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The Accrual Accounting of Tax RevenuesCanadian Experience

By: Terry Moore

Public Institutions Division

Statistics Canada

October 8, 2003

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School Boards1School Boards1School Boards2School Boards2

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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 TG O V E R N M E N T

CanadaPension

Plan

CanadaPension

Plan

Quebec Pension

Plan

Quebec Pension

Plan

Canada andQuebec

Pension Plans

Canada andQuebec

Pension Plans

Federal Non-autonomousPension Plans

Federal Non-autonomousPension Plans

Federal Government

Federal Government

General GovernmentGeneral Government

Ministries, Departments,Agencies and

Non-autonomous Funds

Autonomous Fundsand Organizations

LocalGovernment

LocalGovernment

General GovernmentGeneral Government

Municipalitiesand

Non-autonomous Funds

Autonomous Fundsand Organizations

Provincial and TerritorialGovernment

Provincial and TerritorialGovernment

General GovernmentGeneral Government

Ministries, Departments,Agencies and

Non-autonomous Funds

Autonomous Fundsand Organizations

Universities and CollegesUniversities and Colleges

Universities2

Colleges, Vocational and Trade Institutions2

Health and Social Service InstitutionsHealth and Social

Service Institutions

Health Boards1,2

Social Service Organizations and Community Boards1,2

Other Health and Social Service Organizations1,2

First Nations and Inuit Government1

First Nations and Inuit Government1

General GovernmentGeneral Government

Self-governing Jurisdictions,Indian Bands and Inuit andNon-autonomous Funds1

Autonomous Fundsand Organizations1

Health and Social Service InstitutionsHealth and Social

Service Institutions

Social Service Organizations and Community Boards1

Other Health and Social Service Organizations1

Health and SocialService Institutions1

Universities and CollegesUniversities and Colleges

Colleges, Vocational and Trade Institutions1

Universities1

Provincial Non-autonomousPension Plans

Provincial Non-autonomousPension Plans

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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 113,902 65,364 -

Taxes on Goods & Services 44,988 59,082 610

Other Taxes 16,921 33,361

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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

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Annual Canadian Systems of National Accounts Tax Revenue

Calendar year basis

Annual Tax Revenue Submission to RevenueStatistics (OECD)

Federal and Provincial Governments Fiscal Year Basis – April to MarchLocal Government – Calendar year basis

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SNA 93 Accrual of Taxes

When the activities, transactions or other events occur which create the liabilities to pay taxesAmounts of taxes to be recorded are determined by amounts due for payment when evidenced by:

Tax assessmentDeclarations or other instruments (e.g. sales invoices) which create the liabilities

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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

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INCOME: Taxes on BusinessSNA 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.

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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.

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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.

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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

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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

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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

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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

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Accounting Basis Used by Governments for their Public Accounts/Financial Statements 2001/2002

Government Tax Revenue Non-Tax RevenueFederal Public Accounts

2001/2002

2003/2004

Cash

Accrual

Accrual

Accrual

Provincial

Public Accounts

Newfoundland Modified Cash

Accrual

Modified Cash

Accrual

Prince Edward Island Accrual Accrual

Nova Scotia Accrual Accrual

New Brunswick Accrual Accrual

Quebec Cash Accrual (transfers- cash basis)

Ontario

2003/2004 - plan

Modified Cash

Accrual

Modified Cash

Accrual

Manitoba Accrual Accrual

Saskatchewan

Income Taxes

Accrual

Cash only

Accrual

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Accounting Basis Used by Governments for their Public Accounts/Financial Statements 2001/2002 (Cont’d)

Government Tax Revenue Non-Tax Revenue

Alberta Accrual Accrual

British Columbia

Corporate Income Tax

Accrual

Cash Only

Accrual

Yukon Accrual Accrual

Northwest Territories

Licenses, fees, permits

Accrual

Cash Only

Accrual

Nunavut

Licences, fees, permits

Income taxes

Accrual

Cash Only

Cash Only

Accrual

Local Government

Municipal financial statements Accrual Accrual

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Non Wastable Tax CreditsCSNA: Taxes are gross of the total amount of the non-

wastable tax crediti.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