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 2022-2023 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 against the CRA’s YTD expenditures as at September 30, 2022.

As depicted in Figure 1, the CRA’s annual net authorities have increased primarily due to the Climate Action Incentive (CAI) and the YTD expenditures are relatively stable with the prior year. Further analysis of authorities and expenditures are below.

• Figure 1 – details
  Figure 1: Annual authorities against YTD expenditures as at September 30, 2022

  Year	Authority/Expenditure	Total Authorities Excluding Climate Action Incentive	Climate Action Incentive payments	Total
  2021-2022	Authorities	$5 709 060	$5 856 000	$11 565 060
  2021-2022	YTD Expenditures	$2 621 424	$3 566 830	$6 188 254
  2022-2023	Authorities	$6 140 746	$7 088 000	$13 228 746
  2022-2023	YTD Expenditures	$2 898 545	$3 187 680	$6 086 225

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 $1,664 million since the second quarter of 2021-2022, from $11,565 million in 2021‑2022, to $13,229 million in 2022-2023.

Restated Statement of Authorities (unaudited)
(in thousands of dollars)

	Total available for use for the year ending March 31, 2023table 1 note 1	Total available for use for the year ending March 31, 2022	Variance in budgetary authorities
Gross Vote 1 – Operating Expenditures	5,171,177	4,831,784	339,393
Revenue Credited to the Vote	(440,567)	(429,530)	(11,037)
Vote 5 – Capital Expenditures	109,060	89,892	19,168
Subtotal - Voted Authorities	4,839,670	4,492,146	347,524
Budgetary Statutory Authorities	8,389,076	7,072,914	1,316,162
Total Budgetary Authorities table 1 note 2	13,228,746	11,565,060	1,663,686
Table 1 Notes Table 1 Note 1 This column is an extract of Appendix 1 of this report. Columns and rows may not add exactly due to rounding. Return to table 1 note 1 referrer Table 1 Note 2 2021-2022 authorities include the Main Estimates, authorities available for use from the prior fiscal year and Supplementary Estimates A. 2022-2023 authorities include the Main Estimates and authorities available for use from the prior fiscal year. Return to table 1 note 2 referrer

The Vote 1 Gross Operating Expenditures Authority increased by $339 million, from $4,832 million in 2021-2022 to $5,171 million in 2022-2023.

The items that have a material impact on the Vote 1 Gross Operating Expenditure Authority include:

• $222 million increase in authorities for Budget 2021 measures;
• $195 million increase in authorities available for use from the prior fiscal year;
• $24 million increase in Vote 1 authorities due to a smaller vote realignment from Vote 1 to Vote 5 for the Strategic Investment Plan (SIP) and to address capital requirements for information technology (IT) work undertaken for the administration of COVID-19 measures;
• Offset by an $87 million decrease in authorities related to previous federal budget measures; and
• Offset by a $17 million decrease in authorities related to COVID-19 measures.

The Revenue Credited to the Vote is for the CRA’s administrative responsibilities to support the Canada Pension Plan (CPP) and Employment Insurance (EI) program. In 2022-2023, the CRA’s commitment is $441 million compared to $430 million in 2021-2022, an increase of $11 million, which pertains to the annual volume adjustment.

The Vote 5 Capital Expenditures Authority increased by $19 million, from $90 million in 2021‑2022 to $109 million in 2022-2023. This increase is due to:

• $31 million increase in authorities available for use from the prior fiscal year;
• $24 million decrease in authorities due to a smaller vote realignment from Vote 1 to Vote 5 for the SIP and to address capital requirements for IT work undertaken for the administration of COVID-19 measures;
• $19 million increase in authorities related to the Budget 2021 initiatives: GST/HST Agile Risk Assessment and Protecting Taxpayer Information;
• $4 million decrease in authorities for the Canada Emergency Wage Subsidy; and
• $3 million decrease in authorities related to the Budget 2019 measure - Measures for Service Excellence and Fairness in Canada's Tax System.

Total Budgetary Statutory Authorities increased by $1,316 million, from $7,073 million in 2021-2022 to $8,389 million in 2022-2023. The majority of the increase in authorities is attributable to the following:

• $1,232 million in new CAI payments, due to an increased forecast provided by the Department of Finance which reflects the increases in the prices on carbon pollution under the federal carbon pollution pricing system;
• $106 million in increased spending of revenues received primarily attributable to the Canada Recovery Benefit, Canada Recovery Caregiving Benefit and Canada Recovery Sickness Benefit initiatives;
• $8 million in decreased contributions to the Employee Benefit Plan (EBP) due to an adjustment to align total EBP authorities with the Treasury Board Secretariat established rate;
• $8 million in decreased forecasted payments under the Children’s Special Allowances Act as the 2021-2022 forecast included COVID-19 Canada Child Benefit Boost supplemental payment amounts; and
• $6 million in decreased forecasted payments for the Distribution of Fuel and Excess Emission Charges to reflect the updated forecast provided by the Department of Finance.

2. Analysis of Expenditures

2.1 Expenditures by Authority

The YTD expenditures as at September 30, 2022 have decreased by $102 million, as displayed in the Statement of Authorities. The material components of these year-over-year changes are presented below.

As the explanations for the year-over-year second quarter variances are often similar to the YTD variances, only the YTD variances are explained in detail.

Statement of Authorities (unaudited) – YTD second quarter variances
(in thousands of dollars)

	YTD expenditures at September 30, 2022table 2 note 1	YTD expenditures at September 30, 2021	Variance in YTD expenditures
Net Vote 1 – Operating Expenditures	2,204,340	2,035,718	168,622
Vote 5 – Capital Expenditures	26,981	29,077	(2,096)
Subtotal – Voted Expenditures	2,231,321	2,064,795	166,526
Budgetary Statutory Authorities	3,854,904	4,123,459	(268,555)
Total Budgetary Authorities	6,086,225	6,188,254	(102,029)
Table 1 Notes Table 2 Note 1 This column is an extract of Appendix 1 of this report. Columns and rows may not add exactly due to rounding. Return to table 2 note 1 referrer

The CRA’s YTD Net Vote 1 Operating Expenditures have increased by $169 million, or 8%. The $169 million increase is composed of a $140 million increase in salary expenditures and a $29 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 include:

Salary expenditures

• $16 million increase related to incremental COVID-19 measures announced in October 2021: Tourism and Hospitality Recovery Program and the Hardest-Hit Business Recovery Program
• $2 million increase related to maternity benefits paid
• $8 million increase related to a combination of various operational increases
• $14 million increase related to spending on CRA contact centres responding to high call volumes
• $74 million increase related to the implementation and administration of Budget 2021 and Budget 2022 measures
• $26 million increase related to the CRA’s collective bargaining agreements

O&M expenditures

• $5 million increase related to real property, including increases in rent and projects which will accelerate modernization for the journey to a hybrid work environment
• $2 million increase related to advertising expenditures for the Benefits and Credits campaign
• $10 million increase related to information technology including personal computer equipment, such as monitors and keyboards, as well as software maintenance expenditures
• $15 million increase related to differences in timing of posting of CPP and EI expenditures
• $6 million increase in postage due to the change of the CAI to a quarterly benefit model, and mail volumes continuing to return to pre-pandemic levels
• $13 million increase in professional services, primarily related to IT services from Shared Services Canada (SSC) and services from the Department of Justice
• Offset by a $22 million decrease due to differences in timing of recoveries for spending on activities administered on behalf of other government departments (OGDs).

The CRA’s YTD Vote 5 Capital Expenditures have decreased by $2 million, or 7%, from $29 million in 2021-2022 to $27 million in 2022-2023. This $2 million decrease is primarily tied to a decrease in capital funding for Budget 2021 and COVID-19 initiatives.

The CRA’s YTD Budgetary Statutory Authorities have decreased by $269 million, or 7%, from $4,124 million in 2021-2022 to $3,855 million in 2022-2023. The majority of the decrease in statutory authorities is attributable to the following:

• $379 million decrease due to the change of the CAI to a quarterly benefit model. Benefits are now being paid on a quarterly basis, whereas in the prior year, the majority of the benefits were paid in April when personal tax returns were filed. In the current year, two quarterly payments have been made as of September 30, 2022, and the two remaining payments will be made in October 2022 and January 2023;
• $90 million increase due to differences in timing of recoveries for spending on activities administered on behalf of OGDs;
• $24 million increase in EBP costs related to federal budget initiatives.

2.2 Expenditures by Standard Object

Expenditures by Standard Object (in thousands of dollars)

	YTD expenditures at September 30, 2022	YTD expenditures at September 30, 2021	Variance in YTD expenditures
Personnel Expenditures	2,427,999	2,196,978	231,021
Transfer Payments	3,389,065	3,762,125	(373,060)
Other Standard Objects	490,920	466,245	24,675
Revenue Credited to the Vote	(221,759)	(237,094)	15,335
Total Budgetary Authorities	6,086,225	6,188,254	(102,029)
Note: Transfer payments include the Children’s Special Allowance payments, CAI payments, Distribution of Fuel and Excess Emission charges and the Energy Cost Benefit.

The personnel and transfer payments standard objects make up the majority of the year‑over-year variance in YTD expenditures. In comparison, the remainder of the other standard objects have minimal year-over-year variances as illustrated in the table above.

The Departmental Budgetary Expenditures by Standard Object table illustrates the increase in the CRA’s year-to-date second quarter expenditures by standard object. The material components of the year‑over-year change are presented below.

Personnel expenditures have increased by $231 million, or 11%, from $2,197 million in 2021‑2022 to $2,428 million in 2022-2023. Please refer to the Vote 1 salary explanation for the variance explanation.

Transfer payments have decreased by $373 million, or 10%, from $3,762 million in 2021‑2022 to $3,389 million in 2022-2023. The majority of this decrease, $379 million, is attributable to a decrease in CAI payments. This is due to the change of the CAI to a quarterly benefit model. Benefits are now being paid on a quarterly basis, whereas in the prior year, the majority of the benefits were paid in April when personal tax returns were filed. In the current year, two quarterly payments have been made as of September 30, 2022, and the two remaining payments will be made in October 2022 and January 2023.

The remainder of the standard object variances account for the $25 million increase as displayed in the table above.

Transportation and communications expenditures have increased by $7 million, or 18%, from $38 million in 2021-2022 to $45 million in 2022-2023. This change is primarily due to the impact of the change to the CAI to a quarterly benefit model on mail volumes, and the return of other mail volumes to pre-pandemic levels.

Information expenditures have increased by $2 million, or 35%, from $5 million in 2021‑2022 to $7 million in 2022-2023. The majority of this increase is related to advertising expenditures for the Benefits and Credits campaign, which began later in 2021-2022.

Professional and special services expenditures have increased by $13 million, or 6%, from $218 million in 2021-2022 to $231 million in 2022-2023. The majority of this variance is related to increases in IT services from SSC and services from the Department of Justice.

Rentals expenditures have increased by $3 million, or 2%, from $142 million in 2021-2022 to $145 million in 2022-2023. The majority of this increase relates to the increase in net rent, which is determined between real property and Public Services and Procurement Canada on an annual basis.

Purchased repair and maintenance expenditures have increased by $3 million, or 12%, from $26 million in 2021-2022 to $29 million in 2022-2023, the majority of which is related to projects which will accelerate modernization for the journey to a hybrid work environment.

Acquisition of machinery and equipment expenditures have increased by $5 million, or 27%, from $19 million in 2021-2022 to $24 million in 2022-2023. The majority of this increase is related to the purchase of personal computer equipment, as most purchases made in 2021-2022 were for lower value items, such as monitors and keyboards, whereas there has been a significant amount of higher value items, such as laptops, purchased in 2022-2023.

Other subsidies and payments have decreased by $8 million, or 61%, from $14 million in 2021-2022 to $6 million in 2022-2023. Almost the entire decrease is attributable to a court award paid out in Q1 of 2021-2022.

Risks and uncertainties

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. As the CRA progresses through the phases of the transition plan to a hybrid working model and resumes more core compliance activities, it remains critical to manage and mitigate its key risks.

In terms of financial management, the timing of funding received for the implementation of federal budget initiatives and related commitments is a risk as well as the level of certainty regarding the CRA’s authority levels given that a significant portion is based on costs recovered from OGDs. To mitigate these financial management risks, 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 effective controls in place to ensure it does not go beyond its authorities.

Furthermore, almost all the risks listed in the Departmental Plan could have financial impacts should they materialize. Cybersecurity and the protection of information have shown a consistent upward trend in risk exposure for the past five years in most organizations. There is a risk that external cyber threats will leverage system vulnerabilities or business process flaws to compromise CRA IT systems, services, and/or taxpayer information. There is also an increased possibility for service interruptions due to cyber attacks on third-party service providers to the CRA. As more information and activities by individuals and organizations move online, there is an increased risk that the CRA will unintentionally release, lose, or compromise taxpayer information, or as an organization, be unable to protect information from an intentionally malicious person or group. To mitigate these risks, the CRA continually strengthens its overarching security program to ensure its cybersecurity and data protection posture keeps pace with the changing threat and work environment. The creation of the Security Branch recognizes the stronger posture needed for this program. With an increased level of resources, the Security Branch continues to identify and implement measures to reduce and proactively address potential risks, while responding swiftly to incidents and events. Additionally, 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 programs, managing privacy breaches, and championing personal privacy rights to ensure that Canadians' personal information is appropriately safeguarded and managed. Additional information regarding the CRA’s key risk areas is presented in the 2022‑2023 Departmental Plan.

Significant changes in relation to operations, personnel, and programs

During the past year, the CRA has hired over 8,000 new employees to work on the administration of COVID-19 benefits as well as on Budget 2021 initiatives announced by the federal government. The majority of these individuals were hired in the contact centres, to maintain the service experience while also responding to inquiries about the COVID-19 recovery benefits.

Approval by Senior Officials

Approved by:

Ottawa, Canada
Date:

Statement of Authorities (unaudited) – Fiscal year 2022-2023
(in thousands of dollars)

	Total available for use for the year ending March 31, 2023table 4 note 1	Used during the quarter ended September 30, 2022	Year-to-date used at quarter-end
Vote 1 - Operating expenditures	-	-	-
Gross Operating expenditures	5,171,177	1,218,258	2,426,100
Revenues netted against expenditures	(440,567)	(110,880)	(221,759)
Net Vote 1 - Operating expenditures	4,730,610	1,107,378	2,204,340
Vote 5 - Capital expenditures	109,060	18,363	26,981
Budgetary Statutory Authorities	-	-	-
Contributions to employee benefit plans	531,985	132,996	265,992
Children's Special Allowance payments (Children's Special Allowances Act)	365,000	92,543	183,360
Climate Action Incentive payments	7,088,000	3,073,035	3,187,680
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act	384,998	119,502	198,194
Distribution of Fuel and Excess Emission Charges	19,000	8,932	18,025
Minister's salary and motor car allowance	93	23	46
Collection Agency Fees under section 17.1 of the Financial Administration Act	-	(0)	-
Court awards - Supreme Court	-	7	34
Court awards - Tax Court of Canada	-	1,062	1,556
Spending proceeds from the disposal of surplus Crown Assets	-	4	7
Energy Cost Benefit	-	(1)	(2)
Refunds of previous years revenue	-	7	11
Total Budgetary Statutory Authorities	8,389,076	3,428,110	3,854,904
Total Budgetary Authorities	13,228,746	4,553,851	6,086,225
Table 4 Notes Table 4 Note 1 Includes only authorities available for use and granted by Parliament at quarter-end. Return to table 4 note 1 referrer

Statement of Authorities (unaudited) – Fiscal year 2021-2022
(in thousands of dollars)

	Total available for use for the year ending March 31, 2022table 6 note 1	Used during the quarter ended September 30, 2021	Year-to-date used at quarter-end
Vote 1 - Operating expenditures	-	-	-
Gross Operating expenditures	4,831,784	1,140,308	2,272,812
Revenues netted against expenditures	(429,530)	(118,547)	(237,094)
Net Vote 1 - Operating expenditures	4,402,254	1,021,761	2,035,718
Vote 5 - Capital expenditures	89,892	18,065	29,077
Budgetary Statutory Authorities	-	-	-
Contributions to employee benefit plans	539,500	121,202	242,404
Children's Special Allowance payments (Children's Special Allowances Act)	373,000	94,892	192,191
Climate Action Incentive payments	5,856,000	234,897	3,566,830
Spending of revenues received through the conduct of its operations pursuant to section 60 of the Canada Revenue Agency Act	279,323	91,800	108,533
Distribution of Fuel and Excess Emission Charges	25,000	(8,943)	3,105
Minister's salary and motor car allowance	91	23	45
Collection Agency Fees under section 17.1 of the Financial Administration Act	-	-	0
Court awards - Supreme Court	-	-	-
Court awards - Tax Court of Canada	-	38	10,315
Spending proceeds from the disposal of surplus Crown Assets	-	14	36
Energy Cost Benefit	-	(1)	(2)
Refunds of previous years revenue	-	-	-
Total Budgetary Statutory Authorities	7,072,914	533,922	4,123,459
Total Budgetary Authorities	11,565,060	1,573,748	6,188,254
Table 5 Notes Table 5 Note 1 Includes only authorities available for use and granted by Parliament at quarter-end. Return to table 5 note 1 referrer

Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2022-2023
(in thousands of dollars)

	Planned expenditures for the year ending March 31, 2023	Expended during the quarter ended September 30, 2022	Year-to-date used at quarter-end
Expenditures:	-	-	-
Personnel	4,467,369	1,210,959	2,427,999
Transportation and communications	264,094	24,331	45,239
Information	46,709	1,931	6,501
Professional and special services	905,147	150,844	231,155
Rentals	321,385	60,126	144,491
Purchased repair and maintenance	85,113	28,610	29,327
Utilities, materials, and supplies	44,222	2,304	4,628
Acquisition of machinery and equipment	58,067	8,163	24,263
Transfer payments	7,476,854	3,174,501	3,389,066
Other subsidies and payments	355	2,961	5,316
Total Gross Budgetary Expenditures	13,669,313	4,664,731	6,307,984
Less: Revenues netted against expenditures	440,567	110,880	221,759
Total Net Budgetary Expenditures	13,228,746	4,553,851	6,086,225

Departmental Budgetary Expenditures by Standard Object (unaudited)
Fiscal year 2021-2022
(in thousands of dollars)

	Planned expenditures for the year ending March 31, 2022	Expended during the quarter ended September 30, 2021	Year-to-date used at quarter-end
Expenditures:	-	-	-
Personnel	4,288,574	1,105,600	2,196,978
Transportation and communications	242,277	18,527	38,304
Information	35,374	2,288	4,812
Professional and special services	681,237	142,185	218,448
Rentals	303,960	72,424	141,878
Purchased repair and maintenance	61,906	14,014	26,239
Utilities, materials, and supplies	37,417	1,380	3,810
Acquisition of machinery and equipment	86,951	13,482	19,134
Transfer payments	6,256,693	320,844	3,762,124
Other subsidies and payments	200	1,550	13,619
Total Gross Budgetary Expenditures	11,994,590	1,692,295	6,425,348
Less: Revenues netted against expenditures	429,530	118,547	237,094
Total Net Budgetary Expenditures	11,565,060	1,573,748	6,188,254