Quarterly Financial Report (QFR) for the quarter ended December 31, 2025 released
Report
Welp. It's that time of the year again. I almost forgot that this was coming; silly Noah. Technically, it came out the other day but slipped past me. Anywho, we have another QFR. I by far prefer to showcase the QFR over any financial reports thrown out there by the DND.
As I have said before, the QFR is one of the more substantial documents that the DND puts out when it comes to real-time information and numbers that you likely care about seeing. For those who don't know, the QFR is a mandatory compliance document required by section 65.1 of the Financial Administration Act.
The QFR tracks authorities, which is the actual, legal credit limit Parliament has approved after passing supply bills. The QFR includes revenues only when the money is received, and expenses only when the money is paid out.
So, for those of you wanting the clear, definitive spending, this one is for you. Our last report was released for the quarter ended September 30. I do these a bit differently, as I give my thoughts in general first, and then give you the numbers. I did that last time and really felt it worked; so, I'm gonna do that again.
Let's get the big change this time out of the way. For those new here—a bit of background: the Canadian Coast Guard (CCG) officially transferred from Fisheries and Oceans over to the DND back on September 2nd, so it was not included in the last report.
This report is where we really start seeing the financial ramifications of that move on paper. The DND has absorbed two completely new core responsibilities—Marine Navigation and Marine Operations—and with that came roughly $1.76 billion in voted authorities dropped right into their lap.
The DND has suddenly taken on the additional burden of the CCG's civilian personnel, the day-to-day running of the Coast Guard, and her major procurements, like the Polar Icebreaker project. This represents the single largest source of this quarter's increase.
Looking at the overall authorities beyond that, the DND is sitting at $46.8 billion as of now. That’s a noticeable step up from the $44.9 billion we looked at in the September report.
The increase here essentially comes down to the newly added Supplementary Estimates (B) and the broader, ongoing push to accelerate investments to hit that 2% of GDP defense spending target by the end of the financial year (something looking farther and farther out of reach).
When we look at the actual net budgetary expenditures (the cash actually leaving the treasury), we are seeing a massive year-to-year jump this quarter, with year-to-date spending hitting $29.6 billion by the end of December.
To put that into perspective, that is a $7.5 billion increase compared to Q3 of the previous year. While the September report showed that year-to-date spending was up by about $1.85 billion—a fairly decent increase in itself—the rate at which we are spending really showed off in Q3.
When we put the September and December reports side by side, though, the first thing you notice is that the overall gap actually shrunk. In Q2, the cumulative year-to-date difference in the budget Parliament approved was sitting at a $13,646.7 million increase over the previous year. By Q3, that gap tightened up, dropping down to a $12,145.9 million difference.
We also saw some pretty significant drops in a few key areas between the two quarters. The extra funding for the Military Training and Cooperation Program, which largely supports Ukraine, was sitting at a $2,115.9 million increase in Q2.
By the time the Q3 report rolled around, that difference had dropped down to $1,382.0 million. Similarly, the added funds for Defence Research and Development and Support for the Canadian Defence Industry also took a big drop, falling from a $2,062.4 million increase in September down to $1,100.5 million in December.
There are also a couple of administrative shifts and shuffles worth pointing out. What was the National Procurement Program, sitting with a $1,087.9 million increase in September, got rebranded to the Fleet and Equipment Readiness Program in December; its year-over-year increase shrinking to $885.8 million.
Then there is FACT. In Q2, it was showing a positive $399.2 million increase over the previous year, but by Q3, it fell to the bottom of the chart and swung all the way into the red; sitting $259.9 million lower than last year's Q3.
Now, keep in mind what shrinking numbers actually mean here. The DND didn't necessarily lose money; it just means the gap between what Parliament authorized this year versus last year narrowed as we moved into the fall. Basically, last year's late-year funding injections started catching up to this year's baseline.
There were increases, though; spending on the acquisition of machinery and equipment jumped by $3.53 billion. The money here is moving primarily because of the timing on payments related to the CP-8A Poseidon and the acquisition of the Global 6500 through the Airlift Capability Project – Multi-role Flight Service (ACP-MFS). There is significant maritime spending also thrown in here—specifically the Integrated Undersea Surveillance System, the River-class destroyers, and, as we talked about earlier, the Coast Guard's Polar Icebreaker project.
The other major increase was related to personnel costs, which added $1.52 billion of that increase. A huge chunk of that is simply paying the new civilian staff absorbed with the Coast Guard; with the rest coming from the new pay adjustment and generally having a higher number of serving members on the payroll compared to last year.
Overall, while the CAF is clearly still a ways off from its spending goals, it's undeniable that we have seen a significant increase in funding when comparing 2024 to 2025. A large part of that is tied to the Coast Guard introduction and the pay adjustments, which I am sure quite a few will be quick to point out.
I still think it is a good thing to take note of. Nothing here is necessarily surprising overall, and many will likely be quick to dismiss it; however, it is a good comparison to see the increases year-to-year. It helps visualize a bit the increase in spending we are seeing.
Money is being spent, and funding is coming in slowly but steadily. I imagine this year we will obviously see major quarterly increases as more projects are locked down and we work hard to push towards two percent.
Statement of authorities
When compared to those of the same period of the previous year, DND’s year-to-date budgetary authorities available for use have increased by $12,145.9 million. As reflected in Table 1: Statement of authorities, the total budgetary authorities increased from $34,654.2 million in 2024–25 to $46,800.1 million in 2025–26.
As part of Canada’s commitment to increase and accelerate its investments in defence to reach 2% of gross domestic product (GDP), there were increases in appropriations for various initiatives accessed through the year.
Year-to-date variances in authorities available for use
(in millions of dollars)
The year-to-date net increase in authorities of $12,145.9 million over the third quarter in 2024–25 can be explained by variances in funding for a number of initiatives:
Capital equipment and infrastructure projects (increase of $3,603.0 million)
The net increase in funding is due to modifications to the multi-year spending profile of capital equipment and infrastructure projects. These adjustments serve to align financial resources with project acquisition timelines. The increase is mainly related to the Canadian Multi-Mission Aircraft project, the Joint Support Ship project, the River-Class Destroyer project, and the Future Fighter Capability project. This increase is partially offset by decreases related to the Hornet Extension project and the Strategic Tanker Transport Capability project.
Funding for recruitment, retention and support programs for the Canadian Armed Forces (increase of $2,543.8 million)
Investments in recruitment and retention efforts to ensure that the CAF has the personnel it needs to be ready to respond effectively to threats at home and engage meaningfully abroad. This includes the recent improvements to compensation and benefits for CAF members, such as a pay increase, a new military service pay benefit and compensation initiatives for frequent moves, separation from families, attraction and retention of instructors and additional pay for CAF members who serve in natural disasters.
Canadian Coast Guard (increase of $1,781.9 million)
The net increase in funding is due to the transfer of the control and supervision of the CCG from DFO to DND.
Contributions in Support of the Military Training and Cooperation Program (increase of $1,382.0 million)
The net increase is largely related to increased funding to support Ukraine in its efforts to defend its sovereignty from the Russian invasion.
Funding for defence research and development and support for the Canadian defence industry (increase of $1,100.5 million)
This funding is aimed at strengthening the Government’s relationship with Canada’s defence industry to lay the groundwork for a comprehensive Defence Industrial Strategy. These actions focus on immediate needs like reducing obstacles that currently limit industry’s ability to provide critical equipment and support to the CAF.
Fleet and Equipment Readiness Program (increase of $885.8 million)
Funding to support increased levels of activity within the Fleet and Equipment Readiness (FER) Program (formerly known as the National Procurement Program). FER is responsible for maintaining the operational readiness of approximately 100 existing CAF fleets, including aircraft, ships, tanks, and other military equipment. The increase includes incremental funding approved in Budget 2024 and accessed in the 2025–26 Main Estimates as well as additional funding accessed through Supplementary Estimates (A).
Operation and sustainment (fleet maintenance) of military capabilities and operating requirements (increase of $321.6 million)
In order to provide ongoing support for operating and capital requirements, DND received additional funding to offset sustainment growth and the inflationary impact on the defence budget.
Infrastructure Maintenance, Repair and Sustainment (increase of $220.8 million)
Funding for the repair and sustainment of existing DND/CAF infrastructure in order to maximize operational readiness and support CAF members. This includes funding approved in Budget 2024 and accessed in the 2025–26 Main Estimates, to mitigate impacts of infrastructure deterioration and a backlog of deferred maintenance across DND’s real property portfolio.
Underwater Surveillance System (increase of $206.6 million)
Funding to contribute to the defence of Canadian maritime approaches, including undersea monitoring and surveillance of the North Atlantic.
Funding for digital tools and capabilities (increase of $187.9 million)
This funding will strengthen DND/CAF’s digital foundations to ensure that the Defence Team is a relevant and modern workforce in today’s technological era. It will enable DND/CAF to be more resilient to cyber threats and leverage data strategically to improve decision making, while keeping defence information safe and secure.
Arctic Over-the-Horizon Radar (increase of $160.1 million)
Funding for advancing a national radar system capability in coordination with the United States’ solutions, which will make a significant contribution to North American Aerospace Defense Command (NORAD) modernization, providing enhanced radar coverage of Canada’s northern and northeastern approaches, which will cover approaches to both Canadian and American national capital regions.
Funding for Identification and Options Analysis (increase of $130.8 million)
Funding for projects in the pre-definition phase—that is at the stage of conducting identification and options analysis (ID/OA). This includes an increase in ID/OA funding for initiatives approved in Budget 2024, for example Airborne Early Warning and Control as well as Northern Operational Support Hub initiatives, partially offset by a decrease in ID/OA funding approved in Budget 2022 for NORAD modernization initiatives.
Domestic Ammunition Production (increase of $62.8 million)
New funding for the Domestic Ammunition Production initiative to establish domestic production capability for a specific variant ammunition used by the CAF.
North American Aerospace Defense Command Modernization – Science and Technology Initiatives (increase of $62.1 million)
This funding will support the deepening of expertise and knowledge to inform the development of future capabilities to defend Canada and North America and will be used to fund a suite of science and technology initiatives for the modernization of NORAD. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.
Halifax-Class Life Sustainment (increase of $35.9 million)
This funding was approved in Budget 2024 for the continued sustained maintenance of the Halifax-class frigates until the delivery of their replacement—the River-class destroyers. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.
Advanced Short-Range Missiles and Medium-Range Air-to-Air Missiles (increase of $33.3 million)
Funding for the procurement of advanced short-range missiles and medium-range air-to-air missiles, including spare parts, training, software, and technical support. The increase is due to the receipt of full-year funding in 2025–26 compared to 2024–25, when the funding was received partway through the fiscal year.
Heyder-Beattie Class Action (decrease of $62.1 million)
The Heyder-Beattie class action sought damages related to gender-based discrimination, sexual assault and sexual harassment. The funding decrease is due to reduced settlement payments to claimants.
Miscellaneous departmental requirements (decrease of $251.0 million)
The net decrease is due to lower operating budget carry forward in 2025–26 compared to 2024–25 and transfers to other government departments.
Future Aircrew Training Program (decrease of $259.9 million)
Reduced funding as per the acquisition payment schedule for the delivery of flight training for current and future Royal Canadian Air Force aircrew and for the procurement of training aircraft and associated ground-based training systems.
Risks and uncertainties
DND’s financial transactions are exposed to a broad range of external financial, geopolitical and economic risks such as inflation, foreign exchange commodity price fluctuations, tariffs and global supply chain. Currently, DND is seeing economic risks give rise to increases in costs of goods and services, labour shortages, and supply chain delays. Depending on how these risks unfold, they could lead to significant fluctuations in anticipated spending.
While DND considers these factors in developing expenditure strategies, these risks are outside the control of DND.
DND continues to address the financial risks associated with Phoenix pay issues through the implementation of new controls as required and the strengthening of existing ones. The Civilian Quality Assurance program continues to leverage the use of robotic process automation to analyze the current pay environment and lead to more timely corrective actions with the help of compensation agents. Initiatives such as the centralized data entry capability continue to ensure sustained payment accuracy.
DND’s capital acquisition program includes a number of large multi-year acquisition projects, mainly comprising of advanced fighter aircrafts, ships and armored vehicles. Delays in contracting and procurement activities or delays in deliveries by suppliers for individual projects can reduce operational capability and lead to reduced expenditures or budgetary surpluses.
Risks are also present with regard to data maturity as DND’s ability to act with agility is limited by legacy systems, fragmented governance, decentralized decision making, and low data maturity. DND is advancing its data and information management posture by modernizing enterprise data architecture, strengthening governance frameworks, enhancing metadata and interoperability capabilities, and improving data quality.
Risks also flow from claims and litigations involving DND’s normal operations. When DND receives a claim or litigation alleging liability in tort or extra contractual responsibility to cover losses, expenditures or damages, it is analyzed and an appropriate position is developed based on legal advice. Litigation or settlement may be pursued and these are tracked through DND’s reporting mechanisms.
The CAF is applying reconstitution measures at the tactical, operational, and strategic levels to restore units to an acceptable level of readiness to excel as a modern and combat-ready military force. This is intended to enable the CAF to adapt quickly to action when called for significant unexpected operational demands, which can occur at any time anywhere around the globe.
Additionally, significant unforecasted operational demands can occur at any time, requiring DND to respond anywhere in the world. Depending on the extent of the operational demand, the cost of unforecasted operations would be mitigated either through internal reallocations or by requesting incremental funding from the Government.
Significant changes in relation to programs, operations and personnel
Budget 2025 proposes investing $81.8 billion over five years on a cash basis, starting in 2025–26, to rebuild, rearm, and reinvest in the CAF. This includes the funding of over $9 billion in 2025–26 that was announced by the Prime Minister in June 2025.
Additionally, Budget 2025 outlines $13 billion in annual savings by 2028–29 across more than 100 federal organizations as a result of the Comprehensive Expenditure Review. For DND, this represents savings of approximately $460 million per year starting in 2026–27 and ongoing, which will be achieved mainly by retiring older and less efficient fleets.
The Canadian Joint Forces Command (CJFC) was established effective November 25, 2025. Just as the Royal Canadian Navy, Canadian Army, and Royal Canadian Air Force develop and manage their respective environmental capabilities, the CJFC will do the same for joint capabilities across the CAF. By coordinating and consolidating these capabilities under a single command, the CJFC will create efficiencies while increasing the CAF’s operational effectiveness.
On December 19, 2025, Prime Minister Mark Carney announced the appointment of Christiane Fox as Deputy Minister of National Defence, to take effect early in 2026.