Notes to the Future-oriented Financial Statements - Agency Activities

1. Authority and objectives

The Canada Revenue Agency (the "Agency") is an agent of Her Majesty in right of Canada under the Canada Revenue Agency Act. 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 mandate of the Agency is to support the administration and enforcement of tax legislation as well as other related legislation. The Agency provides support, advice, and services by:

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

(b) implementing agreements between the Government of Canada or the Agency 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 Agency 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 Agency collects 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 government, as well as for provincial, territorial, and First Nations governments and collects amounts for other groups or organizations, including Canada Pension Plan contributions. It is responsible for the administration and enforcement of the following acts or parts of acts: 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 delivering its mandate, the Agency operates under the following program activities:

(a) Internal services: Provides internal services across the Agency, such as human resources management, financial management and information technology, to support the needs of programs and corporate obligations;

(b) Reporting compliance: Verifies complete and accurate disclosure by taxpayers of all required information to establish tax liabilities;

(c) Assessment of returns and payment processing: Processes and validates taxpayer returns; registers, establishes, and maintains taxpayer accounts and; receives payments;

(d) Accounts receivable and returns compliance: Identifies and addresses non-compliance with taxpayer filing and remittance requirements;

(e) Taxpayer and business assistance: Assists taxpayers in meeting their obligations under the self-assessment;

(f) Appeals: Provides a dispute resolution process for taxpayers who disagree with decisions taken by the Agency;

(g) Benefit programs: Provides Canadians certain income-based benefits, credits and other services on behalf of federal, provincial (except Québec), and territorial governments;

(h) Taxpayers' Ombudsman: Addresses requests for reviews made by taxpayers and benefit recipients with respect to service matters.

2. Underlying Assumptions

These future-oriented financial statements have been prepared:

(a) as at November 30, 2010;

(b) on the basis of government policies, government priorities, and external environment at the time the future-oriented financial information was finalized;

(c) according to the requirements of Treasury Board Accounting Policies which are based on Canadian generally accepted accounting principles for the public sector;

(d) on the basis that the resources provided will enable the Agency to deliver the expected results specified in the Report on Plans and Priorities;

(e) on the basis of historical costs.

3. Variations and Changes to the Forecasted Financial Information

While every attempt has been made to accurately forecast final results of 2010-2011 and 2011-2012, actual results are likely to vary from the forecast information presented, and this variation could be material.

The Agency will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of significant accounting policies

For financial reporting purposes, the activities of the Agency have been divided into two sets of financial statements: Agency Activities and Administered Activities. The future-oriented financial statements - Agency Activities include only those operational revenues and expenses which are managed 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. No future-oriented financial statements were prepared for Administered Activities because it is analogous to information presented by the Department of Finance.

These future-oriented financial statements - Agency Activities have been prepared using accounting principles consistent with those applied in the preparation of the financial statements of the Government of Canada. The accounting principles used are consistent with Canadian generally accepted accounting principles for the public sector. A summary of significant accounting policies follows:

(a) Parliamentary appropriations

(b) Net cash provided by the Government of Canada

(c) Forecasted expenses

(d) Services received without charge from other government agencies and departments

(e) Employee benefit plan

(f) Forecasted revenues

(g) Due from the Consolidated Revenue Fund

(h) Accounts receivable and advances

(i) Capital assets

(j) Vacation pay and compensatory leave

(k) Employee future benefits

(l) Contingent liabilities

(m) Measurement uncertainty

5. Parliamentary appropriations

The Agency receives most of its funding through annual Parliamentary appropriations. Items recognized in the Statement of Financial Position and the Statement of Operations in one year may be funded through Parliamentary appropriations in prior, current, or future years. Accordingly, the Agency has different net results of operations for the year on a government funding basis than on an accrual accounting basis. These differences are reconciled below.

a) Reconciliation of Parliamentary appropriations to be provided and used:

Footnote 1

For the year ending March 31st 2012, Vote 5 - CRA capital expenditures includes $48,497K of appropriations available from the prior year- Vote 5.

Footnote 2

In accordance with the division of activities for financial reporting purposes outlined in Note 4, the payments under the Softwood Lumber Products Export Charge Act, 2006 and the Children's Special Allowance payments will be reported as federal administered expenses on the statement of administered expenses and recoveries of the Agency's Administered Activities financial statements.

6. Accounts receivable and advances

7. Capital assets

8. Lease obligations for capital assets

The Agency has entered into agreements to rent information technology equipment under capital leases with a cost of $22,999,073 and accumulated amortization of $19,779,515 as at March 31, 2012 ($22,999,073 and $12,646,847 respectively as at March 31, 2011). These capital leases expire on September 30, 2012. The obligations for the upcoming years include the following:

9. Employee future benefits

a) Pension benefits

The Agency and all eligible employees contribute to the Public Service Pension Plan, which is sponsored by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to the increase in the Consumer Price Index.

The Agency's and employees' contributions to the Public Service Pension Plan for the forecasted years are expected to be as follows:

The Agency's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada.

b) Severance benefits

The Agency provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured at the time of preparation of these statements, is as follows:

10. Net liabilities

Net liabilities represent liabilities incurred by the Agency, net of assets, which have not yet been funded through appropriations. Significant components of these amounts are employee severance benefits and vacation pay and compensatory leave. These amounts are expected to be funded by appropriations in future years as they are paid.

11. Expenses by Category

In the future-oriented statement of operations, expenses are presented by program activity. The following presents expenses by category.

12. Non-tax revenue by category

In the future-oriented statement of operations, non-tax revenues are presented by program activity. The following presents non-tax revenues by category. The nature of each category is defined by the treatment permitted from a Parliamentary appropriations perspective.

13. Related party transactions

The Agency is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. Transactions with Crown Corporations entered into by the Agency are in the normal course of business and on normal trade terms applicable to all individuals and enterprises. Transactions with other Government of Canada departments and Agencies are conducted on a cost recovery basis.

a) Services received without charge from other government agencies and departments:

Over the course of the two forecasted years, the Agency will receive various services without charge from other government agencies and departments. The estimated costs for significant services provided without charge include:

b) Payables and receivables outstanding at year-end with related parties:

14. Contingent liabilities

The Agency is a defendant in certain cases of pending and threatened litigation which arose in the normal course of operations. The current best estimate of the amount to be paid in respect of the cases identified as likely to be lost has been recorded in Accounts payable and accrued liabilities. All other cases, excluding those assessed as unlikely to be lost, are considered contingent liabilities and the related amounts are disclosed whenever the amount of the contingency can be reasonably estimated. At the time of preparation of these statements, contingent liabilities for claims and pending and threatened litigation have been estimated at $26,792,889.

15. Contractual obligations

The nature of the Agency's activities can result in multiyear contracts and obligations whereby the Agency will be committed to make future payments when the goods are received and/or the services are rendered. Significant contractual obligations, other than lease obligations for capital assets (Note 8), that can be reasonably estimated are as follows: