Canada Revenue Agency Quarterly Financial Report (Revised)

For the quarter ended September 30, 2017

Statement outlining results, risks and significant changes in operations, personnel and program

Erratum

Date: January 24, 2018
Location: Statement of Authorities (unaudited), Used during the quarter ended September 30, 2016, Vote 1 ‐ Operating expenditures.
Revision: “Revenues netted against expenditures ($82,582) thousand” replaces “Revenues netted against expenditures ($85,582) thousand”.
Rationale for the revision: The Chief Financial Officer and Deputy Head approved document was not correctly reflected in the original web version.

Introduction

This quarterly financial report has been prepared by management as required by section 65.1 of the Financial Administration Act in the form and manner prescribed by the Treasury Board. This report should be read in conjunction with the Main Estimates.

Further details on the Canada Revenue Agency’s (CRA) program activities can be found in the Departmental Plan, and Main Estimates.

Basis of Presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the CRA's spending authorities granted by Parliament and those used by the CRA consistent with the Main Estimates for the 2017-2018 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation of statutory spending authority for specific purposes.

The CRA uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental performance reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

This quarterly report has not been subject to an external audit or review.

Highlights of fiscal quarter and fiscal year to date (YTD) results

Analysis of Authorities

This report reflects the results for the current fiscal year in relation to the Main Estimates for which full supply was released on June 23, 2017, including authorities available for use from the prior fiscal year and technical adjustments.

As shown in the Statement of Authorities, the CRA’s total Budgetary Authorities available for use have increased by $8 million, or 0.2%, from $4,367 million in 2016-2017 to $4,375 million in 2017-2018. The components of the Vote 1 Gross Operating Expenditures Authority, Vote 5 Capital Expenditures and Budgetary Statutory Authorities are outlined below.

The Vote 1 Gross Operating Expenditures increased by $121 million, or 3%, from $3,586 million in 2016-2017 to $3,707 million in 2017-2018. This is mainly due to the following factors:

In 2017-2018 the CRA expects to spend $342 million to fulfill its administrative responsibilities in support of the CPP and EI program, up from $326 million in 2016-2017. This $16 million increase in Vote 1 Gross Operating Expenditure Authority is offset by an equivalent increase in revenues recovered from the CPP and EI Accounts.

The Vote 5 Capital Expenditures decreased by $6 million, or 7%, from $87 million in 2016 2017 to $81 million in 2017-2018. This decrease is primarily due to the following factors:

Total Budgetary Statutory Authorities are forecasted to decrease by $90 million, or 9%, from $1,020 million in 2016-2017 to $930 million in 2017-2018. This decrease is attributable to the following:

Analysis of Expenditures

A two-year comparison of the CRA's annual net authorities available for use against year-to-date and second quarter net expenditures as at September 30 is presented in Figure 1.

Figure 1: Annual Authorities against Year-to-Date and Second Quarter Expenditures (in millions of dollars)
  2017-2018 2016-2017
Authorities 4375.5 4367.2
Year-to-Date Expenditures 2278.7 2032.4
Second Quarter Expenditures 1180.6 983.9

Certain components of the quarterly year-over-year expenditure variances are attributable to timing differences in invoices and payments as well as the status of major project investments, which are often resolved by the end of the fiscal year.

A) Expended in the Second Quarter by Authority

As displayed in the Statement of Authorities, the second quarter expenditures have increased by $197 million, or 20%, from $984 million in 2016-2017 to $1,181 million in 2017-2018. The components of this year-over-year change are discussed below.

The CRA’s second quarter net Vote 1 Operating Expenditures have increased by $218 million, or 30%, from $726 million in 2016-2017 to $944 million in 2017-2018. The increase is primarily the result of the settlement of the PSAC collective agreement which increased salary expenditures in 2017-2018. In addition, expenditures on tax measures announced in Budget 2016, including Cracking Down on Tax Evasion and Combatting Tax Avoidance, Enhancing Tax Collections, and Client-focused services for Canadians and Canadian businesses have increased in this second year of implementation.

The CRA’s second quarter Vote 5 Capital Expenditures have increased by $3 million from $16 million in 2016-2017 to $19 million in 2017-2018. Fluctuations in capital expenditures are not unusual as the quarterly distribution may vary from year-to-year, depending on the status of major project investments and the timing of capital procurements.

Expenditures for Total Budgetary Statutory Authorities have decreased by $24 million, or 10%, from $242 million in 2016-2017 to $218 million in 2017-2018. This decrease is largely attributable to timing differences in the spending of revenues which accounts for $20 million of this variance. The annual revenue forecast for 2017-2018 is consistent with that of 2016-2017 and as such, the variance will be resolved by year-end.

B) Expended in the Second Quarter by Standard Object

As illustrated in the Departmental Budgetary Expenditure tables, the CRA’s personnel expenditures have increased by $215 million, or 28%, from $759 million in 2016-2017 to $974 million in 2017-2018. The variance is attributable to the settlement of the PSAC collective agreement as well as an increase related to the payment of severance to employees due to the PSAC ratification. In addition, as noted above, the implementation of tax measures announced in Budget 2016, have increased as compared to Q2 of 2016-2017.

Transportation and communications expenditures have increased by $4 million, or 15%, from $24 million in 2016-2017 to $28 million in 2017-2018. The variance is mainly due to an early release of notices to taxpayers last year in Q1 to mitigate the impact of a possible postal disruption. As such, postage costs in Q2 of 2016-2017 were significantly lower.

Purchased repair and maintenance expenditures have decreased by $9 million, or 47%, from $19 million in 2016-2017 to $10 million in 2017-2018. The variance is in line with the decrease in authorities following the review of the Agency’s multi-year occupancy requirements.

Transfer payments have decreased by $2 million, or 3%, from $86 million in 2016-2017 to $84 million in 2017-2018. This is attributable to a decrease in disbursements to provinces under the Softwood Lumber Export Charge Act, 2006.

C) Year-to-Date Expenditures by Authority

As displayed in the Statement of Authorities, the year-to-date expenditures have increased by $247 million, or 12%, from $2,032 million in 2016-2017 to $2,279 million in 2017-2018. The components of this year-over-year increase are discussed below.

Net Vote 1 Operating year-to-date Expenditures have increased by $299 million, or 19%, from $1,536 million in 2016-2017 to $1,835 million in 2017-2018. The increase is primarily the result of the settlement of the PSAC collective agreement which increased salary expenditures in 2017-2018. In addition, expenditures on tax measures announced in Budget 2016, have increased in this second year of implementation and timing differences in payment of invoices for the Department of Justice which introduced a new government wide approach to billing, account for the remainder of the variance.

Year-to-date Vote 5 Capital Expenditures have increased by $2 million, or 9%, from $27 million in 2016 2017 to $29 million in 2017-2018. This fluctuation in expenditures is not unusual depending on the status of major project investments and the timing of capital procurements.

Total Budgetary Statutory Authorities have decreased by $55 million, or 12%, from $470 million in 2016-2017 to $415 million in 2017-2018. The majority of the variance, $47 million, is due to a decrease in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006.

D) Year-to-Date Expenditures by Standard Object

The CRA’s personnel year-to-date expenditures have increased by $351 million, or 23% from $1,530 million in 2016-2017 to $1,881 million in 2017-2018. The variance is attributable to the settlement of the PSAC collective agreement as well as an increase related to the payment of severance to employees due to the PSAC ratification. In addition, as noted above, the implementation of tax measures announced in Budget 2016, have increased as compared to 2016-2017.

Professional and special services expenditures have decreased by $25 million, or 13%, from $198 million in 2016-2017 to $173 million in 2016-2017. The variance is mainly attributed to timing in the payment of invoices for legal services provided by the Department of Justice. 

Purchased repair and maintenance expenditures have decreased by $17 million, or 43% from $38 million in 2016-2017 to $21 million in 2017-2018. The variance is in line with the decrease in authorities following the review of the Agency’s multi-year occupancy requirements.

Transfer payments have decreased by $33 million, or 16%, from $201 million in 2016-2017 to $168 million in 2017-2018 mainly due to a decrease of $47 million in disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 offset by an increase of $14 million in Children's Special Allowance payments as the result of previous changes in the governing legislation.

Acquisition of machinery and equipment expenditures have decreased by $2 million, or 35% from $7 million in 2016-2017 to $5 million in 2017-2018. The variance is due to a decrease in the expenditures related to personal computer equipment.

Risks and Uncertainties

The CRA maintains a corporate risk inventory to identify and address organizational risks. Mitigation strategies have been put in place to protect the CRA from exposure to these risks and the associated financial impacts.

In a continuing effort to contain administrative costs across the government, Budget 2014 introduced a two year operating budget freeze which was in effect until March 31, 2016. Operating budgets for all government departments and agencies were frozen at 2014-2015 levels and as a result, departments and agencies were required to absorb the cost of wage increases that took effect after April 1, 2014.

The collective agreement between the CRA and the Professional Institute of the Public Service of Canada, Audit, Financial and Scientific (PIPSC-AFS) group expired on December 21, 2014. The CRA and PIPSC-AFS have reached a tentative agreement and ratification votes are expected to be held in December 2017. The CRA and the Public Service Alliance of Canada, Union of Taxation Employees (PSAC-UTE) signed a collective agreement on October 25, 2016 that included a clause permitting the parties to re-open the agreement and engage in discussions related to economic increases for 2014 and 2015. As parties were unable to reach an agreement, the matter has been referred to a third-party for final and binding determination. The CRA established a provision to cover estimated amounts for collective bargaining increases, therefore mitigating the risk to the Agency.

With the implementation of the government-wide Pay Modernization Project (Phoenix), departments and individuals across government have been affected. One of CRA’s main issues relates to the additional manual work that has been transferred to the Agency following the introduction of the Phoenix pay system. The CRA’s compensation team has worked closely with the Phoenix project team to implement interim solutions and address system issues, which has minimized the impact. The CRA’s Compensation Client Services Centre has established a tactical team to process outstanding service requests as quickly as possible. Additional resources have been hired since implementation and the inventory of outstanding issues is decreasing. 

Significant changes in relation to operations, personnel and programs

Through Budget 2015, the Government announced several legislative and enhanced compliance measures to improve the fairness and integrity of the tax system as well as strengthen tax compliance which the CRA has implemented and administered.

Implementation of the various initiatives related to Budget 2016 focused on Cracking Down on Tax Evasion and Combatting Tax Avoidance, Enhancing Tax Collections, Client Focused services for Canadians and Canadian businesses, and the implementation and administration of various tax measures are well underway.

Budget 2017 will continue to improve tax fairness for Canadian families by closing loopholes, eliminating measures that disproportionately favour the wealthy, and cracking down on tax evasion, so that every Canadian has a real and fair chance at success. The CRA is internally risk managing its Budget 2017 initiatives and is seeking incremental funding through Supplementary Estimates B.

As online processing grows and processing centres receive less and less paper based work, the Agency is responding to the changing environment by looking at its business differently‎. The Service Renewal Initiative, launched in November 2016, is changing how the CRA operates so that it can improve service to Canadians, modernize collections and verification capacity, optimize its workforce to best meet priorities, and ensure the CRA maintains a continued presence in all regions.

There are no significant financial or non-financial impacts to report at this time.

Approved by Senior Officials

Approved by:

Statement of Authorities (unaudited) - Fiscal year 2017-2018
(in thousands of dollars)
  Total available for use for the year ending March 31, 2018Footnote 1 Used during the quarter ended
September 30, 2017
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,706,982 1,036,160 2,020,266
Revenues netted against expenditures (342,482) (92,543) (185,086)
Net Vote 1 - Operating expenditures 3,364,500 943,617 1,835,180
Vote 5 - Capital expenditures 80,802 18,970 28,920
Budgetary Statutory Authorities      
Contributions to employee benefit plans 424,348 106,087 212,174
Children's Special Allowance payments (Children's Special Allowances Act) 340,000 83,413 167,686
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 165,720 28,030
34,119
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 - - -
Minister's salary and motor car allowance 84 21 42
Court awards - Supreme Court
- 2 2
Court awards - Tax Court of Canada - 395
561
Spending proceeds from the disposal of surplus Crown Assets - 18
26
Energy Cost Benefit - -
1
Total Budgetary Statutory Authorities 930,152 217,966
414,611
Total Budgetary Authorities 4,375,454 1,180,553 2,278,711
Statement of Authorities (unaudited) - Fiscal year 2016-2017
(in thousands of dollars)
  Total available for use for the year ending March 31, 2017Footnote 1 Used during the quarter ended
September 30, 2016
Year to date used at quarter-end
Vote 1 - Operating expenditures      
Gross Operating expenditures 3,586,020 808,198 1,699,227
Revenues netted against expenditures (326,366) (82,582) (163,183)
Net Vote 1 - Operating expenditures 3,259,654 725,616
1,536,044
Vote 5 - Capital expenditures 86,956 15,856 26,438
Budgetary Statutory Authorities      
Contributions to employee benefit plans 436,861 108,211 216,423
Children's Special Allowance payments (Children's Special Allowances Act) 289,000 83,591
153,681
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act 166,604 48,322 52,612
Disbursements to provinces under the Softwood Lumber Products Export Charge Act, 2006 128,000 2,133
46,869
Minister's salary and motor car allowance 84 14
21
Court awards - Supreme Court
- - -
Court awards - Tax Court of Canada - 97
302
Spending proceeds from the disposal of surplus Crown Assets - 28
39
Energy Cost Benefit - - -
Total Budgetary Statutory Authorities 1,020,549 242,396 469,947
Total Budgetary Authorities 4,367,159 983,868 2,032,429
Departmental Budgetary Expenditures by Standard Objects (unaudited)
Fiscal year 2017-2018

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2018 Expended during the quarter ended September 30, 2017 Year to date used at quarter-end
Expenditures:      
Personnel 3,261,737 974,364 1,881,161
Transportation and communications 184,800 28,134
60,426
Information 2,121 930
1,176
Professional and special services 376,107 97,456
172,953
Rentals 360,912 72,602 147,661
Purchased repair and maintenance 73,237 10,381 21,364
Utilities, materials and supplies 37,185 2,570
6,248
Acquisition of machinery and equipment 79,437 2,875
4,728
Transfer payments 340,000 83,413 167,687
Other subsidies and payments 2,400 371
393
Total Gross Budgetary Expenditures 4,717,936 1,273,096 2,463,797
Less: Revenues netted against expenditures 342,482 92,543 185,086
Total Net Budgetary Expenditures 4,375,454 1,180,553 2,278,711
Departmental Budgetary Expenditures by Standard Objects (unaudited)
Fiscal year 2016-2017

(in thousands of dollars)
  Planned expenditures for the year ending March 31, 2017 Expended during the quarter ended June 30, 2016 Year to date used at quarter-end
Expenditures:      
Personnel 3,272,327 759,336 1,529,743
Transportation and communications 138,767 24,438
64,885
Information 1,216 1,131
1,360
Professional and special services 320,236 95,149
198,196
Rentals 366,720 73,252 148,844
Purchased repair and maintenance 60,213 19,568 37,589
Utilities, materials and supplies 27,953 2,250
7,030
Acquisition of machinery and equipment 59,882 5,606
7,273
Transfer payments 443,339 85,724
200,550
Other subsidies and payments 2,872 (4)
142
Total Gross Budgetary Expenditures 4,693,525 1,066,450 2,195,612
Less: Revenues netted against expenditures 326,366 82,582 163,183
Total Net Budgetary Expenditures 4,367,159 983,868 2,032,429

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