Statement of Management Responsibility

We have prepared the accompanying Future-oriented Statement of Operations (FOSO) of the Canada Revenue Agency (CRA) for Agency activities which includes only those operational revenues and expenses which are incurred by the CRA to deliver its mandate. It is prepared according to the accounting principles consistent with those applied in preparing the financial statements of the Government of Canada. No FOSO was prepared for Administered Activities because it is analogous to information presented by the Department of Finance. Significant accounting policies are set out in note 4 of the FOSO. The FOSO is submitted for Part III of the Estimates (Departmental Plan). The information will also be presented in the CRA’s Departmental Results Report to compare with actual results.

Management is responsible for the integrity and objectivity of the information contained in this FOSO and for the process of developing assumptions. Assumptions and estimates are based upon information available and known to management at the time of development, reflect current business and economic conditions, and assume a continuation of governmental priorities and consistency in the CRA’s mandate and strategic objectives. Much of the FOSO is based on these assumptions, best estimates, and judgment and gives due consideration to materiality. At the time of preparation of this Statement of Operations, management believes the estimates and assumptions to be reasonable. However, as with all such assumptions, there is a measure of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends.

The actual results achieved for the fiscal years covered in the accompanying FOSO will vary from the information presented and the variations may be material.

Approved by:

Bob Hamilton
Commissioner of Revenue and Chief Executive Officer of the CRA

Hugo Pagé
Chief Financial Officer and Assistant Commissioner
Finance and Administration
Ottawa, Ontario

February 2, 2024

Canada Revenue Agency Future-oriented Statement of Operations – Agency Activities

Table 1: Future-oriented Statement of Operations for Agency Activities : the estimated results for 2024 and the planned results for 2025 (in thousands of dollars)

The accompanying notes are an integral part of this FOSO.

Notes to the Future-oriented Statement of Operations – Agency Activities

1. Authority and objectives

The Canada Revenue Agency (CRA) is an agent of His 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 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. In addition to the Canada Revenue Agency Act, the CRA is responsible for administering and enforcing the following acts or parts of acts: the Air Travellers Security Charge Act, the Canada Pension Plan, the Children’s Special Allowances Act, Part V.1 of the Customs Act, the Employment Insurance 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 Universal Child Care Benefit Act, the Greenhouse Gas Pollution Pricing Act, the Public Health Events of National Concern Payments Act, the Canada Emergency Response Benefit Act, the Canada Emergency Student Benefit Act, the Canada Recovery Benefits Act, the Canada Worker Lockdown Benefit Act, the Cost of Living Relief Act, the Dental Benefit Act, the Rental Housing Benefit Act, the Select Luxury Items Tax Act, the Underused Housing Tax Act, the Canada Disability Benefit Act and others, including various provincial acts.

In delivering its mandate, the CRA operates under the following core responsibilities:

a) Tax: to ensure that Canada’s self-assessment tax system is sustained by clients with the support and information they need to understand and fulfil their tax obligations, and by taking compliance and enforcement action when necessary to uphold the integrity of the system, offering avenues for redress whenever clients may disagree with an assessment or decision;

b) Benefits: to ensure that clients obtain the support and information they need to better understand which benefits they may be eligible to receive, that they receive their benefit payments in a timely manner, and have avenues of redress when they disagree with a decision on their benefit eligibility;

c) Internal services: Internal services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal services refer to the activities and resources of 10 distinct services that support program delivery in the organization, regardless of the Internal services delivery model in an agency or department. These services are: acquisition management, communications, financial management, human resources management, information management, information technology, legal services, materiel management, management and oversight and real property management

d) Taxpayers’ Ombudsperson: Clients have access to trusted and independent review of service complaints about the CRA.

2. Methodology and significant assumptions

The FOSO has been prepared on the basis of government priorities and Agency plans as described in the Departmental Plan.

The information in the estimated results for fiscal year 2023–24 is primarily based on actual results as at October 31, 2023 and on forecasts for the remainder of the fiscal year. Forecasts have been made for the planned results for the 2024–25 fiscal year.

The main assumptions and considerations underlying the forecasts are as follows:

• a) The CRA’s activities remain substantially the same as in the previous year, while factoring continued funding reductions for pandemic related measures and cost recovery for administration activities.
• b) Operating expenses are reduced as per the government spending reduction measures announced in Budget 2023.
• c) Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.

3. Variations and changes to the forecasted financial information

While every attempt has been made to forecast final results for the remainder of 2023–24 and for 2024–25, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing this FOSO the CRA has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the FOSO and the historical statement of operations include:

• a) Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.
• b) The timing and amount of acquisitions and disposals of tangible capital assets may affect amortization expense and gains/losses.

Once the Departmental Plan is presented, the CRA will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Results Report.

4. 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 FOSO – Agency Activities include those operational revenues and expenses which are incurred by the CRA and utilized in to deliver its mandate. The Financial Statements – Administered Activities include those revenues and expenses that are administered on behalf of the federal, provincial, and territorial governments, First Nations, and other organizations. The purpose of the distinction between Agency and administered activities is to facilitate, among other things, the assessment of the administrative efficiency of the CRA in achieving its mandate. No FOSO was prepared for Administered Activities because it is analogous to information presented by the Department of Finance.

The FOSO – Agency Activities has been prepared using accounting principles consistent with those applied in the preparation of the consolidated financial statements of the Government of Canada. The accounting principles used are in accordance with Canadian public sector accounting standards. A summary of significant accounting policies follows:

a) Parliamentary appropriations

• The CRA is financed by the Government of Canada through Parliamentary appropriations. Financial reporting of authorities provided to the CRA does not parallel financial reporting according to Canadian public sector accounting standards, as they are based in large part on cash flow requirements. Consequently, items recognized in the FOSO may be different from those provided through appropriations from Parliament. Note 5(b) provides a high-level reconciliation between the two bases of reporting.

b) Expense recognition

• Expenses are recognized when goods are received and/or services are rendered.

c) Revenue recognition

• Non-tax revenues are recognized when the services are rendered by the CRA.
• Non-tax revenues that are not available for spending cannot be used to discharge the CRA’s liabilities. While management is expected to maintain accounting control, it has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the CRA's gross revenues.

d) Vacation pay and compensatory leave

• Vacation pay and compensatory leave expenses are accrued as the benefits are earned by the employees under their respective terms of employment. The liability for vacation pay and compensatory leave is calculated at the salary levels in effect at the end of the year for all unused vacation pay and compensatory leave benefits accruing to employees.

e) Employee future benefits

• i. Pension benefits
• All eligible CRA employees participate in the Public Service Pension Plan administered by the Government of Canada. The CRA’s contributions reflect the full cost as employer. These amounts are currently based on a multiple of an employee’s required contributions and may change over time depending on the experience of the plan. The CRA’s contributions are expensed during the year in which the services are rendered and represent the total pension obligation of the CRA. Current legislation does not require the CRA to make contributions with respect to any actuarial deficiencies of the Public Service Pension Plan.
• ii. Health and dental benefits
• The Government of Canada sponsors employee benefit plans (health and dental) in which the CRA participates. Employees are entitled to health and dental benefits, as provided for under labour contracts and conditions of employment. The CRA’s contributions to the plans, which are provided without charge by the Treasury Board Secretariat, are recorded as expenses at their carrying value. They represent the CRA’s total obligation to the plans. Current legislation does not require the CRA to make contributions for any future unfunded liabilities of the plans.
• iii. Severance benefits
• The accumulation of severance benefits for voluntary departures ceased for all applicable employee groups. The remaining obligation for employees who did not withdraw benefits represents an obligation of the CRA that entails settlement by future payments and is calculated using information from an actuarial valuation based on the projected benefit method prorated on services. Changes in actuarial assumptions and any variance between the expected and the actual experience of the severance benefits plan give rise to actuarial gains or losses. These gains or losses are not recognized immediately but amortized on a straight-line basis over the expected average remaining service life of the employees starting in the fiscal year following the one in which they arose.
• iv. Sick leave benefits
• Employees are eligible to accumulate sick leave benefits until retirement or termination according to their terms of employment. Sick leave benefits are earned based on employee services rendered and are paid upon an illness or injury related absence. These are accumulating non-vesting benefits that can be carried forward to future years, but are not eligible for payment on retirement or termination, nor can these be used for any other purpose. A liability is recorded for unused sick leave credits expected to be used in future years in excess of future allotments, based on an actuarial valuation using an accrued benefit method. Changes in actuarial assumptions and any variance between the expected and the actual experience of the sick leave benefits plan give rise to actuarial gains or losses. These gains or losses are not recognized immediately but amortized on a straight-line basis over the expected average remaining service life of the employees starting in the fiscal year following the one in which they arose.

f) Amortization of tangible capital assets

All initial costs of $10,000 or more incurred by the CRA to acquire or develop tangible capital assets are capitalized and amortized over the useful lives of the assets. Similar items under $10,000 are expensed.

Tangible capital assets are amortized on a straight-line basis over the estimated useful lives of assets as follows:

Table 2: Useful lives by asset class

Assets under construction or development are not amortized until completed and put into operation.

g) Provision for contingent liabilities

• Contingent liabilities are potential liabilities 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 fail to occur, and a reasonable estimate of the loss can be made, a provision is accrued and an expense recorded to other expenses. 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) Related party transactions

• Inter-entity transactions are transactions between commonly controlled entities. Inter-entity transactions, other than restructuring transactions, are recorded on a gross basis and are measured at the carrying amount, except for the following:
  
  • i. Services provided on a recovery basis are recognized as revenues and expenses on a gross basis and measured at the exchange amount.
  • ii. Certain services received on a without charge basis, including inter-entity transfers of tangible capital assets for nominal or no consideration, are recorded for departmental financial statement purposes at the carrying amount.

Transactions with Crown corporations are entered into using similar terms and conditions to those adopted if the entities were dealing at arm’s length and are recorded at the exchange amount.

5. Parliamentary appropriations

The CRA receives most of its funding through annual Parliamentary appropriations. Items recognized in the FOSO in one year may be funded through Parliamentary appropriations in prior, current, or future years. Accordingly, the CRA 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 requested:

Table 3: Parliamentary appropriations to be provided and requested for the estimated results for 2024 and the planned results for 2025 (in thousands of dollars)

b) Reconciliation of net cost of operations before government funding and transfers to current year Parliamentary appropriations to be requested:

Table 4: Reconciliation of net cost of operations before government funding and transfers for the estimated results in 2024 and the planned results for 2025 (in thousands of dollars)

6. Expenses by category

In the FOSO, expenses are presented by core responsibility. The following table presents the expenses by major object of expense.

Table 5: Expenses by category for the estimated results in 2024 and the planned results for 2025 (in thousands of dollars)

7. Non-tax revenues by category

In the FOSO, non-tax revenues are presented by core responsibility. The following table presents the non-tax revenues by major type of non-tax revenues. The nature of each category is defined by the treatment permitted from a Parliamentary appropriations perspective.

Table 6: Non-tax revenues by category for the estimated results in 2024 and the planned results for 2025 (in thousands of dollars)

8. Related party transactions

The CRA is related as a result of common ownership to all Government of Canada departments, agencies and Crown corporations. Related parties also include individuals who are members of the CRA key management personnel or close family members of those individuals, and entities fully or jointly controlled by any of them.

The CRA enters into transactions with these entities in the normal course of business and on normal trade terms.

The following material transactions are expected to occur at a value different from that which would have been arrived at if the parties were unrelated:

a) Common services to be provided without charge by other government departments and agencies

The CRA is expected to receive services without charge from other government departments and agencies, related to information technology, the employer’s contribution to the health and dental insurance plans and workers’ compensation coverage, legal services and audit services. These services have been recorded at their estimated carrying value in the FOSO as follows:

Table 7: Services to be provided without charge for the estimated results in 2024 and the planned results for 2025 (in thousands of dollars)

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Services and Procurement Canada, are not included in the CRA’s FOSO.