada share	2014 Provincial share	2014 Total	2013 Government of Canada share	2013 Provincial share	2013 Total
Balance, beginning of year	230,000	232,917	462,917	264,000	262,532	526,532
Amounts received during the year	(34,000)	(30,473)	(64,473)	(34,000)	(29,615)	(63,615)
Balance, end of year	196,000	202,444	398,444	230,000	232,917	462,917

5. Amounts payable to taxpayers

The following table gives details of the amounts payable to taxpayers as reported in the Statement of Administered Assets and Liabilities:

(in thousands of dollars)	2014	2013
Individuals	32,149,939	31,991,799
Corporations	9,806,505	11,512,693
GST/HST	10,524,546	11,028,436
Employers and non-residents	75,232	296,423
Excise taxes and duties and miscellaneous charges	49,135	58,687
Total	52,605,357	54,888,038

6. Amounts payable to provinces

The following table gives details of amounts payable to provinces as reported in the Statement of Administered Assets and Liabilities:

(in thousands of dollars)	2014	2013
Provincial share of the tobacco civil settlements (note 4)	202,444	232,917
Amounts payable to Quebec:
Individual income tax witholdings	227,549	195,876
GST refunds issued by Quebec	88,953	83,438
Quebec sales tax in respect of selected listed financial institutions	117,242	18,417
British Columbia sales tax transitional measures	12,588	-
Nova Scotia worker's compensation	2,080	2,765
Ontario corporation income tax and opportunities fund	1,212	2,738
Softwood lumber products export charge net of costs incurred by the federal government	(4,051)	491
Total	648,017	536,642

The CRA is acting as an agent for the provinces under the tobacco civil settlements. The CRA's liability to the provinces for their expected share of the settlement amounts is limited to the amounts that will ultimately be collected from the tobacco companies.

Amounts payable to provinces, territories, and other organizations, which are settled by other departments such as the Department of Finance for provincial, territorial, and First Nations taxes, are not recorded in these financial statements because these amounts are outside the CRA's responsibility.

The CRA received $258 million in Nova Scotia worker's compensation payments during the year ($249 million in 2013), these payments are transferred directly to the province. Since this is a flow through arrangement, it is not reported as administered revenues.

7. Deposit accounts

Deposit accounts are established to record cash and securities required to guarantee payment of GST for non-resident registrants and certain licensees for excise taxes, which are both payable pursuant to the Excise Tax Act. The following table shows activity on the deposit accounts as reported in the Statement of Administered Assets and Liabilities:

(in thousands of dollars)	2014	2013
Balance, beginning of year	149,590	128,692
Receipts and other credits	48,231	52,474
Payments and other charges	(35,451)	(31,576)
Balance, end of year	162,370	149,590
Securities held in trust	(40)	(140)
Net deposit accounts	162,330	149,450

8. Net amount due to the Consolidated Revenue Fund

The net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada and others is the difference between administered assets (taxes not yet received and/or deposited in the fund) and administered liabilities payable by the CRA out of the fund.

The net cash deposited in the Consolidated Revenue Fund of the Government of Canada includes amounts the CRA receives on behalf of the federal government, provinces, territories, and other organizations and deposits in the fund, less refunds and payments issued from the fund during the year.

The following table shows the change in the net amount due to the Consolidated Revenue Fund during the fiscal year:

(in thousands of dollars)	2014	2013
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada and others at the beginning of the year	40,323,247	38,282,830
Total administered revenues and pension contributions	359,867,405	346,838,329
Total net administered expenses and recoveries	(23,667,637)	(23,626,349)
Revenues paid or payable directly to a province	(162,582)	(22,011)
Net cash deposited in the Consolidated Revenue Fund of the Government of Canada	(330,932,667)	(321,149,552)
Net amount due to the Consolidated Revenue Fund on behalf of the Government of Canada and others at the end of the year	45,427,766	40,323,247

9. Contingent liabilities

Contingent liabilities include previously assessed taxes where amounts are under objection or are being appealed to the Tax Court of Canada, the Federal Court of Canada, or the Supreme Court of Canada. As of March 31, 2014, $22,230 million was under objection at the CRA level ($20,566 million for 2013) and $4,715 million was being appealed to the courts ($5,080 million for 2013). The CRA has recorded, in the amounts payable to taxpayers or in reduction of the amounts receivable from taxpayers, as applicable, the estimated amount of objections or appeals that are considered likely to be lost and that can be reasonably estimated.

10. Quebec abatement

The Quebec abatement is provided to Quebec residents under the Income Tax Act (ITA) and the Federal-Provincial Fiscal Arrangement Act. Residents of Quebec subtract 16.5 per cent of the Basic Federal Tax owed to the Government of Canada when compiling their taxes while the government of Quebec receives additional tax room. In accordance with the Federal-Provincial Fiscal Revision Act, 1964 and the Federal-Provincial Fiscal Arrangement Act, the Government of Quebec pays the federal government the value of the Quebec Abatement through an equivalent reduction in transfer payments to the province of Quebec for programs delivered by the federal government.

The Quebec Abatement reduces the federal tax payable under the ITA and is therefore accounted for as a tax concession netted against individual income tax revenues. For the fiscal year ended March 31, 2014, the Quebec abatement assessed by CRA was $3,975 million ($3,998 million for 2013).

11. Goods and services tax revenues

The GST reported on the Statement of Administered Revenues and Pension Contributions includes the federal portion of HST. It is net of input tax credits (ITC), rebates, and the GST quarterly tax credit for low-income individuals and families that the CRA administers. It does not include GST revenues on imported goods, which are administered and reported by the Canada Border Services Agency. The CRA has sole responsibility for administering all ITC, including those claimed on imported goods. ITC relating to GST on imports are not accounted for separately from ITC relating to GST on domestic transactions.

The following table shows details of the GST revenues that the CRA administers for the Government of Canada as reported in the Statement of Administered Revenues and Pension Contributions:

(in thousands of dollars)	2014	2013
Gross GST revenues	150,234,833	137,259,616
ITC	(128,821,525)	(117,530,871)
GST revenues net of ITC	21,413,308	19,728,745
GST rebates	(5,809,564)	(5,355,266)
GST quarterly tax credits for low-income individuals and families	(4,110,248)	(4,030,474)
GST net revenues	11,493,496	10,343,005

12. Miscellaneous charges

The following table details the miscellaneous charges that the CRA administers for the federal government as reported in the Statement of Administered Revenues and Pension Contributions:

(in thousands of dollars)	2014	2013
Softwood lumber products export charge	52,779	160,147
Air travellers security charge	661,948	635,576
Total	714,727	795,723

13. Interest, penalties, and other revenues

Various tax legislations give the CRA the authority, under certain conditions, to assess interest and penalties related to taxes due and regulations that taxpayers have not complied with. Interest is charged on overdue balances using rates determined quarterly, which in most cases are based on the ninety day Treasury Bills rate rounded plus 4%. The interest rate applicable as at March 31, 2014 on most overdue balances was 5% (5% in 2013). The CRA has the authority to waive the interest and penalties that would normally be charged under certain circumstances such as processing delays caused by the CRA, financial hardship experienced by taxpayers, or other extraordinary circumstances.

Other revenues consist of miscellaneous fees and charges such as court fines and administration charges for dishonoured payments.

The following table gives details on interest, penalties, and other revenues that the CRA administers for the federal government as reported in the Statement of Administered Revenues and Pension Contributions:

(in thousands of dollars)	2014	2013
Gross interest and penalties	5,491,414	4,064,285
Interest and penalties waived under authority of the Income Tax Act	(232,774)	(270,333)
Net interest and penalties	5,258,640	3,793,952
Fines imposed under various acts	7,353	12,346
Other revenues (expenses)	1,415	(3,742)
Interest, penalties, and other revenues	5,267,408	3,802,556

14. Provincial portion of harmonized sales tax

During the year, CRA administered the provincial portion of the HST for the provinces of Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island. CRA recorded these revenues in accordance with the accounting policies described in Note 2.

Effective April 1, 2013 the province of British Columbia returned to the provincial sales tax regime. CRA continues to administer HST for that province for the period from July 2010 to March 2013. CRA started to administer the HST for the province of Prince Edward Island, effective April 1, 2013.

The provincial portion of HST reported on the Statement of Administered Revenues and Pension Contributions is net of input tax credits (ITC), rebates and credits accounted as tax concessions. It includes the recaptured ITC, which applies to certain types of supplies purchased by large businesses. It does not include ITC that importers claim for the GST they paid on commercial imports and it does not include the provincial portion of HST collected on imported goods, which is administered and reported by the Canada Border Services Agency.

The following table details the provincial portion of HST revenues as reported in the Statement of Administered Revenues and Pension Contributions:

(in thousands of dollars)	2014	2013
Provincial portion of gross HST revenues	105,772,495	120,582,358
Provincial portion of ITC	(78,152,620)	(87,107,526)
Provincial portion of HST rebates	(888,745)	(1,146,346)
Recaptured ITC	581,270	629,225
Transitional tax	34,487	47,226
HST provincial rebates	(3,816,510)	(4,310,690)
Provincial portion of HST net revenues before credits	23,530,377	28,694,247
Provincial sales tax credits
Ontario sales tax credit	(1,168,025)	(1,233,577)
British Columbia harmonized sales tax credit	(16,636)	(317,790)
Nova Scotia affordable living tax credit	(66,434)	(66,936)
Newfoundland and Labrador harmonized sales tax credit	(40,415)	(39,193)
Ontario sales tax transition benefit	(10,392)	(15,316)
Prince Edward Island sales tax credits	(4,472)	–
Total provincial sales tax credits	(1,306,374)	(1,672,812)
Net Provincial portion of HST	22,224,003	27,021,435

15. Other revenues

The following table gives details of other revenues the CRA administers for provincial and territorial governments and First Nations as reported in the Statement of Administered Revenues and Pension Contributions. As provided under an agreement reached with the Government of Canada on March 28, 2012, the CRA started to administer the Quebec sales tax in respect of selected listed financial institutions as of January 1, 2013.

(in thousands of dollars)	2014	2013
Quebec sales tax in respect of selected listed financial institutions	162,582	22,011
First Nations sales tax and GST	21,022	21,893
First Nations income tax	24,362	15,479
Total	207,966	59,383

16. Pension contributions, interest, and penalties administered on behalf of the Canada Pension Plan

The following table shows details of the transactions the CRA administers on behalf of the Canada Pension Plan as reported in the Statement of Administered Revenues and Pension Contributions:

(in thousands of dollars)	2014	2013
Pension contributions	43,082,324	41,578,539
Interest and penalties	182,293	164,438
Total	43,264,617	41,742,977

17. Related-party transactions

The CRA is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. The CRA deposits all monies received to the Consolidated Revenue Fund (CRF), and the Department of Finance makes payments out of the CRA to provinces, territories, and other organizations for amounts such as provincial, territorial, and First Nations taxes, for which the CRA administers the revenue. Old age security benefit recoveries, Canada Pension Plan contributions (net of overpayments refunded by the CRA), and Employment insurance premiums are credited to Employment and Social Development Canada, which administers the Old Age Security program, the Canada Pension Plan, and the Employment Insurance Operating Account. The CRA also administers a refund set-off program that can use individuals' tax refunds to pay debts they owe under federal, provincial, or territorial programs.

The CRA provides collection services to the Canada Border Services Agency under Part V.I of the Customs Act. It also provides collection services to Employment and Social Development Canada for certain accounts receivable under the Canada Education Savings Act, the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Canada Pension Plan, and the Old Age Security Act. The related payments are made directly to either the Canada Border Services Agency or Employment and Social Development Canada, who are responsible for their deposits to the CRF, as well as their accounting and reporting. These payments are not recorded in the CRA's accounts.

Employment insurance premiums administered on behalf of the federal government include the employer's share that the federal government pays. The GST declared to the CRA includes the GST the federal government pays to its suppliers on domestic purchases. The GST that other federal government departments collect is deposited to the CRF, declared to the CRA, and included in the GST domestic revenues.

Financial Statements Discussion and Analysis – Administered Activities (unaudited)

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. Revenues and expenses are recognized on an accrual basis.

Tax revenues

The Canada Revenue Agency collects the majority of federal tax revenues. Other agencies and departments, such as the Canada Border Services Agency, account for the balance of total federal revenues reported in the Public Accounts of Canada. For further information on revenues 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

Federal Administered Revenues ($000)	2014	2013	+(-)	%
Income tax revenues
Individuals and trusts	130,894,581	125,817,451	5,077,130	4.0%
Corporations	36,587,157	34,985,855	1,601,302	4.6%
Non-resident tax withholdings	6,404,440	5,072,674	1,331,766	26.3%
	173,886,178	165,875,980	8,010,198	4.8%
Other taxes, duties, and charges
Goods and services tax	11,493,496	10,343,005	1,150,491	11.1%
Energy taxes	5,425,949	5,324,250	101,699	1.9%
Other excise taxes and duties	3,359,545	3,328,525	31,020	0.9%
Miscellaneous charges	714,727	795,723	(80,996)	(10.2%)
	20,993,717	19,791,503	1,202,214	6.1%
Employment insurance premiums	22,160,249	20,795,737	1,364,512	6.6%
Interest, penalties, and other revenues	5,267,408	3,802,556	1,464,852	38.5%
	27,427,657	24,598,293	2,829,364	11.5%
Revenues Administered on behalf of the Government of Canada	222,307,552	210,265,776	12,041,776	5.7%

Revenues were $222.3 billion in 2014, approximately $12.0 billion higher than in 2013. All administered revenues were higher except miscellaneous charges.

Individuals and trusts income tax

Individuals and trusts income tax revenues increased by $5,077.1 million, or 4.0%. The increase reflects the growth in employment and wages, and is in line with the increase in individual taxable income.

Corporations income tax

Corporate income tax revenues increased by $1,601.3 million or 4.6%. The increase reflects economic growth and strong corporate earnings.

Non-resident tax withholdings

Non-resident tax withholdings revenues increased by $1,331.8 million or 26.3%. This reflects the strong growth in investment income such as interest and corporate dividends paid to non-residents.

Goods and services tax

GST revenues increased by $1,150.5 million or 11.1%. The increase reflects the growth in retail sales as well as the impact of low accrued revenue estimates in 2013.

Energy taxes

Energy taxes increased by $101.7 million or 1.9%. The increase is attributable to slightly higher gasoline and diesel fuel consumption.

Other excise taxes and duties

Other excise taxes and duties increased by $31.0 million or 0.9%. Revenues were stable as the increase in the Cigarette Inventory Tax was offset by lower beer duty revenues.

Miscellaneous charges

Miscellaneous charges decreased by $81.0 million or 10.2%. The decrease is largely attributable to a reduction in Softwood Lumber Export Charge revenues as a result of the increase in the price of lumber.

Employment insurance premiums

Employment insurance (EI) premiums increased by $1,364.5 million or 6.6%. The increase results from the growth in employment and wages, as well as an EI premium rate increase.

Interest, penalties, and other revenues

Interest, penalties, and other revenues increased by $1,464.9 million or 38.5%. The increase results from large corporate tax reassessments, higher tax receivables, and a slight increase in the average interest rate charged during the year.

Figure 1: Direct tax revenues

Figure 1: Direct tax revenues

Legend	2014 Direct tax revenues	2013 Direct tax revenues
Individuals and trusts	75.3%	75.9%
Corporations	21.0%	21.1%
Non-residents	3.7%	3.0%
Total	100.0%	100.0%

As shown in Figure 1, the distribution of direct tax revenues remained stable in 2014.

Figure 2: Indirect tax revenues

Figure 2: Indirect tax revenues

Legend	2014 Indirect tax revenues	2013 Indirect tax revenues
Goods and services tax	54.8%	52.3%
Energy taxes	25.9%	26.9%
Other excise taxes and duties	16.0%	16.8%
Miscellaneous charges	3.3%	4.0%
Total	100.0%	100.0%

As shown in Figure 2, the distribution of indirect tax revenues remained relatively stable in 2014.

Revenues administered on behalf of the provincial and territorial governments, First Nations, and the Canada Pension Plan

Provincial and territorial governments, First Nations, and Canada Pension Plan ($000)	2014	2013	+(-)	%
Income Tax – individuals and trusts	58,438,947	54,702,467	3,736,480	6.8%
Income Tax – corporations	13,424,320	13,046,291	378,029	2.9%
Provincial portion of harmonized sales tax	22,224,003	27,021,435	(4,797,432)	(17.8%)
Other revenues	207,966	59,383	148,583	250.2%
Revenues administered on behalf of provincial and territorial governments and First Nations	94,295,236	94,829,576	(534,340)	(0.6%)
Pension contributions, interest and penalties administered on behalf of the Canada Pension Plan	43,264,617	41,742,977	1,521,640	3.6%

Provincial, territorial, and First Nations revenues were $94.3 billion in 2014, approximately $534 million lower than in 2013. Canada Pension Plan revenues were $43.3 billion in 2014, $1.5 billion more than in 2013.

Income tax revenues - Individuals and trusts

Individuals and trusts income tax revenues increased by $3,736.5 million, or 6.8%. The increase reflects the growth in employment and wages, and is in line with the increase in individual taxable income. Various provincial legislative changes also contributed to the increase.

Income tax revenues - Corporations

Corporate income tax revenues increased by $378.0 million or 2.9%. The increase reflects economic growth and strong corporate earnings, partly offset by large reassessments.

Provincial portion of harmonized sales tax (HST)

Provincial HST revenues decreased by $4,797.4 million or 17.8%. The decrease reflects British Columbia's return to the provincial sales tax regime, offset in part by the growth in retail sales.

Other revenues

Other revenues increased by $148.6 million or 250.2%. The increase is largely due to a full year of Quebec sales tax revenues from selected listed financial institutions, which CRA began to administer on January 1, 2013.

Figure 3: Revenues administered on behalf of the provincial and territorial governments and First Nations

Figure 3: Revenues administered on behalf of the provincial and territorial governments and First Nations

Legend	2014 Provincial, territorial and FN	2013 Provincial, territorial and FN
Income tax- Individual and trust	62.0%	57.6%
Income tax- Corporations	14.2%	13.8%
Harmonized sales tax	23.6%	28.5%
Other revenues	0.2%	0.10%
Total	100.0%	100.0%

As shown in Figure 3, the distribution of revenues administered on behalf of the provincial and territorial governments, and First Nations changed moderately in 2014, as HST revenues declined with the departure of British Columbia from the HST allocation framework.

Revenues administered on behalf of the Canada Pension Plan

Canada Pension Plan revenues rose by $1,521.6 million or 3.6%. The increase reflects the growth in employment and wages.

Expenses and recoveries administered on behalf of the Government of Canada and provincial and territorial governments

Administered expenses and recoveries ($000)	2014	2013	+(-)	%
Federal administered expenses	20,494,844	20,267,993	226,851	1.1%
Federal administered recoveries	(1,555,325)	(1,438,101)	(117,224)	8.2%
Net expenses and recoveries administered for the Government of Canada	18,939,519	18,829,892	109,627	0.6%
Provincial and territorial administered expenses	4,644,599	4,708,695	(64,096)	(1.4%)
Provision for doubtful accounts administered for the Canada Pension Plan	83,519	87,762	(4,243)	(4.8%)
Total net administered expenses and recoveries	23,667,637	23,626,349	41,288	0.2%

Net federal expenses and recoveries were $18,939.5 million in 2014, $109.6 million higher than in 2013. Net provincial and territorial expenses were $4,644.6 million, $64.1 million lower than in 2013.

Federal administered expenses

Federal administered expenses increased by $226.9 million or 1.1%. The provision for doubtful accounts increased due to higher write-offs, in particular for individual and corporate tax. Interest expense was lower due to a decline in interest expense on corporate tax accounts as a result of fewer reassessments. This was offset in part by higher child tax benefits, which rose due to the indexation of entitlements.

Federal administered recoveries

Federal administered recoveries rose by $117.2 million or 8.2% due to higher Old Age Security (OAS) recoveries. This increase reflects a higher number of OAS benefit recipients and a growth in taxable income.

Expenses administered for provinces and territories

Net expenses administered for provinces and territories decreased by $64.0 million or 1.4%. The decrease is due to lower Ontario energy and property tax credits. This was partially offset by higher family benefit programs, which reflected higher Ontario Child Benefit entitlement amounts.

Provision for doubtful accounts administered for the Canada Pension Plan

The provision for doubtful accounts administered for the Canada Pension Plan (CPP) decreased by $4.2 million or 4.8%. This decline was mostly due to a reduction in the allowance for doubtful accounts on source deductions receivables.

Figure 4: Expenses and recoveries administered on behalf of the Government of Canada and provincial and territorial governments

Figure 4: Expenses and recoveries administered on behalf of the Government of Canada and provincial and territorial governments

Legend	2014 Administered expenses	2013 Administered expenses
Federal expenses and recoveries	80.0%	79.7%
Provincial and territorial administered expenses	20.0%	20.3%
Total	100.0%	100.0%

As shown in Figure 4, the distribution of expenses and recoveries administered on behalf of the Government of Canada and the provincial and territorial governments remained stable in 2014.

Date modified:

2014-11-06