Canada Revenue Agency Audited Financial Statements – Administered Activities

Auditor’s Report

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

I have audited the statement of administered assets and liabilities of the Canada Revenue Agency as at 31 March 2010 and the statements of administered revenues and pension contributions, administered expenses and recoveries and administered cash flows for the year then ended. This financial information is the responsibility of the Agency’s management. My responsibility is to express an opinion on this financial information based on my audit.

I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial information is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial information. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial information.

In my opinion, these statements present fairly, in all material respects, the administered assets and liabilities of the Canada Revenue Agency as at 31 March 2010 and the results of its administered operations and its administered cash flows for the year then ended in accordance with the accounting policies set out in Note 2 to the statements.

Sheila Fraser, FCA
Auditor General of Canada

Ottawa, Canada
23 August 2010

Canada Revenue Agency Statement of Administered Assets and Liabilities

Approved by:

Linda Lizotte-MacPherson
Commissioner and Chief Executive Officer

Susan J. McArthur
Director and Chair, Board of Management

Canada Revenue Agency Statement of Administered Revenues and Pension Contributions

Canada Revenue Agency Statement of Administered Expenses and Recoveries

Canada Revenue Agency Statement of Administered Cash Flows

Canada Revenue Agency Notes to the Financial Statements – Administered 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 the 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 (EI) 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 (CPP) contributions. It is responsible for the administration and enforcement of 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, the Ministère du Revenu du Québec (MRQ) acts as an agent of the Agency for the administration and enforcement of the GST. The Agency monitors cash transfers made by the MRQ, reports the GST revenues administered on its behalf, and transfers funds out of the Consolidated Revenue Fund to the MRQ for the issuing of refunds.

The Agency’s mandate regarding the administration of customs legislation is limited to the collection functions under Part V.1 of the Customs Act. As well, the Agency provides to Human Resources and Skills Development Canada (HRSDC) collection services for certain accounts receivable under various acts.

2. Summary of significant accounting policies

The financial statements - Agency Activities include those operational revenues and expenses, which are managed by the Agency and utilized in running the organization. Tax-related assets, liabilities, revenues and expenses are excluded from those financial statements because they can only accrue to a government, not the tax agency that administers those transactions. The purpose of these Administered Activities statements is to present information about the tax-related revenues, expenses, assets, and liabilities that CRA administers on behalf of the federal government, provincial and territorial governments, First Nations and other organizations.

As required by section 88(2)(a) of the Canada Revenue Agency Act, CRA reports against accounting principles that are consistent with those applied in the preparation of the financial statements of the Government of Canada. As such, the CRA Administered Activities stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles. 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. 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 the income subject to the tax. Income earned is determined 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 are recognized when the employee or the self-employed person has earned pensionable income. Employment Insurance (EI) premiums are recognized as revenue when the employee has earned insurable earnings.

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. At the present time, this is limited to cases where amounts for taxes previously assessed are under objection or are being appealed to various courts.

Reassessments include changes made to previously assessed taxes payable at the request of the taxpayer, for example to claim a subsequent loss carry-back, or are initiated by the Agency as a result of applying reporting compliance procedures such as taxpayer audits.

(ii) Other taxes, duties and charges:

Goods and Services Tax (GST) and Harmonized Sales Tax (HST) revenues on domestic goods and services are recognized at the time of the sale of goods or the provision of services. Revenues are reported net of Input Tax Credits (ITC), GST rebates and the GST quarterly tax credit. ITC’s are the recovery of GST/HST paid or owed on purchases related to domestic and imported commercial activities of the taxpayer. The GST quarterly tax credit for low income individuals and families is recorded in the period to which it relates. 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 that relate to the fiscal year ended March 31. Miscellaneous charges are recognized as revenue when they are earned by the Agency.

(iii) Interest, penalties and other revenues:

Interest, penalties and other revenues are recorded when earned by the Agency, except for the Nova Scotia worker's compensation which is recorded as revenue when payments are received from employers. All interest and penalty revenues are reported as revenues administered for the federal government as per 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.

(iv) Assessment definition:

An assessment (or reassessment) of tax is defined as all decisions and other steps made or taken by the Minister of National Revenue and officials of the Agency under the federal, provincial and territorial acts or sections of the acts administered by the Agency to determine tax payable by taxpayers. When verifying a taxpayer’s return, the Agency uses applicable provisions of the various tax acts it administers as well as other internally developed criteria which are designed to substantially meet the provisions of these acts.

(v) Completeness of tax revenues:

The Canadian tax system is predicated on self-assessment where 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 Agency has implemented systems and controls in order to detect and correct situations where taxpayers are not complying with the various acts it administers. These systems and controls include performing audits of taxpayer records where determined necessary by the Agency. Such procedures cannot be expected to identify all sources of unreported income or other cases of non-compliance with tax laws. The Agency is unable to estimate the amount of unreported tax.

(b) Expenses

(i) Interest expense:

The Agency incurs interest expenses as a result of late refund payments. These are largely due to the resolution of long standing corporate tax files in favour of the taxpayer. Interest accrues from the date that the tax installment was initially paid to the date that the case is resolved. The Agency records the interest expense in the fiscal year to which it relates.

(ii) Administered expenses:

Expenses relating to child tax benefits, universal child care benefits, energy cost benefits, children’s special allowances, relief for heating expenses and provincial and territorial administered expenses are recorded in the year to which they relate based on the period in which the recipients were determined to be entitled to receive the benefit or the allowance. Transfers to provinces for softwood lumber products export charge are recorded as an expense in the same year as the related softwood lumber products export charge revenues are recognized.

(iii) Administered recoveries:

Recoveries of Old Age Security and Employment Insurance benefits are recognized when assessed, with an estimate for amounts not yet assessed. Only recoveries assessed through the personal income tax system are reported by the Agency. Recoveries determined by other federal government departments are not reported in these financial statements.

(c) Cash on hand

Cash on hand represents amounts received in the Agency's offices or by agents of the Agency as at March 31 but not yet deposited to the credit of the Consolidated Revenue Fund of the Government of Canada.

(d) Amounts receivable from taxpayers

Amounts receivable from taxpayers represent taxes, interest and penalties and other revenues assessed or estimated by the Agency but not yet collected. A significant portion of the receivable balance is due to the recording of accrued receivables, which 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 reflects management's best estimate of the collectability of amounts 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 of the accounts. A specific allowance is calculated based on an annual review of all accounts over $10 million.

The allowance for doubtful accounts is adjusted by an annual 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 as it assumes all collection risks, as per the terms of the tax collection agreements with the provinces, territories and First Nations.

(f) Amounts payable to taxpayers

Amounts payable to taxpayers represent refunds and related interest assessed, or estimated by the Agency, not paid as at March 31. A significant portion of the payable is due to the recording of accrued payables, which 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 personal and corporate income tax not yet assessed.

(g) Contingent liabilities

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

(h) Measurement uncertainty

The preparation of these statements requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses and recoveries reported. Estimates are used to record unassessed tax revenues and the related amounts receivable and payable, as well as the allowance for doubtful accounts. Actual results could differ from the estimates and any difference would be recorded in the year the actual amounts are determined. The effect of changes to such estimates and assumptions in future periods could be significant. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable.

3. Amounts receivable from taxpayers

The following table presents details of the amounts receivable from taxpayers as reported in the Statement of Administered Assets and Liabilities. These amounts include related interest and penalties receivable. Amounts receivable from individuals and employers include Canada Pension Plan contributions and Employment Insurance premiums as applicable.

Changes in the allowance for doubtful accounts are as follows:

The provision of $2,936 million ($3,189 million in 2009) reported above includes an amount of $2,847 million ($3,150 million in 2009) recorded as an expense administered on behalf of the federal government (see Note 2 (e)) and $89 million ($39 million in 2009) 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 and provincial governments' share of this amount are $325 million and $525 million respectively. The two companies also pleaded guilty in court to violation of the Excise Act. The fines imposed total $300 million and were paid to Canada in 2008-2009.

The following table presents details of the amounts receivable related to the Tobacco civil settlement agreements:

In accordance with the settlement agreements, the amounts receivable are expected to be fully paid by 2023. Up to $650 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 presented at the nominal value.

On April 13, 2010, the federal, provincial and territorial governments entered into civil settlement agreements with two other tobacco companies to resolve civil claims or potential civil claims. Under the terms of the agreements, payments totalling $325 million were made to Canada, for Canada, the provinces and territories on the same day. The federal government and the provincial and territorial governments’ share of this amount are $41 million and $284 million respectively. One of these companies also pleaded guilty in court to violation of the Excise Act, the fine imposed totalled $150 million. The other company pleaded guilty to a Criminal Code of Canada conspiracy and was fined $75 million. Both fines were paid to Canada on April 13, 2010. These amounts are not reflected in the financial statements.

5. Amounts payable to taxpayers

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

6. Amounts payable to provinces

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

It should be noted that the Canada Revenue Agency is acting as an agent for the provinces under the Tobacco civil settlements. CRA’s liability to the provinces for their expected share of the settlement amounts is limited to the amounts that will be ultimately 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 of the Agency’s responsibility.

7. Deposit accounts

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

8. Net amount due to the Consolidated Revenue Fund

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

The net cash deposited in the CRF of the Government of Canada includes amounts received on behalf of the federal government, provinces, territories, and other organizations by the Agency and deposited in the CRF, less refunds and payments issued from the CRF during the year.

The change in the net amount due to the CRF during the fiscal year is presented in the table below:

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 at March 31, 2010, an amount of $17,102 million was under objection at the Agency level ($13,778 million for 2009) and an amount of $3,509 million was being appealed to the courts ($2,429 million for 2009). The Agency 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. Goods and Services Tax ( GST ) revenues

The GST reported on the Statement of Administered Revenues and Pension Contributions is net of Input Tax Credits (ITC), rebates, the provincial portion of HST and the GST quarterly tax credit for low income individuals and families administered by the Agency. It does not include GST revenues on imported goods of $16,247 million in 2010 ($17,500 million in 2009), which are administered and reported by the Canada Border Services Agency (CBSA). The Canada Revenue Agency has sole responsibility for the administration of 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 presents details of the GST revenues administered by the Agency for the Government of Canada as reported in the Statement of Administered Revenues and Pension Contributions:

The amounts of GST net revenues reported above are net of receipts and disbursements resulting from the processing of GST returns. During the period, the Agency has processed $44,384 million in receipts ($47,111 million in 2009) and $31,474 million in disbursements ($36,533 million in 2009) into or from the Consolidated Revenue Fund.

11. Miscellaneous charges

The following table presents details of miscellaneous charges administered by the Agency for the federal government as reported in the Statement of Administered Revenues and Pension Contributions:

12. Interest, penalties, and other revenues

Various tax legislation gives the Agency the authority, under certain conditions, to collect interest and penalties related to taxes due and regulations not met by taxpayers. The Agency has the authority to waive the interest and penalties that would normally be charged under certain circumstances such as Agency processing delays, financial hardship by taxpayers, or other extraordinary circumstances.

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

The following table presents details on interest, penalties and other revenues administered by the Agency for the federal government as reported in the Statement of Administered Revenues and Pension Contributions:

13. Corporate income tax administered for the provinces

Under the Tax Collection Agreement with the province of Ontario, the Canada Revenue Agency is administrating Ontario’s corporate income tax, capital tax, corporate minimum tax and the special additional tax on life insurance corporations for taxation years ending after December 31, 2008. The Agency recorded corporate tax administered for the province of Ontario as well as other provinces, except Quebec and Alberta, for which it administers taxes in these financial statements in accordance with the accounting policies described at Note 2.

14. Other revenues

The following table presents details of other revenues administered by the Agency for Provincial and Territorial Governments and First Nations as reported in the Statement of Administered Revenues and Pension Contributions. Revenues that are directly paid or payable to the provinces as received by the CRA, such as the Tobacco civil settlement amounts and the Nova Scotia workers’ compensation amounts, are flow-through collection activities rather than payments made under legislative authority. These amounts are included as administered revenue and then subsequently deducted from the Statement of Administered Revenues and Pension Contributions.

15. Pension Contributions, Interest and Penalties Administered on behalf of the Canada Pension Plan

The following table presents details of the transactions administered by the Agency on behalf of the Canada Pension Plan (CPP) as reported in the Statement of Administered Revenues and Pension Contributions:

16. Related party transactions

The Agency is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Agency deposits all monies received to the CRF, the Department of Finance makes payments out of the CRF to provinces, territories, and other organizations for revenue amounts such as provincial, territorial, and First Nations taxes, for which the Agency administers the revenue collection process. Old Age Security benefit recoveries, Canada Pension Plan contributions, net of overpayments refunded by the Agency, and Employment Insurance premiums are credited to Human Resources and Skills Development Canada (HRSDC) which administers the Old Age Security program, the Canada Pension Plan, and the Employment Insurance Account. The Agency also administers a refund set-off program by which tax refunds of individuals may be used to pay debts owed by clients under federal, provincial or territorial programs.

The Agency provides collection services to CBSA under Part V.I of the Customs Act. As well, the Agency provides to HRSDC collection services 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 paid directly to either CBSA or HRSDC who are responsible for their deposits to the CRF, as well as their accounting and reporting. These payments are not recorded in the Agency's accounts.

Employment Insurance premiums administered on behalf of the Federal Government include the employer’s share paid by the Federal Government. GST declared to the Agency includes the GST paid by the Federal Government to its suppliers on domestic purchases. GST collected by other Federal Government departments is deposited to the CRF, declared to the Agency, and are included in the GST domestic revenues.

17. Comparative figures

Certain comparative figures have been reclassified to conform with the presentation used in the current year.

Financial Statements Discussion and Analysis (Unaudited) – 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 $180.5 billion in 2009-2010, some $10.3 billion lower than in 2008-2009. All administered revenues were higher except Personal and Trust Taxes, Non-Resident Tax Withholdings, Employment Insurance Premiums, and Interest, penalties, and other revenues.

Personal Income Tax

Personal Income Tax revenues decreased by $12.0 billion, or 10.4%. This decrease reflects the impact of the Economic Action Plan and tax relief measures announced in Budget 2009, along with the downturn in the economy. The recession and slow recovery afterwards triggered lower employment, reduced income, and losses carried back to recover prior years’ taxes.

Corporate Income Tax

Corporate Income Tax revenues increased by $885.1 million or 3.0%. This increase reflects a growth in tax revenues from the financial and resource sectors, and a reduction of refunds stemming from losses carried back from the previous year’s level. This was partially offset by the general impact of the economic downturn and a drop in corporate profits.

Non-Resident Tax Withholdings

Non-Resident Tax Withholdings revenues decreased by $1.0 billion or 15.9%. This decline stems from the global economic downturn, lower interest rates, and reduced dividend payouts.

Goods and Services Tax

GST revenues increased by $2.3 billion or 24.4%. This increase was due to a decline in deductions claimed, partially offset by a smaller drop in gross revenues. The reduction in business output and inventory levels was deeper than the decline in sales, especially for large ticket items, resulting in net GST growth.

Energy Taxes

Energy taxes increased by $23.4 million or 0.5%. This increase reflects a moderate growth in demand for gasoline, partially offset by a drop in the consumption of diesel fuel.

Other Excise Taxes and Duties

Other Excise taxes and duties increased by $82.9 million or 2.8%. This increase is mainly due to higher production of tobacco products.

Miscellaneous Charges

Miscellaneous charges increased by $2.2 million or 0.4%. The increase in Softwood Lumber Products Export Charges was offset by a decline in Air Traveller Security Charges (ATSC). ATSC was down due to a decline in air travel.

Employment Insurance Premiums

Employment Insurance premiums decreased by $96.2 million or 0.6%. This was due to a decline in Source Deduction revenues, stemming from lower employment, offset by a nominal increase in the maximum contribution ceiling.

Interest, Penalties, and Other Revenues

Interest, penalties, and other revenues fell by $1.8 billion or 33.6%. This decrease was due to a two percentage point reduction in prescribed interest rates as well as large tobacco settlements and court fines in 2008-2009.

Interest Expense

Interest Expense fell by $1.3 billion or 71.5%. The decrease is due in part to the cut in the prescribed rate along with a decline in corporate refunds.

Figure 26 Direct Tax Revenues

As shown in Figure 26, 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 decreased from the previous year due to the significant decline in Personal Income Tax revenues.

Figure 27 Indirect Tax Revenues

As shown in Figure 27, the largest component of Indirect Tax Revenues is GST, followed by Energy taxes, Other Excise taxes and duties, and Miscellaneous charges. The proportion of GST has increased due to the strong growth in net GST assessed.

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

Provincial, Territorial, and First Nations revenues were $62.2 billion in 2009-2010, some $2.0 billion or 3.3% higher than in 2008-2009. Canada Pension Plan Revenues were $36.4 billion in 2009-2010; $179.7 million less than in 2008-2009.

Income Tax Revenues – Personal and Trust

Personal Income Tax revenues decreased by $3.4 billion, or 6.8%. The decrease stems from the downturn in the economy and, to a lesser degree, the impact of provincial fiscal measures. The recession triggered lower employment, reduced income, and large losses that resulted in repayments of prior years’ taxes.

Income Tax Revenues – Corporate

Corporate Income Tax revenues increased by $4.0 billion or 49.8%. This increase is due to the full integration of the harmonized corporate tax administration of Ontario. In addition there was a significant growth in revenues from certain sectors of the economy along with a reduction of refunds stemming from loss carryback applications experienced in 2008-2009. This was partially offset by the general impact of the economic downturn and a drop in corporate profits.

Harmonized Sales Tax (HST)

HST revenues increased by $2.0 billion or 204.5%. The increase was due to administrative changes within the federal government as the CRA and the Canada Border Services Agency portion of HST transfers to the Department of Finance have been changed from 67% and 33% to 100% and 0% respectively.

Other Revenues

Other revenue decreased by $516 million or 67.2%, and is related to the tobacco civil settlements in 2008-2009.

Revenues Administered On Behalf of the Canada Pension Plan

Canada Pension Plan revenues fell by $179.7 million or 0.5%. The nominal decline was due to lower employment income, offset in part by a higher annual contribution threshold.

Figure 28 Revenues Administered on behalf of the Provincial and Territorial Governments and First Nations

As shown in Figure 28, 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 from the previous year, due to full integration of the harmonized corporate tax administration for Ontario, lower Personal Income Tax revenues, and higher HST.

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

Net federal expenses and recoveries were $14.4 billion in 2009-2010, $120.5 million higher than in 2008-2009. Net Provincial and Territorial Expenses were $1.38 billion, $615.9 million higher than in 2008-2009.

Federal Administered Expenses

Federal Administered Expenses rose by $164.7 million or 1.1 %. This was largely as a result of higher Child Tax Benefits due to the indexation of benefits and an increase in the National Child Benefit Supplement (NCBS) due to a higher income threshold at which the NCBS is reduced. This was offset in part by a lower provision for doubtful accounts.

Federal Administered Recoveries

Federal Administered Recoveries rose by $44.1 million or 3.9%. This largely resulted from higher Employment Insurance recoveries, due to an increase in reassessments of prior taxation years.

Net Expenses Administered for Provinces and Territories

Net Expenses Administered for Provinces and Territories increased by $615.9 million or 80.6 %. This increase was due to higher family benefit programs as a result of the implementation of additional entitlements for the Ontario Child Benefit, as well as due to improved entitlements in the Ontario Senior Homeowner’s Property Tax Grant, in accordance with the 2009 Ontario Budget.

Provision for Doubtful Accounts Administered for the Canada Pension Plan

The provision for doubtful accounts administered for the Canada Pension Plan increased by $50.2 million or 128.4%. This increase was due to higher arrears and an increase in write-offs.

Figure 29 Expenses and Recoveries Administered on Behalf of the Government of Canada, Provincial, and Territorial Governments

As shown in Figure 29, 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 fallen due to higher provincial Family Benefit Programs.

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 that is fully integrated into decision-making, planning and reporting processes and mechanisms.

Efforts are being made to align corporate risk management with the Agency’s planning and resource allocation cycles. Furthermore, progress is being made 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. In addition, the Agency has also instituted a structured risk management training program for managers and executives.

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.

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:

2010-11-02