1 The Accrual Accounting of Tax Revenues Canadian Experience By: Terry Moore Public Institutions Division Statistics Canada October 8, 2003

2 School Boards 1 School Boards 2 _______________________________________________________________ 1 Data are not available. 2 Except institutions which are integrated in the federal or provincial public accounts or local government audited financial statements. Revised: August 2000 G O V E R N M E N T Canada Pension Plan Canada Pension Plan Quebec Pension Plan Quebec Pension Plan Canada and Quebec Pension Plans Canada and Quebec Pension Plans Federal Non-autonomous Pension Plans Federal Non-autonomous Pension Plans Federal Government Federal Government General Government Ministries, Departments, Agencies and Non-autonomous Funds Autonomous Funds and Organizations Local Government Local Government General Government Municipalities and Non-autonomous Funds Autonomous Funds and Organizations Provincial and Territorial Government Provincial and Territorial Government General Government Ministries, Departments, Agencies and Non-autonomous Funds Autonomous Funds and Organizations Universities and Colleges Universities 2 Colleges, Vocational and Trade Institutions 2 Health and Social Service Institutions Health and Social Service Institutions Health Boards 1,2 Social Service Organizations and Community Boards 1,2 Other Health and Social Service Organizations 1,2 First Nations and Inuit Government 1 First Nations and Inuit Government 1 General Government Self-governing Jurisdictions, Indian Bands and Inuit and Non-autonomous Funds 1 Autonomous Funds and Organizations 1 Health and Social Service Institutions Health and Social Service Institutions Social Service Organizations and Community Boards 1 Other Health and Social Service Organizations 1 Health and Social Service Institutions 1 Universities and Colleges Colleges, Vocational and Trade Institutions 1 Universities 1 Provincial Non-autonomous Pension Plans Provincial Non-autonomous Pension Plans

3 Current Reporting Practices to Tax Revenue Statistics (OECD) Accounting Basis 2002/2003 ($ Millions) Federal Government (Cash) Provincial Government (Modified Cash) Local Government (Modified Cash) Income Tax 113,90265,364- Taxes on Goods & Services 44,98859, Other Taxes 16,92133,361

4 Current Reporting Practices to Revenue Statistics (OECD) Accounting Basis 2002/2003 ($ Millions) Selected Social Security Contributions Employer and Employee Contributions (Modified Accrual) Canada Pension Plan Quebec Pension Plan 23,540 7,072

5 Annual Canadian Systems of National Accounts Tax Revenue Calendar year basis Annual Tax Revenue Submission to Revenue Statistics (OECD) Federal and Provincial Governments Fiscal Year Basis – April to March Local Government – Calendar year basis

6 SNA 93 Accrual of Taxes When the activities, transactions or other events occur which create the liabilities to pay taxes Amounts of taxes to be recorded are determined by amounts due for payment when evidenced by: Tax assessment Declarations or other instruments (e.g. sales invoices) which create the liabilities

7 Canadian System of National Accounts (CSNA) Tax revenues –Accrual basis---time shifted cash Federal Governments Custom Duties Provincial and Territorial Government Sales and Motive Fuel Taxes Non-resident withholding taxes

8 INCOME: Taxes on Business SNA practice: Tax liabilities estimates are based on CCRA assessment data and projected on the results of the corporate enterprise survey. Government of Canada (Federal Government) Full Accrual: Monthly cash collections with annual estimates including returns to the end of May. Finance Canada and Canada Customs and Revenue Agency (CCRA) will arrive at accrual estimates.

9 INCOME: Taxes on Production, Products and Imports SNA practice: GST is benchmarked to GST/HST “Pool” data and projected using effective tax rates applied to GDP components Government of Canada (Federal Government) Full Accrual Monthly cash collections with annual estimates including returns to the end of May.

10 INCOME: Taxes on Persons SNA practice: Refunds and payments-on-filing are shown on a cash basis, i.e. in the quarter they are made. Government of Canada (Federal Government) Full Accrual Refunds and payments-on-filing will be shown in the taxation year to which they apply.

11 Corporate Income Tax (CIT) Current CSNA Practice: Corporate income tax liabilities are benchmarked to latest available year of detailed corporate assessment data More recent data are projected using corporate survey data

12 Corporate Income Tax (CIT) (Con’t) Government of Canada Public Accounts Basis Accrual : CIT revenue is primarily based on returns that have been assessed by May 31 CIT revenue closely approximates the cash based method of accounting Estimates of amounts earned, but not yet assessed, are calculated using cash received as a proxy Adjustment for estimated future refunds

13 Personal Income Tax (PIT) Government of Canada Public Accounts Basis - Accrual : PIT revenue is primarily based on returns that have been assessed by May 31 PIT revenue closely approximates the cash based method of accounting Estimates of amounts earned, but not yet assessed, are calculated using cash received as a proxy Adjustment for estimated future refunds which reduces the estimated revenue and records a liability

14 Corporate Income Tax (CIT) and Personal Income Tax (PIT) Large Variations in Payments on Filing, Arrears and Refunds Could Result in Large Differences in CSNA & Public Accounts Accrual Estimates of PIT & CIT Historically Significant Differences in CSNA Accrual Estimates of CIT and Cash Estimates both on a Quarterly and Annual Basis

15 Accounting Basis Used by Governments for their Public Accounts/Financial Statements 2001/2002 GovernmentTax RevenueNon-Tax Revenue Federal Public Accounts 2001/ /2004 Cash Accrual Provincial Public Accounts NewfoundlandModified Cash Accrual Modified Cash Accrual Prince Edward IslandAccrual Nova ScotiaAccrual New BrunswickAccrual QuebecCashAccrual (transfers- cash basis) Ontario 2003/ plan Modified Cash Accrual Modified Cash Accrual ManitobaAccrual Saskatchewan Income Taxes Accrual Cash only Accrual

16 Accounting Basis Used by Governments for their Public Accounts/Financial Statements 2001/2002 (Cont’d) GovernmentTax RevenueNon-Tax Revenue AlbertaAccrual British Columbia Corporate Income Tax Accrual Cash Only Accrual YukonAccrual Northwest Territories Licenses, fees, permits Accrual Cash Only Accrual Nunavut Licences, fees, permits Income taxes Accrual Cash Only Accrual Local Government Municipal financial statementsAccrual

17 Non Wastable Tax Credits CSNA: Taxes are gross of the total amount of the non- wastable tax credit i.e. portion that offsets the tax liability plus the transfer component (payment). OECD Revenue Statistics: Taxes are to be gross of only the transfer component of the non-wastable tax credit. Financial Statements of Governments: Taxes are generally net of non- wastable tax credits