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

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.

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 2023-2024 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 the fiscal year-to-date (YTD) results

Figure 1 below reflects the CRA's annual net authorities available for use, as well as the CRA’s YTD expenditures as at June 30, 2023.

The CRA’s annual net authorities and YTD expenditures have increased primarily due to the Climate Action Incentive (CAI). Further analysis of authorities and expenditures are below.

1. Analysis of Authorities

This report reflects the results for the current fiscal year in relation to the Main Estimates and authorities available for use from the prior fiscal year.

As shown in the restated table below, the CRA’s total Budgetary Authorities have increased by $2,560 million since the first quarter of 2022-2023, from $13,223 million in 2022-2023, to $15,783 million in 2023-2024.

The Vote 1 Gross Operating Expenditures Authority increased by $541 million, from $5,165 million in 2022-2023 to $5,706 million in 2023-2024. The items that have a material impact on the Vote 1 Gross Operating Expenditure Authority include:

• $418 million increase in authorities for Budget 2022 measures primarily related to the items listed below. These items are included in the Main Estimates for 2023-2024, but were received through Supplementary Estimates B and C in the prior year; therefore, causing the variance:
  • $164 million increase in authorities for measures to strengthen tax compliance, tax litigation and to support journalism organizations in Canada;
  • $83 million increase in authorities related to the administration of the CAI payments delivery model and returning fuel charge proceeds to farmers as well as the ongoing administration of the fuel charge program and the cannabis taxation program; and
  • $81 million increase in authorities related to CRA contact centre post-pandemic sustainability, IT systems required to implement federal legislative amendments, tax-free first home savings account, and the multigenerational home renovation tax credit.
• $202 million increase in authorities available for use from the prior fiscal year.
• $20 million increase in authorities related to previous year’s federal budgets including:
  • $28 million increase in funding for Budget 2021 measures; and
  • $8 million decrease in funding for federal budget measures prior to Budget 2021;
• $16 million increase in authorities related to the transfer to Revenu Québec for the administration of GST;
• $60 million decrease in authorities related to COVID-19 measures; and
• $55 million decrease in authorities due to a vote realignment from Vote 1 to Vote 5 primarily for the Strategic Investment Plan (SIP).

The Vote 5 Capital Expenditures Authority increased by $49 million, from $109 million in 2022 2023 to $158 million in 2023-2024. This increase is due to:

• $55 million increase in authorities due a vote realignment from Vote 1 to Vote 5 primarily for the SIP;
• $1 million increase in authorities related to previous federal budget initiatives; and
• $7 million decrease in authorities available for use from the prior fiscal year.

Total Budgetary Statutory Authorities increased by $1,971 million, from $8,389 million in 2022 2023 to $10,360 million in 2023-2024. The majority of the increase in authorities is attributable to:

• $1,911 million increase in the estimate of fuel charge proceeds to be returned to families and individuals through quarterly CAI payments. This increase in authorities reflects the fact that Newfoundland and Labrador, Nova Scotia and PEI residents became eligible for CAI payments as of July 1, 2023, as well as rate increases on carbon pollution under the federal carbon pollution pricing system;
• $54 million increase in Employee Benefit Plan (EBP) is due to increased contributions associated with the Budget 2022 initiatives noted above under the Vote 1 explanation;
• $30 million increase in forecasted payments for the Distribution of Fuel and Excess Emission Charges to reflect the updated forecast provided by the Department of Finance. These are transfer payments which distribute fuel charge amounts to provinces and territories who adopt the federal pollution pricing system;
• $3 million increase in forecasted payments under the Children’s Special Allowances Act to reflect the level of payments issued in the prior year; and
• $27 million decrease in spending of revenues received primarily attributable to decreases in the forecasts for the Canada Recovery Benefit, Canada Recovery Caregiving Benefit and Canada Recovery Sickness Benefit initiatives.

2. Analysis of Expenditures

2.1 Expenditures by Authority

The first quarter expenditures as at June 30, 2023 have increased by $1,971 million, as displayed in the Statement of Authorities. The material components of these year-over-year changes are presented below.

The CRA’s YTD Net Vote 1 Operating Expenditures have increased by $12 million, or 1%. The $12 million increase is composed of a $1 million decrease in salary expenditures and a $13 million increase in operations and maintenance (O&M) expenditures. The items that have a material impact on the increase in salary and O&M expenditures are listed below.

The $1 million decrease in Net Vote 1 salary expenditures is primarily related to a decrease in salaries paid as a result of the Public Service Alliance of Canada (PSAC) strike, which was largely offset by increases in spending related to the implementation and administration of federal budget 2021 and 2022 measures.

The $13 million increase in Net Vote 1 O&M expenditures is primarily related to the items listed in the graph below.

The CRA’s YTD Vote 5 Capital Expenditures have increased by $6 million, or 79%, from $9 million in 2022-2023 to $15 million in 2023-2024. The increase in capital spending is primarily related to major project investments.

The CRA’s YTD Budgetary Statutory Authorities have increased by $1,952 million, or 457%, from $427 million in 2022-2023 to $2,379 million in 2023-2024. The majority of the increase, $1,935 million, is related to the timing of CAI benefit payments made to families and individuals. The first benefit payment in 2023-2024 was made in April, whereas in 2022-2023 it was not made until July which would fall under the second quarter’s expenditures.

2.2 Expenditures by Standard Object

The transfer payments standard object makes up the majority of the year over-year variance in YTD expenditures. In comparison, the remainder of the other standard objects that have minimal year-over-year variances are illustrated in the table above.

Transfer payments have increased by $1,937 million, or 903%, from $214 million in 2022-2023 to $2,152 million in 2023-2024. The majority of this increase, $1,935 million, is related to the timing of CAI benefit payments made to families and individuals. The first benefit payment in 2023-2024 was made in April, whereas in 2022-2023 it was not made until July which would fall under the second quarter’s expenditures.

Other standard objects have increased by $33 million, which are explained below.

Personnel expenditures have increased by $29 million, or 2%, from $1,217 million in 2022-2023 to $1,246 million in 2023-2024. The variance explanation noted in the Vote 1 salary section is also applicable to this standard object in addition to increases in other items including EBP, respendable revenue, and revenue credited to the vote. The remainder of the increase in personnel relates to the YOY increase in headcount required to work on incremental workloads.

Transportation and communication expenditures have increased by $10 million, or 48%, from $21 million in 2022-2023 to $31 million in 2023-2024. This increase is primarily due to the timing of when the CAI benefit payments were mailed out. The first benefit payment in 2023-2024 was made in April, whereas in 2022-2023 it was not made until July, which would fall under the second quarter’s expenditures. In addition, regular mail volumes and travel expenditures are continuing to return to pre-pandemic levels.

Professional and special services expenditures have decreased by $1 million, or 1%, from $80 million in 2022-2023 to $79 million in 2023-2024. The majority of this decrease is due to the timing of billing from other government departments and the transfer to Revenu Québec for the administration of GST.

Rentals and purchased repair and maintenance expenditures have decreased by $1 million, or 1%, from $85 million in 2022 2023 to $84 million in 2023-2024. The majority of this decrease relates to the timing of expenditures posted for accommodation and real property services and will be resolved by year end.

Utilities, materials, and supplies expenditures have increased by $1 million, from $2 million in 2022-2023 to $3 million in 2023-2024. This increase is primarily related to the purchase of additional paper required to print notices regarding new benefit programs, specifically the new Grocery Rebate payment.

Acquisition of machinery and equipment expenditures have decreased by $11 million, from $16 million in 2022-2023 to $5 million in 2023-2024. In the prior year, orders for personal computer equipment were made at the beginning of the fiscal year, although this year there is sufficient inventory carried over from last year; therefore, additional orders may occur later in the year.

Other subsidies and payments have increased by $5 million, from $2 million in 2022-2023 to $7 million in 2023-2024. The majority of this increase is due to salary overpayments that will be recovered throughout the fiscal year.

Risks and uncertainties

The CRA strives to be a world-class tax and benefits administration that is trusted, fair, and helpful. As such, the CRA dedicates significant effort to conduct regular environmental scans and update its Corporate Risk Profile (CRP), as the economic and technological landscape changes. The Board of Management monitors, and CRA senior management receives, quarterly updates on the CRP. The CRA’s key risks and mitigation strategies are outlined in the 2023-2024 Departmental Plan.

Current financial management risks present at the CRA include the spending reductions as announced in Budget 2023. Budget 2023 announced a series of reductions commencing in 2023-2024 to support the government initiative to refocus government spending. Given the CRA’s solid financial position, the required reduction in the current year of $12 million for travel and professional services expenditures will be absorbed without impacting workplan targets. These expenditures are being closely monitored to ensure the CRA is compliant with this requirement. A plan is under development to address future reductions in 2024-2025 and ongoing. The CRA continuously and cautiously monitors its authority levels and expenditures throughout the year, conducts accurate and reliable forecasting of its operational spending, and has significant controls in place to ensure effective financial management is achieved.

Furthermore, the CRA recognizes that all of the key risks identified in the Departmental Plan could have financial impacts should they materialize. In particular, the CRA is managing risks related to the strategic priority of strengthening security and safeguarding privacy. To mitigate these risks, the CRA continues to strengthen its overarching posture for cybersecurity and data protection. The Security Branch continues to anticipate and implement measures to reduce and proactively address potential risks, while responding swiftly to incidents and events. The CRA’s Chief Privacy Officer (CPO) continues to strengthen the CRA’s Privacy Management Framework. The CPO plays a pivotal role in promoting Privacy by Design, including assessing the privacy impacts of the CRA’s programs, managing privacy breaches, and championing personal privacy rights to ensure that Canadians' personal information is appropriately safeguarded and managed.

Significant changes in relation to operations, personnel, and programs

From June 1, 2022 to June 1, 2023, the CRA has hired 3,447 new employees to work on incremental workloads, including the collection of COVID-19 benefits, which are now in the post-payment verification phase. A significant number of employees were also hired in the contact centres to maintain the client service experience while also responding to inquiries regarding new benefit programs announced, including the Canada Dental Benefit. These changes in operations, personnel, and programs support the CRA’s strategic priority of providing a seamless client experience.

Approval by Senior Officials

Approved by:

Ottawa, Canada

Date: